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UNITED STATES
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 June 30, 1999
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 June 30, 1999, 14,466,691 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 June 30, 1999, (Unaudited) and 1
December 31, 1998
Consolidated Statements of Income for the Six Months ended June 30, 1999, 2
and 1998 (Unaudited)
Consolidated Statements of Cash Flows for the Six Months ended June 30, 3
1999, and 1998 (Unaudited)
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 7
Operations
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 14
Item 3. Defaults Upon Senior Securities N/A
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information N/A
Item 6. Exhibits and Reports on Form 8-K 15
Signatures 16
</TABLE>
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PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
<TABLE>
<CAPTION>
June 30, 1999 December 31, 1998
---------------------- ----------------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and investments......................................... $ 30,490 $ 51,224
Contract accounts receivable, net............................ 23,305 20,388
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... 8,966 7,889
Prepaid expenses and other................................... 1,539 1,199
---------------------- ---------------------
Total Current Assets..................................... 64,300 80,700
NET FIXED ASSETS.................................................. 10,815 9,394
GOODWILL, net..................................................... 13,671 --
OTHER ASSETS...................................................... 361 300
---------------------- ----------------------
Total Assets............................................. $ 89,147 $ 90,394
====================== ======================
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 10,654 $ 9,245
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................... 3,994 4,554
Deferred tax liability....................................... 67 471
Current portion of capital lease obligation.................. -- 31
---------------------- ---------------------
Total Current Liabilities................................ 14,715 14,301
NONCURRENT LIABILITIES:
Other liabilities............................................ 661 834
Deferred tax liability....................................... 579 1,298
---------------------- ---------------------
Total Liabilities........................................ 15,955 16,433
---------------------- ---------------------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock................................................. 1,447 1,502
Additional paid-in capital................................... 45,979 52,461
Accumulated comprehensive income............................. 18 81
Retained earnings............................................ 25,748 19,917
---------------------- ---------------------
Total Stockholders' Equity............................... 73,192 73,961
---------------------- ---------------------
Total Liabilities and Stockholders' Equity........... $ 89,147 $ 90,394
====================== =====================
</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>
Three Months Ended June 30, Six Months Ended June 30,
--------------------------------------- ------------------------------------
1999 1998 1999 1998
------------------ ------------------ ----------------- ---------------
<S> <C> <C> <C> <C>
Revenue............................................. $ 32,437 $ 27,413 $ 65,679 $ 53,616
Cost of services.................................... 24,834 19,250 48,426 37,660
------------------ ------------------ ----------------- ---------------
Gross profit.................................... 7,603 8,163 17,253 15,956
General and administrative expenses................. 4,310 3,502 8,334 6,948
------------------ ------------------ ----------------- ---------------
Operating income.................................... 3,293 4,661 8,919 9,008
Other income, net................................... 397 453 857 892
------------------ ------------------ ----------------- ---------------
Income before taxes............................. 3,690 5,114 9,776 9,900
Income tax provision................................ 1,384 1,944 3,666 3,763
================== ================== ================= ===============
Net income...................................... $ 2,306 $ 3,170 $ 6,110 $ 6,137
================== ================== ================= ===============
Diluted earnings per share...................... $ 0.15 $ 0.20 $ 0.39 $ 0.38
================== ================== ================= ===============
Basic earnings per share........................ $ 0.15 $ 0.21 $ 0.41 $ 0.41
================== ================== ================= ===============
Weighted average shares outstanding -
Diluted calculation.......................... 15,783 16,090 15,851 16,019
================== ================== ================= ===============
Basic calculation............................ 14,971 14,858 15,001 14,812
================== ================== ================= ===============
</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>
Six Months Ended June 30,
1999 1998
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<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 6,110 $ 6,137
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 2,005 1,744
Loss on sale of fixed assets......................... 7 37
Deferred income taxes................................ (600) (610)
Increase in trade accounts receivable................ (2,918) (1,689)
Increase in costs and earnings in excess of
billings on uncompleted contracts................. (1,078) (3,269)
Increase in prepaid expense and other................ (184) (212)
Increase in accounts payable and accrued expenses.... 3,266 6,922
Decrease in billings in excess of earnings on
uncompleted contracts............................. (759) (613)
Decrease in other liabilities........................ (242) (184)
-------------------- --------------------
Net cash provided by operating activities............ 5,607 8,263
-------------------- --------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale/(purchases) of investments, net................. 9,426 (639)
Payments related to acquisition...................... (15,342) --
Purchase of fixed assets............................. (3,056) (2,210)
Payments for other assets............................ (56) (42)
Proceeds from sale of fixed assets................... 18 5
-------------------- --------------------
Net cash used in investing activities................ (9,010) (2,886)
-------------------- --------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal portion paid on capital lease.............. (31) (24)
Issuance of common stock............................. 966 800
Repurchase of common stock........................... (8,776) (38)
-------------------- --------------------
Net cash (used in) provided by financing activities.. (7,841) 738
-------------------- --------------------
NET (DECREASE)/INCREASE IN CASH AND CASH
EQUIVALENTS............................................... (11,244) 6,115
-------------------- --------------------
CASH AND CASH EQUIVALENTS, beginning of period............... 13,328 3,620
-------------------- --------------------
CASH AND CASH EQUIVALENTS, end of period..................... $ 2,084 $ 9,735
==================== ====================
Supplemental Cash Flow Disclosures:
Income taxes paid.................................... $ 5,167 $ 453
==================== ====================
Interest expense paid................................ $ 2 $ 9
==================== ====================
</TABLE>
See accompanying notes to consolidated financial statements.
3
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RWD TECHNOLOGIES, INC., AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(Unaudited)
1. Summary of Significant Accounting Policies:
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.
Basis of Presentation
- ---------------------
The accompanying consolidated financial statements include the accounts of
RWD Technologies, Inc., and its wholly owned subsidiaries and are presented on
the accrual basis of accounting in accordance with generally accepted accounting
principles. All significant intercompany balances and transactions have been
eliminated in consolidation. 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 revenue and expenses during the reporting period. Actual results could
differ from those estimates.
Acquisition
- -----------
During June 1999 the Company acquired all of the outstanding stock of
Merrimac Interactive Media Corporation for a purchase price of $13.5 million
plus certain other costs. The excess purchase price over the fair value of the
net assets acquired resulted in the recognition of approximately $13.7 million
of goodwill, which is being amortized over the estimated useful life of 20
years.
Comprehensive Income
- --------------------
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's comprehensive income for the periods
presented is listed below:
<TABLE>
<CAPTION>
For the For the
Three Months Ended Six Months Ended
June 30, June 30,
-------------------------- ---------------------------
(in thousands)
1999 1998 1999 1998
----------- ----------- ------------ -----------
<S> <C> <C> <C> <C>
Net Income as Reported $2,306 $3,170 $6,110 $6,137
Effect of Unrealized (Loss)/Gains on
Investments Available-for-Sale (40) 3 (63) 7
----------- ----------- ------------ -----------
Comprehensive Net Income $2,266 $3,173 $6,047 $6,144
=========== =========== ============ ===========
</TABLE>
4
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2. Business Segments:
The Company believes it has reportable operating segments, as defined by
Statement of Financial Accounting Standards No. 131. The Company has identified
four distinct operating segments: Information Technology Services; Enterprise
Resource Planning Services; Lean Manufacturing Consulting Services; and
Technology Performance Support Services.
The accounting policies for these segments are the same as those described
in the summary of significant accounting policies. Depreciation and amortization
expense is reported in each operating segment. However, the Company's tangible
assets are not managed as distinct asset groups. All tangible assets are
recorded at the corporate level with depreciation expense allocated to operating
segments based on headcount. Interest expense, interest income, and income taxes
are reported at the corporate level only and are not disclosed below.
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
(in thousands)
1999 1998 1999 1998
--------- --------- --------- --------
<S> <C> <C> <C> <C>
Revenue (all external):
Information Technology $ 9,209 $ 6,552 $17,376 $12,781
Enterprise Resource Planning 9,773 8,689 21,880 15,970
Lean Manufacturing Consulting 5,509 4,568 10,322 9,156
Technology Performance Support 7,946 7,604 16,101 15,709
-------- -------- -------- --------
Total Revenue $32,437 $27,413 $65,679 $53,616
======== ======== ======== ========
Gross Profit:
Information Technology $ 3,150 $ 2,521 $ 6,022 $ 4,819
Enterprise Resource Planning 869 2,382 4,240 4,386
Lean Manufacturing Consulting 1,746 1,593 3,195 3,079
Technology Performance Support 1,838 1,667 3,796 3,672
-------- -------- -------- --------
Total Gross Profit $ 7,603 $ 8,163 $17,253 $15,956
======== ======== ======== ========
Depreciation and Amortization Expense Allocated To Segments:
Information Technology $ 203 $ 138 $ 383 $ 273
Enterprise Resource Planning 295 193 582 354
Lean Manufacturing Consulting 66 54 125 105
Technology Performance Support 203 201 402 399
-------- -------- -------- --------
Total Allocated to Segments 767 586 1,492 1,131
Amount not Allocated to Segments 271 304 513 613
-------- -------- -------- --------
Total Depreciation and Amortization Expense $ 1,038 $ 890 $ 2,005 $ 1,744
======== ======== ======== ========
Revenue (by geography):
United States $29,848 $23,658 $59,867 $46,460
Non-United States 2,589 3,755 5,812 7,156
-------- -------- -------- --------
Total Revenue $32,437 $27,413 $65,679 $53,616
======== ======== ======== ========
</TABLE>
5
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Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Quarter Ended June 30, 1999, Compared to Quarter Ended June 30, 1998
Revenue. Revenue for the total Company increased by $5.0 million (or 18.3
percent), from $27.4 million for the quarter ending June 30, 1998, to $32.4
million for the quarter ending June 30, 1999. The Company experienced revenue
growth in all of its operating segments as follows:
. Information Technology Services. Revenue for the Company's Information
Technology Services increased by $2.7 million (or 40.6 percent), from
$6.6 million in the quarter ending June 30, 1998, to $9.2 million in
the quarter ending June 30, 1999, representing 23.9 percent of the
Company's revenue in 1998 and 28.4 percent of the Company's revenue in
1999. Key factors in revenue increases included strong follow-on
business with existing clients as well as new client business and
business deriving from expansion into strategic IT consulting.
. Enterprise Resource Planning Services. Revenue for the Company's
Enterprise Resource Planning Services increased by $1.1 million (or
12.5 percent), from $8.7 million in the quarter ending June 30, 1998,
to $9.8 million in the quarter ending June 30, 1999, representing 31.7
percent of the Company's revenue in 1998 and 30.1 percent of the
Company's revenue in 1999. The Company's ERP business decreased from
the first quarter to the second quarter of 1999 due to moderating
demand in the ERP market and deferral during the second quarter of
contracted business into future quarters.
. Lean Manufacturing Consulting Services. Revenue for the Company's Lean
Manufacturing Consulting Services increased by $942,000 (or 20.6
percent), from $4.6 million in the quarter ending June 30, 1998, to
$5.5 million in the quarter ending June 30, 1999, representing 16.7
percent of the Company's revenue in 1998 and 17.0 percent of the
Company's revenue in 1999. This increase in revenue was primarily
attributable to growth in business with new clients, both automotive
supplier and other non-auto industry clients, and increases in billing
rates charged to clients.
. Technology Performance Support Services. Revenue for the Company's
Technology Performance Support Services increased by $342,000 (or 4.5
percent), from $7.6 million in the quarter ending June 30, 1998, to
$7.9 million in the quarter ending June 30, 1999, representing 27.7
percent of the Company's revenue in 1998 and 24.5 percent of the
Company's revenue in 1999. This modest increase in revenue included
increases in billing rates charged to clients and an increase in staff
utilization.
Gross Profit. Gross profit for the total Company decreased by $560,000 (or
6.9 percent), from $8.2 million in the quarter ending June 30, 1998, to $7.6
million in the quarter ending June 30, 1999, and decreased from 29.8 percent of
revenue in 1998 to 23.4 percent of revenue in 1999. This decrease in gross
profit as a percentage of revenue resulted primarily from decreases in staff
utilization in the Company's Enterprise Resource Planning Services business, and
increases in other employee related expenses. Gross profit for individual
operating segments were as follows:
. Information Technology Services. Gross profit for Information
Technology Services increased by 24.9 percent from $2.5 million in the
quarter ending June 30, 1998, to $3.1 million in the quarter ending
June 30, 1999. Gross profit margin for Information Technology Services
decreased from 38.5 percent of this segment's revenue in the second
quarter of 1998 to 34.2 percent in 1999. This
6
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decrease in gross profit margin resulted primarily from decreases in
staff utilization, partially offset by decreases as a percent of
revenue in employee related expenses.
. Enterprise Resource Planning Services. Gross profit for Enterprise
Resource Planning Services decreased by 63.5 percent from $2.4 million
in the quarter ending June 30, 1998, to $869,000 in the quarter ending
June 30, 1999. Gross profit margin for Enterprise Resource Planning
Services decreased from 27.4 percent of this segment's revenue in the
second quarter of 1998 to 8.9 percent in 1999. This decrease in gross
profit margin was due primarily to a decrease in staff utilization
resulting from the decrease in business level from the first quarter of
1999, as well as investments in European operations, and increased
marketing expenses.
. Lean Manufacturing Consulting Services. Gross profit for Lean
Manufacturing Consulting Services increased by 9.6 percent from $1.6
million in the quarter ending June 30, 1998, to $1.7 million in the
quarter ending June 30, 1999. Gross profit margin for Lean
Manufacturing Consulting Services decreased from 34.9 percent of this
segment's revenue in the second quarter of 1998 to 31.7 percent in
1999. This decrease in gross profit margin resulted primarily from a
decrease in staff utilization and an increase in employee related
expenses as a percentage of revenue.
. Technology Performance Support Services. Gross profit for Technology
Performance Support Services increased by 10.2 percent from $1.7
million in the quarter ending June 30, 1998, to $1.8 million in the
quarter ending June 30, 1999. Gross profit margin for Technology
Performance Support Services increased from 21.9 percent of this
segment's revenue in the second quarter of 1998 to 23.1 percent in
1999. This increase in gross profit margin resulted primarily from
increases in the proportion of labor revenue to other revenue and
increases in billing rates.
General and Administrative Expenses. General and administrative expenses
increased by $808,000 (or 23.1 percent), from $3.5 million in the second quarter
of 1998 to $4.3 million in the second quarter of 1999, increasing from 12.8
percent of revenue in 1998 to 13.3 percent of revenue in 1999. This increase in
general and administrative expenses as a percentage of revenue resulted
primarily from increases as a percent of revenue in employee related expenses
and consultant fees, partially offset by a modest decrease in depreciation
expense.
Operating Income. As a result of the foregoing, the Company's operating
income decreased by $1.4 million (or 29.3 percent), from $4.7 million in the
second quarter of 1998 to $3.3 million in the second quarter of 1999 and
decreased from 17.0 percent of revenue in the first quarter of 1998 to 10.2
percent of revenue in the first quarter of 1999.
Other Income. Other income was $452,500 in the second quarter of 1998 and
$396,700 in the second quarter of 1999. In both periods, this income consisted
primarily of interest income from cash and investment balances partially offset
by interest expense from the Company's capital leases.
Net Income. Net income decreased by $863,400 (or 27.2 percent), from $3.2
million in the second quarter of 1998 to $2.3 million in the second quarter of
1999, decreasing from 11.6 percent of revenue in 1998 to 7.1 percent of revenue
in 1999.
Six Months Ended June 30, 1999, Compared to Six Months Ended June 30, 1998
Revenue. Revenue for the total Company increased by $12.1 million (or 22.5
percent), from $53.6 million for the six months ending June 30, 1998, to $65.7
million for the six months ending June 30, 1999. The Company experienced revenue
growth in all of its operating segments as follows:
7
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. Information Technology Services. Revenue for the Company's Information
Technology Services increased by $4.6 million (or 36.0 percent), from
$12.8 million in the six months ending June 30, 1998, to $17.4 million
in the six months ending June 30, 1999, representing 23.8 percent of
the Company's revenue in 1998 and 26.5 percent of the Company's revenue
in 1999. Key factors in revenue increases included strong follow-on
business with existing clients as well as new client business and
business deriving from expansion into strategic IT consulting and the
Company's alliance relationships.
. Enterprise Resource Planning Services. Revenue for the Company's
Enterprise Resource Planning Services increased by $5.9 million (or
37.0 percent), from $16.0 million in the six months ending June 30,
1998, to $21.9 million in the six months ending June 30, 1999,
representing 29.8 percent of the Company's revenue in 1998 and 33.3
percent of the Company's revenue in 1999. This growth was due primarily
to strong growth throughout 1998 and the first quarter of 1999 based,
in part, on the Company's strong reputation in the marketplace and the
Company's alliances with SAP and PricewaterhouseCoopers. This strong
growth was offset by moderating demand in the ERP marketplace in the
second quarter of 1999 and by deferrals in the second quarter of
contracted work into future quarters both of which caused revenues to
decrease in the second quarter of 1999 from the first quarter of 1999.
. Lean Manufacturing Consulting Services. Revenue for the Company's Lean
Manufacturing Consulting Services increased by $1.2 million (or 12.7
percent), from $9.2 million in the six months ending June 30, 1998, to
$10.3 million in the six months ending June 30, 1999, representing 17.1
percent of the Company's revenue in 1998 and 15.7 percent of the
Company's revenue in 1999. This increase in revenue was primarily
attributable to growth in business with new clients, both automotive
supplier and other non-auto industry clients, and increases in billing
rates charged to clients.
. Technology Performance Support Services. Revenue for the Company's
Technology Performance Support Services increased by $391,200 (or 2.5
percent), from $15.7 million in the six months ending June 30, 1998, to
$16.1 million in the six months ending June 30, 1999, representing 29.3
percent of the Company's revenue in 1998 and 24.5 percent of the
Company's revenue in 1999. This increase in revenue included increases
in billing rates charged to clients and a modest decrease in staff
utilization.
Gross Profit. Gross profit for the total Company increased by $1.3 million
(or 8.1 percent), from $16.0 million in the six months ending June 30, 1998, to
$17.3 million in the six months ending June 30, 1999, and decreased from 29.8
percent of revenue in 1998 to 26.3 percent of revenue in 1999. This increase in
gross profit as a percentage of revenue resulted primarily from decreases in
employee related expenses and in consulting fees, partially offset by decreases
as a percent of revenue in staff utilization. Gross profit for individual
operating segments were as follows:
. Information Technology Services. Gross profit for Information
Technology Services increased by 25.0 percent from $4.8 million in the
six months ending June 30, 1998, to $6.0 million in the six months
ending June 30, 1999. Gross profit margin for Information Technology
Services decreased from 37.7 percent of this segment's revenue in the
second six months of 1998 to 34.7 percent in 1999. This decrease in
gross profit margin resulted primarily from decreases in staff
utilization partially offset by increases in billing rates charged to
clients, and decreases in employee related expenses.
. Enterprise Resource Planning Services. Gross profit for Enterprise
Resource Planning Services decreased by 3.3 percent from $4.4 million
in the six months ending June 30, 1998, to $4.2 million
8
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in the six months ending June 30, 1999. Gross profit margin for
Enterprise Resource Planning Services decreased from 27.5 percent of
this segment's revenue in the second six months of 1998 to 19.4 percent
in 1999. This decrease in gross profit margin was primarily due to
decreases in staff utilization in the second quarter resulting from the
decrease in business level from the first quarter of 1999. Gross profit
margin was also impacted by decreases in the proportion of labor
revenue to other revenue and increases as a percent of revenue in
employee related expenses, as well as investments in European
operations, and increased marketing expenses.
. Lean Manufacturing Consulting Services. Gross profit for Lean
Manufacturing Consulting Services increased by 3.8 percent from $3.1
million in the six months ending June 30, 1998, to $3.2 million in the
six months ending June 30, 1999. Gross profit margin for Lean
Manufacturing Consulting Services decreased from 33.6 percent of this
segment's revenue in the second six months of 1998 to 31.0 percent in
1999. This decrease in gross profit margin resulted primarily from a
modest decrease in staff utilization partially offset by increases in
billing rates charged to clients, and decreases as a percent of revenue
in employee related expenses.
. Technology Performance Support Services. Gross profit for Technology
Performance Support Services increased by 3.4 percent from $3.7 million
in the six months ending June 30, 1998, to $3.8 million in the six
months ending June 30, 1999. Gross profit margin for Technology
Performance Support Services increased from 23.4 percent of this
segment's revenue in the second six months of 1998 to 23.6 percent in
1999. This modest increase in gross profit margin included increases in
the proportion of labor revenue to other revenue and increases in staff
utilization.
General and Administrative Expenses. General and administrative expenses
increased by $1.4 million (or 19.9 percent), from $6.9 million in the six months
ending June 30, 1998 to $8.3 million in the same period of 1999, decreasing from
13.0 percent of revenue in 1998 to 12.7 percent of revenue in 1999. This
decrease in general and administrative expenses as a percentage of revenue
resulted primarily from decreases as a percent of revenue in employee related
expenses and legal and accounting fees, partially offset by increases as a
percentage of revenue in facility rent, and depreciation.
Operating Income. As a result of the foregoing, the Company's operating
income decreased by $89,100 (or 1.0 percent), from $9.0 million in the six
months ending June 30, 1998 to $8.9 million in the same period of 1999 and
decreased from 16.8 percent of revenue in the six months ending June 30, 1998 to
13.6 percent of revenue in the same period of 1999.
Other Income. Other income was $892,000 for the six months ending June 30,
1998 and $857,300 for the same period of 1999. In both periods, this income
consisted primarily of interest income from cash and investment balances
partially offset by interest expense from the Company's capital leases.
Net Income. Net income decreased by $26,700 (or 0.4 percent), from $6.13
million in the six months ending June 30, 1998 to $6.11 million in the same
period of 1999, decreasing from 11.4 percent of revenue in 1998 to 9.3 percent
of revenue in 1999.
Liquidity and Capital Resources
The Company's cash and investments were $30.5 million at June 30, 1999,
compared to $51.2 million at December 31, 1998. Decreases in cash and
investments at June 30, 1999, were attributable primarily to the acquisition of
Merrimac Interactive Media Corporation, the repurchase of common stock, and the
purchase of capital equipment. The Company's working capital was $49.6 million
at June 30, 1999, and $66.4 million at December 31, 1998.
9
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The Company's operating activities provided cash of approximately $5.6
million for the six months ended June 30, 1999, compared to $8.3 million for the
same period in 1998. The cash provided from operations in the first six months
of 1999 resulted primarily from net income and increases in trade accounts
payable, partially offset by increases in unbilled revenue, and accounts
receivable.
Investing activities used cash of $9.0 million in the six months ended June
30, 1999, compared to $2.9 million for the same period in 1998. Cash used for
investing activities in the six months ended June 30, 1999, consisted primarily
of $15.3 million for the purchase of Merrimac Interactive Media Corporation and
the purchase of capital equipment, funded by the sale of marketable securities.
Financing activities utilized cash of $7.8 million in the six months ended
June 30, 1999, compared to generation of $737,600 for the same period in 1998.
Cash used for financing activities in the six months ended June 30, 1999,
consisted primarily of the repurchase of approximately 150,000 shares of the
company's common stock in the first quarter of 1999 and 660,000 shares in the
second quarter of 1999, partially offset by 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 (6.24 percent on June 30, 1999). 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 June 30, 1999, or on December 31, 1998.
During the six months ending June 30, 1999, the Company made $3.1 million
in capital expenditures, primarily for office furniture, computer and office
equipment, and leasehold improvements to support the 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 which 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.
This phase is now complete .
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
identified critical systems that cannot be updated or
certified as compliant. The Company commenced this phase in
the first quarter of 1998. This phase is now complete. 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.
Phase III - Test, Fix, and Verify. This phase involves
testing all items that are date dependent and upgrading all
non-compliant systems. This phase is now complete.
10
<PAGE>
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 third quarter of
1999.
To date, the Company has no knowledge that any of its major systems are not
Year 2000 compliant. The Company has not incurred significant expenditures and
should achieve substantial Year 2000 compliance 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 non-compliance that would have a
material effect on its operations if not replaced or that would be costly to
replace. The Company is not aware of any non-compliance by its suppliers that is
likely to have a material impact on the Company's business. Nevertheless, there
can be no assurance that unanticipated non-compliance will not occur, that such
non-compliance would not require material costs to repair or that it would not
cause material disruptions if not repaired.
The Company delivers software solutions to clients and believes that all
such software delivered over the past several years is Year 2000 compliant.
Because such software is usually the property of the client, the Company has no
control over modifications to the software by the client or over its integration
with other software, either of which could potentially cause Year 2000
compliance difficulties.
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 from
those expressed or implied thereby. Factors that could cause actual results to
differ materially are described in the Company's filings with the Securities and
Exchange Commission including its most recent Form 10-K, and include reliance on
strategic alliances, geographic expansion, slower growth in the Enterprise
Resource Planning industry, rapid change in the Information Technology sector,
customer and industry revenue concentration, attracting and retaining personnel,
increasing competition, and other factors such as the Company's ability to
effectively manage its growth, the inherent variability of its operating
results, various risks associated with the success and profitability of
individual projects, and its dependence on key personnel.
11
<PAGE>
PART II - OTHER INFORMATION
Item 2. Changes in Securities.
(c) Issuance of Securities
N/A
Item 4. Submission of Matters to a Vote of Security Holders
(a) Proxies for the annual meeting were solicited pursuant to Regulation 14A
under the Securities and Exchange Act of 1934. There was no solicitation in
opposition to management's nominees as listed in the proxy statement, and all
such nominees were re-elected.
(b) The annual meeting of stockholders of the Company was held on April 30,
1999, and approved the following matters:
(c) (1) Election of Directors
The following directors were elected to serve as Class II directors to
serve until the 2002 annual meeting of stockholders:
<TABLE>
<CAPTION>
Name For Withheld Against
---- --- -------- -------
<S> <C> <C> <C>
John H. Beakes 14,260,822 16,100 0
Bruce D. Alexander 14,260,822 16,100 0
Deborah T. Ung 14,260,822 16,100 0
</TABLE>
(2) The adoption of the Company's Amended and Restated Stock Purchase
Plan.
<TABLE>
<CAPTION>
For Against Abstain Broker Non-Vote
--- ------- ------- ---------------
<S> <C> <C> <C>
14,246,522 18,300 12,100 0
</TABLE>
(3) The ratification of the appointment by the Board of Directors of
Arthur Andersen, LLP as auditors of the Company.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C>
14,268,268 3,524 5,130
</TABLE>
12
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Current Reports on Form 8-K
N/A
13
<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: August 9, 1999
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, August 9, 1999
- ------------------------------------
Robert W. Deutsch Chief Executive Officer, and Director
/s/ Ronald E. Holtz Vice President, Chief Financial Officer, August 9, 1999
- ------------------------------------
Ronald E. Holtz and Director
</TABLE>
14
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 2,084,000
<SECURITIES> 28,406,000
<RECEIVABLES> 23,545,000
<ALLOWANCES> 240,000
<INVENTORY> 0
<CURRENT-ASSETS> 64,300,000
<PP&E> 23,220,000
<DEPRECIATION> 12,405,000
<TOTAL-ASSETS> 89,147,000
<CURRENT-LIABILITIES> 14,715,000
<BONDS> 0
0
0
<COMMON> 1,447,000
<OTHER-SE> 71,745,000
<TOTAL-LIABILITY-AND-EQUITY> 89,147,000
<SALES> 0
<TOTAL-REVENUES> 65,679,000
<CGS> 0
<TOTAL-COSTS> 48,426,000
<OTHER-EXPENSES> 8,334,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,000
<INCOME-PRETAX> 9,776,000
<INCOME-TAX> 3,666,000
<INCOME-CONTINUING> 6,110,000
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 6,110,000
<EPS-BASIC> .41
<EPS-DILUTED> .39
</TABLE>
