<PAGE>
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 September 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 September 30, 1999, 14,493,451 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, 1999, (Unaudited) 1
and December 31, 1998
Consolidated Statements of Income for the Three Months and Nine Months 2
ended September 30, 1999, and 1998 (Unaudited)
Consolidated Statements of Cash Flows for the Nine Months ended 3
September 30, 1999, and 1998 (Unaudited)
Notes to Consolidated Financial Statements 4
Item 2. Management's Discussion and Analysis of Financial Condition and Results of 6
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 12
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>
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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>
September 30, 1999 December 31, 1998
------------------ -----------------
(unaudited)
<S> <C> <C>
ASSETS
CURRENT ASSETS:
Cash and investments......................................... $ 29,196 $ 51,224
Contract accounts receivable, net............................ 23,424 20,388
Costs and estimated earnings in excess of billings on
uncompleted contracts.................................... 11,143 7,889
Prepaid expenses and other................................... 1,243 1,199
----------- -----------
Total Current Assets..................................... 65,006 80,700
NET FIXED ASSETS.................................................. 11,166 9,394
GOODWILL, net..................................................... 13,585 --
OTHER ASSETS...................................................... 1,220 300
----------- -----------
Total Assets............................................. $ 90,977 $ 90,394
=========== ===========
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Accounts payable and accrued expenses........................ $ 11,554 $ 9,245
Line of credit............................................... 1,265 --
Billings in excess of costs and estimated earnings on
uncompleted contracts.................................... 3,827 4,554
Deferred tax liability....................................... 66 471
Current portion of capital lease obligation.................. -- 31
----------- -----------
Total Current Liabilities................................ 16,712 14,301
NONCURRENT LIABILITIES:
Other liabilities............................................ 661 834
Deferred tax liability....................................... 279 1,298
----------- -----------
Total Liabilities........................................ 17,652 16,433
----------- -----------
COMMITMENTS AND CONTINGENCIES
STOCKHOLDERS' EQUITY:
Common stock................................................. 1,449 1,502
Additional paid-in capital................................... 46,141 52,461
Accumulated comprehensive income............................. (34) 81
Retained earnings............................................ 25,769 19,917
----------- -----------
Total Stockholders' Equity............................... 73,325 73,961
----------- -----------
Total Liabilities and Stockholders' Equity........... $ 90,977 $ 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 September 30, Nine Months Ended September 30,
----------------------------------------- ------------------------------------
1999 1998 1999 1998
-------------------- ------------------ --------------- -----------------
<S> <C> <C> <C> <C>
Revenue........................................... $ 29,096 $ 30,151 $ 94,775 $ 83,767
Cost of services.................................. 24,804 20,952 73,230 58,612
-------------------- ------------------ --------------- -----------------
Gross profit.................................. 4,292 9,199 21,545 25,155
General and administrative expenses............... 4,395 3,804 12,729 10,752
-------------------- ------------------ --------------- -----------------
Operating (loss) income........................... (103) 5,395 8,816 14,403
Other income, net................................. 135 294 993 1,186
-------------------- ------------------ --------------- -----------------
Income before taxes........................... 32 5,689 9,809 15,589
Income tax provision.............................. 12 2,190 3,678 5,953
-------------------- ------------------ --------------- -----------------
Net income.................................... $ 20 $ 3,499 $ 6,131 $ 9,636
==================== ================== =============== =================
Diluted earnings per share.................... $ 0.00 $ 0.22 $ 0.39 $ 0.60
==================== ================== =============== =================
Basic earnings per share...................... $ 0.00 $ 0.23 $ 0.41 $ 0.65
==================== ================== =============== =================
Weighted average shares outstanding -
Diluted calculation........................ 15,156 16,005 15,620 16,014
==================== ================== =============== =================
Basic calculation.......................... 14,481 14,938 14,828 14,854
==================== ================== =============== =================
</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,
1999 1998
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.............................................. $ 6,131 $ 9,636
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................ 3,264 2,638
Loss on sale of fixed assets......................... 6 271
Deferred income taxes................................ (900) (915)
Increase in trade accounts receivable................ (3,037) (4,086)
Increase in costs and earnings in excess of
billings on uncompleted contracts................... (3,254) (5,670)
Decrease in prepaid expense and other................ 304 117
Increase in accounts payable and accrued expenses.... 3,916 11,220
(Decrease) increase in billings in excess of
earnings on uncompleted contracts................... (926) 136
Decrease in other liabilities........................ (242) (184)
--------- ---------
Net cash provided by operating activities............ 5,262 13,163
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Sale of investments, net............................. 10,955 874
Payments related to acquisition...................... (15,377) --
Purchase of fixed assets............................. (4,513) (3,377)
Payments for other assets............................ (825) (46)
Proceeds from sale of fixed assets................... 39 25
--------- ---------
Net cash used in investing activities................ (9,721) (2,524)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Principal portion paid on capital lease.............. (32) (38)
Borrowings under line of credit...................... 1,265 --
Issuance of common stock............................. 1,045 920
Repurchase of common stock........................... (8,776) (73)
--------- ---------
Net cash (used in) provided by financing activities.. (6,498) 809
--------- ---------
NET (DECREASE) INCREASE IN CASH AND CASH
EQUIVALENTS............................................... (10,957) 11,448
--------- ---------
CASH AND CASH EQUIVALENTS, beginning of period............... 13,328 3,619
--------- ---------
CASH AND CASH EQUIVALENTS, end of period..................... $ 2,371 $ 15,067
========= =========
Supplemental Cash Flow Disclosures:
Income taxes paid.................................... $ 5,511 $ 959
========= =========
Interest expense paid................................ $ 2 $ 12
========= =========
</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 Nine Months Ended
September 30, September 30,
-------------------------- ---------------------------
(in thousands)
1999 1998 1999 1998
--------- -------- -------- --------
<S> <C> <C> <C> <C>
Net Income as Reported $ 20 $ 3,499 $ 6,131 $ 9,636
Effect of Unrealized (Loss) Gains on
Investments Available-for-Sale (52) 21 (115) 28
========= ======== ========= ========
Comprehensive Net (Loss) Income (32) $ 3,520 $ 6,016 $ 9,664
========= ======== ========= ========
</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 Nine Months Ended
September 30, September 30,
(in thousands)
1999 1998 1999 1998
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenue (all external):
Information Technology $ 7,701 $ 7,072 $25,077 $19,853
Enterprise Resource Planning 7,983 10,796 29,863 26,766
Lean Manufacturing Consulting 6,170 4,365 16,492 13,521
Technology Performance Support 7,242 7,918 23,343 23,627
--------- --------- --------- ---------
Total Revenue $29,096 $30,151 $94,775 $83,767
========= ========= ========= =========
Gross Profit:
Information Technology $ 674 $ 2,606 $ 6,696 $ 7,425
Enterprise Resource Planning (13) 3,362 4,227 7,748
Lean Manufacturing Consulting 2,056 1,440 5,251 4,519
Technology Performance Support 1,575 1,791 5,371 5,463
--------- --------- --------- ---------
Total Gross Profit $ 4,292 $ 9,199 $21,545 $25,155
========= ========= ========= =========
Depreciation and Amortization Expense
Allocated To Segments:
Information Technology $ 264 $ 155 $ 647 $ 428
Enterprise Resource Planning 301 231 883 585
Lean Manufacturing Consulting 73 51 198 156
Technology Performance Support 203 197 605 596
--------- --------- --------- ---------
Total Allocated to Segments 841 634 2,333 1,765
Amount not Allocated to Segments 418 260 931 873
--------- --------- --------- ---------
Total Depreciation and Amortization Expense $ 1,259 $ 894 $ 3,264 $ 2,638
========= ========= ========= =========
Revenue (by geography):
United States $26,035 $27,274 $85,902 $73,734
Non-United States 3,061 2,877 8,873 10,033
--------- --------- --------- ---------
Total Revenue $29,096 $30,151 $94,775 $83,767
========= ========= ========= =========
</TABLE>
5
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Results of Operations
Quarter Ended September 30, 1999, Compared to Quarter Ended
September 30, 1998
Revenue. Revenue for the total Company decreased by $1.1 million (or 3.5
percent), from $30.2 million for the quarter ending September 30, 1998, to $29.1
million for the quarter ending September 30, 1999. The Company experienced
changes in its operating segments as follows:
Information Technology Services. Revenue for the Company's Information
Technology Services increased by $629,000 (or 8.9 percent), from $7.1
million in the quarter ending September 30, 1998, to $7.7 million in
the quarter ending September 30, 1999, representing 23.5 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 new client business in
customer relationship management systems (CRM) and e-commerce, as well
as follow-on work from existing clients and new e-Learning services
revenue from acquired Merrimac Interactive Media.
Enterprise Resource Planning Services. Revenue for the Company's
Enterprise Resource Planning (ERP) Services decreased by $2.8 million
(or 26.1 percent), from $10.8 million in the quarter ending September
30, 1998, to $8.0 million in the quarter ending September 30, 1999,
representing 35.8 percent of the Company's revenue in 1998 and 27.4
percent of the Company's revenue in 1999. The decrease in the Company's
ERP revenue from 1998 to 1999 was attributable to the overall slowdown
in the market for ERP software systems, generally recognized as due to
the effects in 1999 of client focus on remediation of the year 2000
computer problem, and the resulting decrease in demand for the
Company's ERP services.
Lean Manufacturing Consulting Services. Revenue for the Company's Lean
Manufacturing Consulting Services increased by $1.8 million (or 41.4
percent), from $4.4 million in the quarter ending September 30, 1998,
to $6.2 million in the quarter ending September 30, 1999, representing
14.5 percent of the Company's revenue in 1998 and 21.2 percent of the
Company's revenue in 1999. This increase in revenue was due primarily
to growth in business with new automotive industry supplier clients and
a large auto manufacturer.
Technology Performance Support Services. Revenue for the Company's
Technology Performance Support Services decreased by $676,000 (or 8.5
percent), from $7.9 million in the quarter ending September 30, 1998,
to $7.2 million in the quarter ending September 30, 1999, representing
26.3 percent of the Company's revenue in 1998 and 24.9 percent of the
Company's revenue in 1999. This decrease in revenue was the result of
the normal completion of a proportion of the Company's on-going
projects and their replacement with follow-on work at somewhat lower
levels of revenue.
Gross Profit. Gross profit for the total Company decreased by $4.9 million
(or 53.3 percent), from $9.2 million in the quarter ending September 30, 1998,
to $4.3 million in the quarter ending September 30, 1999, and decreased from
30.5 percent of revenue in 1998 to 14.8 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 and Information Technology businesses, and increases in
employee-related expenses and marketing expenses, partially offset by increases
in project profitability. Gross profit for individual operating segments were as
follows:
Information Technology Services. Gross profit for Information
Technology Services decreased by 74.1 percent from $2.6 million in the
quarter ending September 30, 1998, to $674,000 in the quarter ending
September 30, 1999. Gross profit margin for Information Technology
6
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Services decreased from 36.9 percent of this segment's revenue in the
third quarter of 1998 to 8.8 percent in 1999. This decrease in gross
profit margin resulted primarily from decreased staff utilization and
investments in the Company's capabilities in customer relationship
management systems implementation, as well as increased marketing
expenditures, and increased employee-related expenses.
Enterprise Resource Planning Services. Gross profit for Enterprise
Resource Planning Services decreased from $3.4 million in the quarter
ending September 30, 1998, to a loss of $13,000 in the quarter ending
September 30, 1999. Gross profit margin for Enterprise Resource
Planning Services decreased from 31.1 percent of this segment's revenue
in the third quarter of 1998 to (0.2) percent in 1999. This decrease in
gross profit margin resulted primarily from decreased staff
utilization, as well as increased marketing and employee-related
expenses, partially offset by increased project profitability.
Lean Manufacturing Consulting Services. Gross profit for Lean
Manufacturing Consulting Services increased by 42.8 percent from $1.4
million in the quarter ending September 30, 1998, to $2.1 million in
the quarter ending September 30, 1999. Gross profit margin for Lean
Manufacturing Consulting Services increased from 33.0 percent of this
segment's revenue in the third quarter of 1998 to 33.3 percent in 1999.
This increase in gross profit margin resulted primarily from increased
project profitability, partially offset by decreased staff utilization,
as well as increased employee-related costs.
Technology Performance Support Services. Gross profit for Technology
Performance Support Services decreased by 12.1 percent from $1.8
million in the quarter ending September 30, 1998, to $1.6 million in
the quarter ending September 30, 1999. Gross profit margin for
Technology Performance Support Services decreased from 22.6 percent of
this segment's revenue in the third quarter of 1998 to 21.7 percent in
1999. This decrease in gross profit margin resulted primarily from
decreased staff utilization, partially offset by increased project
profitability.
General and Administrative Expenses. General and administrative expenses
increased by $591,000 (or 15.5 percent), from $3.8 million in the third quarter
of 1998 to $4.4 million in the third quarter of 1999, increasing from 12.6
percent of revenue in 1998 to 15.1 percent of revenue in 1999. This increase in
general and administrative expenses as a percentage of revenue resulted
primarily from growth in corporate personnel and increases in employee-related
expenses, as well as the lower revenue run-rate in the third quarter of 1999.
Operating Income. As a result of the foregoing, the Company's operating
income decreased by $5.5 million from $5.4 million in the third quarter of 1998
to a loss of $103,000 in the third quarter of 1999 and decreased from 17.9
percent of revenue in the third quarter of 1998 to 0.0 percent of revenue in the
third quarter of 1999.
Other Income. Other income was $294,000 in the third quarter of 1998 and
$135,000 in the third quarter of 1999. The decrease in the dollar amount of
other income resulted primarily from reduced interest income due to the use of
cash for the Company's acquisition and share repurchases, as well as goodwill
recognized in the third quarter of 1999 for the Merrimac acquisition, partially
offset by a loss recorded for a one-time asset sale in the third quarter of
1998.
Net Income. Net income decreased by $3.5 million (or 99.4 percent), from
$3.5 in the third quarter of 1998 to $20,000 in the third quarter of 1999,
decreasing from 11.6 percent of revenue in 1998 to 0.0 percent of revenue in
1999.
7
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Nine Months Ended September 30, 1999, Compared to Nine Months Ended
September 30, 1998
Revenue. Revenue for the total Company increased by $11.0 million (or 13.1
percent), from $83.8 million for the nine months ending September 30, 1998, to
$94.8 million for the nine months ending September 30, 1999. The Company
experienced changes in revenue in its operating segments as follows:
Information Technology Services. Revenue for the Company's Information
Technology Services increased by $5.2 million (or 26.3 percent), from
$19.9 million in the nine months ending September 30, 1998, to $25.1
million in the nine months ending September 30, 1999, representing 23.7
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
new client business and follow on work in customer relationship
management systems (CRM), e-commerce and package software
implementation, as well as custom development for software partners and
new e-Learning revenues from acquired Merrimac Interactive Media.
Enterprise Resource Planning Services. Revenue for the Company's Enterprise
Resource Planning Services increased by $3.1 million (or 11.6 percent),
from $26.8 million in the nine months ending September 30, 1998, to $29.9
million in the nine months ending September 30, 1999, representing 32.0
percent of the Company's revenue in 1998 and 31.5 percent of the Company's
revenue in 1999. The growth in ERP revenue was due primarily to 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 in 1998 and the
first quarter of 1999 was offset by moderating demand in the ERP
marketplace after the first quarter of 1999 and by deferrals in the second
quarter of contracted work into future quarters, both of which caused ERP
revenue to decrease after the first quarter of 1999.
Lean Manufacturing Consulting Services. Revenue for the Company's Lean
Manufacturing Consulting Services increased by $3.0 million (or 22.0
percent), from $13.5 million in the nine months ending September 30,
1998, to $16.5 million in the nine months ending September 30, 1999,
representing 16.1 percent of the Company's revenue in 1998 and 17.4
percent of the Company's revenue in 1999. This increase in revenue was
primarily attributable to growth in new client revenue, as well as new
business with a large auto manufacturer.
Technology Performance Support Services. Revenue for the Company's
Technology Performance Support Services were essentially unchanged,
decreasing modestly from $23.6 million in the nine months ending
September 30, 1998, to $23.3 million in the nine months ending
September 30, 1999, representing 28.2 percent of the Company's revenue
in 1998 and 24.6 percent of the Company's revenue in 1999.
Gross Profit. Gross profit for the total Company decreased by $3.6 million
(or 14.4 percent), from $25.2 million in the nine months ending September 30,
1998, to $21.5 million in the nine months ending September 30, 1999, and
decreased from 30.0 percent of revenue in 1998 to 22.7 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 and Information Technology businesses, and increases
in employee-related expenses and marketing expenses, partially offset by
increases in project profitability. Gross profit for individual operating
segments were as follows:
Information Technology Services. Gross profit for Information
Technology Services decreased by 9.8 percent from $7.4 million in the
nine months ending September 30, 1998, to $6.7 million in the nine
months ending September 30, 1999. Gross profit margin for Information
Technology Services decreased from 37.4 percent of this segment's
revenue in the first nine months of 1998 to 26.7 percent in 1999. This
decrease in gross profit margin resulted primarily from decreases in staff
8
<PAGE>
utilization and investments in the Company's capabilities in customer
relationship management systems implementation, as well as increased
marketing and employee-related expenses.
Enterprise Resource Planning Services. Gross profit for Enterprise
Resource Planning Services decreased by 45.4 percent from $7.7 million
in the nine months ending September 30, 1998, to $4.2 million in the
nine months ending September 30, 1999. Gross profit margin for
Enterprise Resource Planning Services decreased from 28.9 percent of
this segment's revenue in the first nine months of 1998 to 14.2 percent
in 1999. This decrease in gross profit margin resulted primarily from
decreases in staff utilization, as well as increased marketing and
employee-related expenses and investments in client service tools,
partially offset by improved project profitability.
Lean Manufacturing Consulting Services. Gross profit for Lean
Manufacturing Consulting Services increased by 16.2 percent from $4.5
million in the nine months ending September 30, 1998, to $5.3 million
in the nine months ending September 30, 1999. Gross profit margin for
Lean Manufacturing Consulting Services decreased from 33.4 percent of
this segment's revenue in the first nine months of 1998 to 31.8 percent
in 1999. This decrease in gross profit margin resulted primarily from
decreased staff utilization, as well as additions of marketing and
management personnel and increased employee-related expenses, partially
offset by increased project profitability.
Technology Performance Support Services. Gross profit for Technology
Performance Support Services decreased by 1.7 percent from $5.5 million
in the nine months ending September 30, 1998, to $5.4 million in the
nine months ending September 30, 1999. Gross profit margin for
Technology Performance Support Services decreased from 23.1 percent of
this segment's revenue in the first nine months of 1998 to 23.0 percent
in 1999. Gross profit margin remained essentially unchanged as a result
of decreases in staff utilization, offset by improved project
profitability.
General and Administrative Expenses. General and administrative expenses
increased by $2.0 million (or 18.4 percent), from $10.8 million in the nine
months ending September 30, 1998 to $12.7 million in the same period of 1999,
increasing from 12.8 percent of revenue in 1998 to 13.4 percent of revenue in
1999. This increase in general and administrative expenses as a percentage of
revenue resulted primarily from growth in corporate personnel, as well as
increases in employee-related and professional services expenses, and the lower
revenue run-rate in the third quarter of 1999.
Operating Income. As a result of the foregoing, the Company's operating
income decreased by $5.6 million (or 38.8 percent), from $14.4 million in the
nine months ending September 30, 1998 to $8.8 million in the same period of 1999
and decreased from 17.2 percent of revenue in the nine months ending September
30, 1998 to 9.3 percent of revenue in the same period of 1999.
Other Income. Other income was $1.2 million for the nine months ending
September 30, 1998 and $993,000 for the same period of 1999. The decrease in the
dollar amount of other income resulted primarily from reduced interest income in
1999 due to the use of cash for the Company's acquisition and share repurchases,
as well as goodwill recognized in the third quarter of 1999 for the Merrimac
acquisition, partially offset by a loss recorded for a one-time asset sale in
the third quarter of 1998.
Net Income. Net income decreased by $3.5 million (or 36.4 percent), from
$9.6 million in the nine months ending September 30, 1998 to $6.1 million in the
same period of 1999, decreasing from 11.5 percent of revenue in 1998 to 6.5
percent of revenue in 1999.
9
<PAGE>
Liquidity and Capital Resources
The Company's cash and investments were $29.2 million at September 30, 1999,
compared to $51.2 million at December 31, 1998. Decreases in cash and
investments at September 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
$48.3 million at September 30, 1999, and $66.4 million at December 31, 1998.
The Company's operating activities provided cash of approximately $5.3
million for the nine months ended September 30, 1999, compared to $13.2 million
for the same period in 1998. The cash provided from operations in the first nine
months of 1999 resulted primarily from net income and increases in accounts
payable partially offset by increases in accounts receivable and unbilled
revenue.
Investing activities used cash of $9.7 million in the nine months ended
September 30, 1999, compared to $2.5 million for the same period in 1998. Cash
used for investing activities in the nine months ended September 30, 1999,
consisted primarily of $15.4 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 $6.5 million in the nine months ended
September 30, 1999, compared to generation of $809,000 for the same period in
1998. Cash used for financing activities in the nine months ended September 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 borrowings under the Company's
line of credit and 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 (6.27625 percent on September 30, 1999). The Company utilizes this line
of credit to finance a portion of its working capital needs. The balance
outstanding on the line of credit was $1,265,000 and $0 as of September 30, 199
and December 31, 1998, respectively.
During the nine months ending September 30, 1999, the Company made $4.5
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 involved four phases, each of which is substantially complete:
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
10
<PAGE>
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.
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. This phase is now substantially complete.
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 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
27. Financial Data Schedule
(b) Current Reports on Form 8-K
N/A
12
<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: November 11, 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, November 11, 1999
- ---------------------------- Chief Executive Officer, and Director
Robert W. Deutsch
/s/ Ronald E. Holtz Vice President, Chief Financial Officer, November 11, 1999
- ---------------------------- and Director
Ronald E. Holtz
</TABLE>
13
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> SEP-30-1999
<CASH> 2,372,000
<SECURITIES> 26,824,000
<RECEIVABLES> 23,664,000
<ALLOWANCES> 240,000
<INVENTORY> 0
<CURRENT-ASSETS> 65,006,000
<PP&E> 24,489,000
<DEPRECIATION> 13,323,000
<TOTAL-ASSETS> 90,977,000
<CURRENT-LIABILITIES> 16,712,000
<BONDS> 0
0
0
<COMMON> 1,449,000
<OTHER-SE> 71,876,000
<TOTAL-LIABILITY-AND-EQUITY> 90,977,000
<SALES> 0
<TOTAL-REVENUES> 94,775,000
<CGS> 0
<TOTAL-COSTS> 73,230,000
<OTHER-EXPENSES> 12,729,000
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 16,000
<INCOME-PRETAX> 9,809,000
<INCOME-TAX> 3,678,000
<INCOME-CONTINUING> 6,131,000
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