UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
Commission file number: 1-10245
RCM TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its charter)
Nevada 95-1480559
(State of Incorporation) (IRS Employer Identification No.)
2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613
(Address of principal executive offices)
(856) 486-1777
(Registrant's telephone number, including area code)
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
Indicate the number of shares outstanding of the Registrant's class of common
stock, as of the latest practicable date.
CLASS 10,499,651
Common Stock, $0.05 par value Outstanding as of August 7, 2000
<PAGE>
2
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements
<TABLE>
<CAPTION>
Page
Consolidated Balance Sheets as of June 30, 2000 (Unaudited)
<S> <C> <C> <C>
and December 31, 1999 (Audited) 3
Unaudited Consolidated Statements of Income and Comprehensive Income
for the Six-Month Periods Ended June 30, 2000 and 1999 5
Unaudited Consolidated Statements of Income and Comprehensive Income
for the Three-Month Periods Ended June 30, 2000 and 1999 6
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Six-Month Period Ended June 30, 2000 7
Unaudited Consolidated Statements of Cash Flows for the Six-
Month Periods Ended June 30, 2000 and 1999 8
Notes to Unaudited Consolidated Financial Statements 10
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 12
PART II - OTHER INFORMATION
ITEM 4 - Submission of Matters to a Vote of Security Holders 20
ITEM 6 - Exhibits and Reports on Form 8-K 20
SIGNATURES 21
</TABLE>
<PAGE>
3
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
June 30, 2000 and December 31, 1999
ASSETS
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ---------------
(Unaudited) (Audited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 3,960,700 $ 4,025,808
Accounts receivable, net of allowance for doubtful accounts
of $1,225,000 (June 30, 2000) and $1,014,000
(December 31, 1999), respectively 69,822,936 66,654,677
Prepaid expenses and other current assets 5,149,151 3,257,207
--------------- ---------------
Total current assets 78,932,787 73,937,692
--------------- ---------------
Property and equipment, at cost
Equipment and leasehold improvements 10,857,752 9,789,996
Less: accumulated depreciation and amortization 4,093,114 3,151,626
--------------- ---------------
6,764,638 6,638,370
--------------- ---------------
Other assets
Deposits 191,608 205,878
Intangible assets, net of accumulated amortization
of $7,556,000 (June 30, 2000) and $4,437,000
(December 31, 1999), respectively
Goodwill 119,716,559 103,168,944
--------------- ---------------
119,908,167 103,374,822
--------------- ---------------
Total assets $205,605,592 $183,950,884
=============== ===============
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
June 30, 2000 and December 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
June 30, December 31,
2000 1999
--------------- ----------------
(Unaudited) (Audited)
Current liabilities
<S> <C> <C>
Accounts payable and accrued expenses 12,227,803 $ 4,853,763
Accrued payroll 6,931,104 5,640,054
Taxes, other than income taxes 1,221,109 1,269,265
Income taxes payable 801,149 791,173
--------------- ----------------
Total current liabilities 21,181,165 12,554,255
--------------- ----------------
Long-term liabilities
Note payable 56,600,000 47,300,000
Income taxes payable 1,455,916
--------------- ----------------
58,055,916 47,300,000
--------------- ----------------
Shareholders' equity
Preferred stock, $1.00 par value; 5,000,000 shares authorized;
no shares issued or outstanding
Common stock, $0.05 par value; 40,000,000 shares authorized; 10,499,651
(June 30, 2000) and 10,496,225
(December 31, 1999) issued and outstanding 524,982 524,811
Accumulated other comprehensive loss (222,237) ( 52,764)
Additional paid-in capital 93,516,080 93,473,301
Retained earnings 32,549,686 30,151,281
--------------- ----------------
126,368,511 124,096,629
--------------- ----------------
Total liabilities and shareholders' equity $205,605,592 $ 183,950,884
=============== ================
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- -------------
<S> <C> <C>
Revenues $ 150,935,386 $ 160,769,145
Cost of services 112,292,497 121,726,410
----------- -----------
Gross profit 38,642,889 39,042,735
---------- ----------
Operating costs and expenses
Selling, general and administrative 27,964,904 24,153,977
Depreciation 591,252 383,061
Amortization 3,118,767 1,049,323
--------- ---------
31,674,923 25,586,361
---------- ----------
Operating income 6,967,966 13,456,374
--------- ----------
Other expenses
Interest expense, net of interest income 1,813,095 263,311
Loss on foreign currency translation 4,056 869
----- ---
1,817,151 264,180
--------- -------
Income before income taxes 5,150,815 13,192,194
Income taxes 2,752,410 5,147,242
--------- ---------
Net income 2,398,405 8,044,952
Other comprehensive income
Foreign currency translation adjustment ( 169,473) ( 57,160 )
- ------- - ------
Comprehensive income $ 2,228,932 $ 7,987,792
=============== ==============
Basic earnings per share $.23 $.76
Weighted average number of common
shares outstanding 10,498,938 10,484,632
Diluted earnings per share $.22 $.74
Weighted average number of common
and common equivalent shares
outstanding 10,819,341 10,816,169
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
Three Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------------- -------------
<S> <C> <C>
Revenues $ 75,989,896 $ 84,615,398
Cost of services 56,386,298 63,938,718
---------- ----------
Gross profit 19,603,598 20,676,680
---------- ----------
Operating costs and expenses
Selling, general and administrative 13,908,805 12,890,383
Depreciation 313,428 222,795
Amortization 1,601,727 580,457
--------- -------
15,823,960 13,693,635
---------- ----------
Operating income 3,779,638 6,983,045
--------- ---------
Other expenses
Interest expense, net of interest income 964,175 267,329
Loss on foreign currency translation 6,942 6,479
----- -----
971,117 273,808
------- -------
Income before income taxes 2,808,521 6,709,237
Income taxes 1,468,006 2,559,747
--------- ---------
Net income 1,340,515 4,149,490
Other comprehensive income
Foreign currency translation adjustment 169,473 140,234
------- -------
Comprehensive income $ 1,171,042 $ 4,009,256
=============== ==============
Basic earnings per share $.13 $.40
Weighted average number of common
shares outstanding 10,499,651 10,491,005
Diluted earnings per share $.13 $.38
Weighted average number of common
and common equivalent shares
outstanding 10,618,713 10,822,383
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Six Months Ended June 30, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated Additional
Common Stock Other Comprehensive Paid-in Retained
Shares Amount Income (Loss) Capital Earnings
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 10,496,225 $524,811 ($ 52,764) $93,473,301 $30,151,281
3,426 171 42,779
Exercise of stock options
Translation adjustment ( 169,473)
Net income 2,398,405
-------- ------- -------- ---------- ---------
Balance, June 30, 2000 10,499,651 $524,982 ($222,237) $93,516,080 $32,549,686
========== ======== ========= =========== ===========
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
Cash flows from operating activities:
<S> <C> <C>
Net income $2,398,405 $8,044,952
--------------- --------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 3,710,019 1,432,384
Provision for losses on accounts receivable 211,000 150,000
Changes in assets and liabilities:
Accounts receivable ( 3,379,259) ( 17,027,666)
Prepaid expenses and other current assets ( 1,891,944) ( 1,475,551)
Accounts payable and accrued expenses 7,374,040 144,433
Accrued payroll 1,291,050 2,041,770
Taxes, other than income taxes ( 48,156) 809,544
Income taxes payable 1,465,892 ( 638,197)
--------------- --------------
Total adjustments 8,732,642 ( 14,563,283)
--------------- --------------
Net cash provided by (used in) operating activities 11,131,047 ( 6,518,331)
--------------- --------------
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2000 and 1999 - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
--------------- --------------
Cash flows from investing activities:
<S> <C> <C> <C> <C>
Property and equipment acquired ( $ 889,987) ( $2,348,650)
(Increase) decrease in deposits 14,270 ( 12,738)
Purchase of acquired companies including
contingent consideration, net of cash acquired ( 19,493,915) ( 26,329,209)
--------------- --------------
Net cash used in investing activities ( 20,369,632) ( 28,690,597)
--------------- --------------
Cash flows from financing activities:
Exercise of stock options 42,950 259,275
Borrowings of long-term debt 9,300,000 29,000,000
--------------- --------------
Net cash provided by financing activities 9,342,950 29,259,275
--------------- --------------
Effect of exchange rate changes on cash and cash equivalents ( 169,473)
--------------- --------------
Decrease in cash and cash equivalents ( 65,108) ( 5,949,653)
Cash and cash equivalents at beginning of period 4,025,808 8,423,492
--------------- --------------
Cash and cash equivalents at end of period $ 3,960,700 $2,473,839
=============== ==============
Supplemental cash flow information:
Cash paid for:
Interest expense $ 1,932,532 $ 358,839
Income taxes $ 1,562,086 $2,700,120
</TABLE>
The accompanying notes are an integral part of these
financial statements.
<PAGE>
21
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
1. General
The accompanying consolidated financial statements have been prepared by
the Company pursuant to the rules and regulations of the Securities and
Exchange Commission (SEC). This Report on Form 10-Q should be read in
conjunction with the Company's Annual Report on Form 10-K for the year
ended October 31, 1999. Certain information and footnote disclosures which
are normally included in financial statements prepared in accordance with
generally accepted accounting principles have been condensed or omitted
pursuant to SEC rules and regulations. The information reflects all normal
and recurring adjustments which, in the opinion of management, are
necessary for a fair presentation of the financial position of the Company,
and its results of operations for the interim periods set forth herein. The
results for the six months ended June 30, 2000 are not necessarily
indicative of the results to be expected for the full year.
2. Change in Fiscal Year
On January 25, 2000, the Board of Directors of the Company determined to
change the Company's fiscal year from October 31, to December 31. As a
result of this change, the Company will prepare quarterly financial
information as of and for the periods ended March 31, June 30, and
September 30, 2000.
3. Change in Accounting Estimate
Effective January 1, 2000, the Company has changed the amortization period
of goodwill associated with acquisitions from 40 years to 20 years. This
change had the effect of increasing goodwill amortization and reducing net
income by approximately $1,559,000, or $.14 on a diluted earnings per share
basis for the six months ended June 30, 2000 and $801,000 or $.08 on a
diluted earnings per share basis for the three months ended June 30, 2000.
4. Long Term Debt
On August 19, 1998, the Company and its subsidiaries entered into an
agreement with Mellon Bank N.A., administrative agent for a syndicate of
banks, which provides for a $75.0 million Revolving Credit Facility (the
Revolving Credit Facility). Borrowing under the Revolving Credit Facility
bear interest at the Company's option, at LIBOR (London Interbank Offered
Rate), plus applicable margin, or the agent bank's prime rate.
Borrowing under the Revolving Credit Facility is collateralized by all of
the assets of the Company and its subsidiaries and a pledge of all of the
stock of its subsidiaries. The Revolving Credit Facility also contains
various financial and non-financial covenants such as restricting the
Company's ability to pay dividends. The Revolving Credit Facility expires
August 2001. The weighted average interest rate at June 30, 2000 was 7.60%.
The amounts outstanding under the Revolving Credit Facility at June 30,
2000 and December 31, 1999 were $56.6 million and $47.3 million,
respectively.
5. Interest (Expense) Income, Net
Interest (expense) income, net consisted of the following:
<TABLE>
<CAPTION>
Six Months Ended June 30, Three Months Ended June 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Interest expense ($1,927,836) ($358,837) ($1,028,033) ($294,248)
Interest income 114,741 95,526 63,858 26,919
------- ------ ------ ------
($1,813,095) ($263,311) ($ 964,175) ($267,329)
=========== ========= ============ =========
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
6. Segment Information
The Company has adopted SFAS 131, "Disclosures about Segments of an
Enterprise and Related Information" ("SFAS 131"), which establishes
standards for companies to report information about operating segments,
geographic areas and major customers. The adoption of SFAS 131 has no
effect on the Company's consolidated financial position, consolidated
results of operations or liquidity.
The Company uses earnings before interest and taxes (operating income) to
measure segment profit. Segment operating income includes selling, general
and administrative expenses directly attributable to that segment as well
as charges for allocating corporate costs to each of the operating
segments. The following tables reflect the results of the segments
consistent with the Company's management system (in thousands):
<TABLE>
<CAPTION>
Six Months Ended Information Professional Commercial
June 30, 2000 Technology Engineering Services Corporate Total
------------- ---------- ----------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Revenue $ 117,713 $ 19,859 $ 13,363 $ 150,935
Operating expenses 108,779 18,610 12,868 140,257
EBITDA (a) 8,934 1,249 495 10,678
Depreciation 438 133 20 591
Goodwill amortization 2,723 369 27 3,119
Operating income $ 5,773 $ 747 $ 448 $ 6,968
Total assets $ 168,167 $ 17,641 $ 6,482 $ 13,317 $ 205,606
Capital expenditures $ 597 $ 75 $ 15 $ 213 $ 900
</TABLE>
<TABLE>
<CAPTION>
Six Months Ended
June 30, 1999
-------------
<S> <C> <C> <C> <C> <C>
Revenue $ 113,855 $ 32,529 $ 14,385 $ 160,769
Operating expenses 102,358 29,895 13,627 145,880
EBITDA (a) 11,497 2,634 758 14,889
Depreciation 279 100 4 383
Goodwill amortization 859 181 9 1,049
Operating income $ 10,359 $ 2,353 $ 745 $ 13,457
Total assets $ 133,227 $ 17,388 $ 6,537 $ 7,388 $ 164,540
Capital expenditures $ 100 $ 50 $ 510 $ 660
</TABLE>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Three Months Ended Information Professional Commercial
June 30, 2000 Technology Engineering Services Corporate Total
------------- ---------- ----------- -------- --------- -----
<S> <C> <C> <C> <C> <C>
Revenue $ 58,890 $ 10,024 $ 7,076 $ 75,990
Operating expenses 53,971 9,474 6,850 70,295
EBITDA (a) 4,919 550 226 5,695
Depreciation 236 65 12 313
Goodwill amortization 1,382 203 17 1,602
Operating income $ 3,301 $ 282 $ 197 $ 3,780
Total assets $ 168,167 $ 17,641 $ 6,482 $ 13,317 $ 205,606
Capital expenditures $ 217 $ 60 $ 7 $ 213 $ 505
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
June 30, 1999
-------------
<S> <C> <C> <C> <C> <C>
Revenue $ 61,225 $ 16,086 $ 7,304 $ 84,615
Operating expenses 55,065 14,907 6,857 76,829
EBITDA (a) 6,160 1,179 447 7,786
Depreciation 170 51 2 223
Goodwill amortization 476 100 4 580
Operating income $ 5,514 $ 1,028 $ 441 $ 6,983
Total assets $ 133,227 $ 17,388 $ 6,537 $ 7,388 $ 164,540
Capital expenditures $ $ $ $ 189 $ 189
</TABLE>
[FN]
(1) EBITDA consists of earnings before interest income, interest expense, other
non-operating income and expense, income taxes, depreciation and
amortization. EBITDA is not a measure of financial performance under
generally accepted accounting principles and should not be considered in
isolation or as an alternative to net income as an indicator of a company's
performance or to cash flows from operating activities as a measure of
liquidity.
</FN>
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations
Private Securities Litigation Reform Act Safe Harbor Statement
Certain statements included herein and in other Company reports and public
filings are forward-looking within the meaning of the Private Securities
Litigation Reform Act of 1995. Readers are cautioned that such forward-looking
statements, which may be identified by words such as "may," "will," "expect,"
"anticipate," "continue," "estimate," "project," "intend," and similar
expressions are only predictions and are subject to risks and uncertainties that
could cause the Company's actual results and financial position to differ
materially. Such risks and uncertainties include, without limitation: (i)
unemployment and general economic conditions associated with the provision of
information technology and engineering services and solutions, placement of
temporary staffing personnel; (ii) the Company's ability to continue to attract,
train and retain personnel qualified to meet the requirements of its clients;
(iii) the Company's ability to identify appropriate acquisition candidates,
complete such acquisitions and successfully integrate acquired businesses; (iv)
uncertainties regarding pro forma financial information and the underlying
assumptions relating to acquisitions and acquired businesses; (v) uncertainties
regarding amounts of deferred consideration and earnout payments to become
payable to former shareholders of acquired businesses; (vi) possible adverse
effects on the market price of the Company's Common Stock due to the resale into
the market of significant amounts of Common Stock; (vii) the potential adverse
effect a decrease in the trading price of the Company's Common Stock would have
upon the Company's ability to acquire businesses through the issuance of its
securities; (viii) the Company's ability to obtain financing on satisfactory
terms; (ix) the reliance of the Company upon the continued service of its
executive officers; (x) the Company's ability to remain competitive in the
markets which it serves; (xi) the Company's ability to maintain its unemployment
insurance premiums and workers compensation premiums; (xii) the risk of claims
made against the Company associated with providing temporary staffing services;
(xiii) the Company's ability to manage significant amounts of information, and
periodically expand and upgrade its information processing capabilities; (xiv)
the Company's ability to remain in compliance with federal and state wage and
hour laws and regulations; (xv) predictions as to the future need for the
Company's services; (xvi) uncertainties relating to the financial information
provided for the period covering January 1, 1999 to June 30, 1999 and from
January 1, 2000 to June 30, 2000; (xvii) uncertainties relating to the
allocation of costs and expenses to each of the Company's operating segments;
and (xviii) other economic, competitive and governmental factors affecting the
Company's operations, market, products and services. Readers are cautioned not
to place undue reliance on these forward-looking statements, which speak only as
of the date made. The Company undertakes no obligation to publicly release the
results of any revision of these forward-looking statements to reflect these
ends or circumstances after the date they are made or to reflect the occurrence
of unanticipated events.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Overview
RCM Technologies, Inc. ("RCM" or the "Company") is a premier national provider
of Business, Technology and resource solutions in information technology ("IT")
and professional engineering to customers in corporate and government sectors.
RCM's offices are located in major geographic regions throughout North America.
The Company has grown its information technology competencies in the areas of
resource augmentation, e-business, Enterprise Resource Planning ("ERP") support,
network and infrastructure support and knowledge management. RCM's engineering
expertise is in the form of technical design, field engineering, field support,
procedures development and project and program management. The Company provides
its services to clients in banking & finance, healthcare, insurance,
pharmaceutical, telecommunications, utility, technology, manufacturing &
distribution and government sectors. The Company believes the breadth of
services it can provide fosters long-term client relationships, affords
cross-selling opportunities and minimizes the Company's dependence on any single
technology or industry sector.
RCM sells and delivers its services through a network of branch offices located
in selected regions throughout North America. The Company has executed a
geographic expansion and diversification strategy that places it in the major
markets for the services that the Company offers. This strategy has been
accomplished through the combination of a concerted and disciplined acquisition
program, coupled with an organic growth strategy.
Many businesses today are facing intense competition, accelerating technological
change, and widespread business process re-engineering to take advantage of the
Internet's potential to bring them closer to their suppliers and customers.
Increasingly, these companies are also suffering from a shortage of qualified
expert employees who can build these solutions. As a result, the ability of an
organization to effectively compete is critically reliant on its ability to
introduce and integrate these emerging technologies in a timely fashion.
Although many companies have recognized the importance of the Internet and
knowledge management technologies to compete in today's business climate, the
process of designing, developing and implementing these solutions has become
increasingly complex. Companies continue to migrate away from centralized
computing environments toward decentralized, scalable architectures based on
local and wide area networks, the Internet, Intranets, shared databases and
collaborative application software closer to their clients and suppliers. These
advances have enhanced the ability of companies to benefit from the application
of IT systems and solutions. Consequently, the number of companies desiring to
deploy these systems and solutions and the number of connected users within
these networks are rising rapidly.
As a result of the variety and complexity of these new technologies, IT managers
must integrate and manage computing environments consisting of multiple
computing platforms, operating systems, databases and networking protocols, and
must implement off-the-shelf software applications to support business
objectives. Companies also need to continually keep pace with new developments,
which often render existing equipment and internal skills obsolete. At the same
time, the rampant pace of these developments have left many companies unable to
keep their permanent staffs abreast in the technology evolution. Consequently,
business drivers cause IT managers to develop and support increasingly complex
systems and applications of significant strategic value, while working under
budgetary, personnel and expertise constraints within their own organizations
many have increasingly turned to consultants to assist them.
The Company realizes revenues from client engagements, which range from the
placement of contract and temporary technical consultants to project
assignments, which are based on defined deliverables. These services are
primarily provided to the customer at hourly rates that are established for each
of the Company's consultants, based upon their skill level and experience and
the type of work performed. The Company also provides project management and
consulting work which are billed either by agreed upon fee or hourly rates, or a
combination of both. The billing rates and profit margins for project management
and consulting work are higher than those for professional staffing services.
Consequently, the Company is expanding its sales of higher margin consulting and
project management services.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999
<TABLE>
<CAPTION>
A summary of operating results for the three months ended June 30, 2000 and 1999
is as follows (in thousands, except for earnings per share data):
2000 1999
------------------------- ------------------------
% of % of
Amount Revenue Amount Revenue
------ ------- ------ -------
<S> <C> <C> <C> <C>
Revenues $150,935 100.0% $ 160,769 100.0 %
Cost of services 112,292 74.4 121,726 75.7
Gross profit 38,643 25.6 39,043 24.3
Selling, general and administrative 27,965 18.5 24,154 15.0
Depreciation 591 .4 383 .2
28,556 18.9 24,537 15.2
Operating income 10,087 6.7 14,506 9.1
Other (expense) income ( 1,817 ) ( 1.2) ( 264) ( .2 )
Income before income taxes
and goodwill amortization 8,270 5.5 14,242 8.9
Income taxes 3,296 2.2 5,483 3.4
Income before goodwill amortization 4,974 3.3 8,759 5.5
Goodwill amortization, net of income tax benefits 2,576 1.7 714 .5
Net income $ 2,398 1.6% $ 8,045 5.0 %
2000 1999
--------- --------
Earnings per share:
Basic:
Income before goodwill amortization $.47 $.84
Goodwill amortization .24 .07
Net income $.23 $.77
Diluted:
Income before goodwill amortization $.46 $.81
Goodwill amortization .24 .07
Net income $.22 $.74
</TABLE>
Revenues. Revenues decreased 6.1%, or $9.8 million, for the six months ended
June 30, 2000 as compared to the comparable prior year period. Revenue decline
was primarily attributable to a loss of certain engineering contracts and
softness in the Information Technology ("IT") sector. The revenue decline was
mitigated by revenue from acquisitions subsequent to June 30, 1999.
Cost of Services. Cost of services decreased 7.8%, or $9.4 million, for the six
months ended June 30, 2000 as compared to the comparable prior year period. This
decrease was primarily attributable to a decrease in salaries and compensation
associated with decreased revenues which was partially offset by an increase in
gross margin percentage from Information Technology. Cost of services as a
percentage of revenues decreased to 74.4% for the six months ended June 30, 2000
from 75.7% for the comparable prior year period.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Six Months Ended June 30, 2000 Compared to Six Months Ended June 30, 1999 -
(Continued)
Selling, General and Administrative. Selling, general and administrative
expenses increased 15.8%, or $3.8 million, for the six months ended June 30,
2000 as compared to the comparable prior year period. This increase was
primarily attributable to acquisitions subsequent to June 30, 1999.
Depreciation. Depreciation increased 54.3%, or $208,000, for the six months
ended June 30, 2000 as compared to the comparable prior year period. This
increase was primarily due to the depreciation of property and equipment
associated with infrastructure improvements that occurred during the Company's
previous fiscal year ended October 31, 1999.
Other (Expense) Income, Net. Other (expense) income consists principally of
interest expense, net of interest income. For the six months ended June 30,
2000, actual interest expense of $1.9 million was offset by $115,000 of interest
income, which was earned from the investment in interest bearing deposits.
Interest expense, net increased $1.5 million for the six months ended June 30,
2000 as compared to the comparable prior year period. This increase was
primarily due to the increased borrowing requirements necessary to complete
acquisitions subsequent to June 30, 1999, as well as to fund working capital
requirements.
Income Tax. Income tax expense decreased 39.7%, or $2.2 million, for the six
months ended June 30, 2000 as compared to the comparable prior year period. This
decline was attributable to a lower level of income before taxes for the six
months ended June 30, 2000 compared to the comparable prior year period.
Goodwill Amortization. Goodwill amortization for the six months ended June 30,
2000 and 1999 was net of income tax benefit of $552,000 and $335,000,
respectively. The increase was primarily due to the amortization of intangible
assets incurred in connection with the acquisitions that occurred subsequent to
June 30, 1999. See footnote 3 appearing elsewhere in this document.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999
<TABLE>
<CAPTION>
A summary of operating results for the three months ended June 30, 2000 and 1999
is as follows (in thousands, except for earnings per share data):
2000 1999
------------------------- ------------------------
% of % of
Amount Revenue Amount Revenue
<S> <C> <C> <C> <C>
Revenues $ 75,990 100.0% $ 84,615 100.0 %
Cost of services 56,386 74.2 63,938 75.6
Gross profit 19,604 25.8 20,677 24.4
Selling, general and administrative 13,909 18.3 12,890 15.2
Depreciation 313 .4 223 .3
14,222 18.7 13,113 15.5
Operating income 5,382 7.1 7,564 8.9
Other (expense) income ( 971 ) ( 1.3) 274 .3
Income before income taxes
and goodwill amortization 4,411 5.8 7,290 8.6
Income taxes 1,759 2.3 2,788 3.3
Income before goodwill amortization 2,652 3.5 4,502 5.3
Goodwill amortization, net of income tax benefits 1,312 1.7 352 .4
Net income $ 1,340 1.8% $ 4,149 4.9 %
2000 1999
--------- --------
Earnings per share:
Basic:
Income before goodwill amortization $.25 $.43
Goodwill amortization .12 .03
Net income $.13 $.40
Diluted:
Income before goodwill amortization $.25 $.42
Goodwill amortization .12 .04
Net income $.13 $.38
</TABLE>
Revenues. Revenues decreased 10.2%, or $8.6 million, for the three months ended
June 30, 2000 as compared to the comparable prior year period. Revenue decline
was primarily attributable to a loss of certain engineering contracts and
softness in the Information Technology ("IT") sector. The revenue decline was
mitigated by revenue from acquisitions subsequent to June 30, 1999.
Cost of Services. Cost of services decreased 11.8%, or $7.6 million, for the
three months ended June 30, 2000 as compared to the comparable prior year
period. This decrease was primarily attributable to a decrease in salaries and
compensation associated with decreased revenues which was partially offset by an
increase in gross margin percentage from Information Technology. Cost of
services as a percentage of revenues decreased to 74.2% for the three months
ended June 30, 2000 from 75.6% for the comparable prior year period.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999 -
(Continued)
Selling, General and Administrative. Selling, general and administrative
expenses increased 7.9%, or $1.0 million, for the three months ended June 30,
2000 as compared to the comparable prior year period. This increase was
primarily attributable to acquisitions subsequent to June 30, 1999.
Depreciation. Depreciation increased 40.4%, or $90,000, for the three months
ended June 30, 2000 as compared to the comparable prior year period. This
increase was primarily due to the depreciation of property and equipment
associated with infrastructure improvements that occurred during the Company's
previous fiscal year ended October 31, 1999.
Other (Expense) Income, Net. Other (expense) income consists principally of
interest expense, net of interest income. For the three months ended June 30,
2000, actual interest expense of $1.0 million was offset by $64,000 of interest
income, which was earned from the investment in interest bearing deposits.
Interest expense, net increased $697,000 for the three months ended June 30,
2000 as compared to the comparable prior year period. This increase was
primarily due to the increased borrowing requirements necessary to complete
acquisitions subsequent to June 30, 1999, as well as to fund working capital
requirements.
Income Tax. Income tax expense decreased 36.6%, or $1.0 million, for the three
months ended June 30, 2000 as compared to the comparable prior year period. This
decline was attributable to a lower level of income before taxes for the three
months ended June 30, 2000 compared to the comparable prior year period.
Goodwill Amortization. Goodwill amortization for the three months ended June 30,
2000 and 1999 was net of income tax benefit of $298,000 and $228,000,
respectively. The increase was primarily due to the amortization of intangible
assets incurred in connection with the acquisitions that occurred subsequent to
June 30, 1999. See footnote 3 appearing elsewhere in this document.
Liquidity and Capital Resources
Operating activities provided $11.1 million of cash for the six months ended
June 30, 2000 as compared to operating activities using $6.5 million of cash for
the six months ended June 30, 1999. The increase in cash provided by operating
activities was primarily attributable to a decrease in accounts receivable and
an increase in accounts payable, accrued expenses and accrued payroll, which was
partially offset by a increase in prepaid expenses and a decrease in withheld
payroll taxes and income taxes payable, and increased levels of depreciation and
amortization associated with the acquisitions subsequent to June 30, 1999.
Financing activities provided $9.3 million and $29.3 million for the six months
ended June 30, 2000 and 1999, respectively.
On August 19, 1998, the Company and its subsidiaries entered into an agreement
with Mellon Bank N.A., administrative agent for a syndicate of banks, which
provides a $75.0 million Revolving Credit Facility (the "Revolving Credit
Facility"). Borrowing under the Revolving Credit Facility bears interest at the
Company's option, at LIBOR (London Interbank Offered Rate), plus applicable
margin or the agent bank's prime rate. Borrowing under the Revolving Credit
Facility is collateralized by all of the assets of the Company and its
subsidiaries and a pledge of all of the stock of its subsidiaries. The Revolving
Credit Facility also contains various financial and non-financial covenants. The
Revolving Credit Facility expires August 2001. The amount outstanding under the
Revolving Credit Facility at June 30, 2000 was $56.6 million.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
The Company anticipates that its primary uses of capital in future periods will
be for acquisitions and the funding of increases in accounts receivables.
Funding for further acquisitions will be derived from the Revolving Credit
Facility, funds generated through operations, or future financing transactions.
The Company's business strategy is to achieve growth both internally through
operations and externally through strategic acquisitions. The Company continues
to engage in discussions with potential acquisition candidates. As the size of
the Company and its financial resources increase, however, acquisition
opportunities requiring significant commitments of capital may arise. In order
to pursue such opportunities, the Company may be required to incur debt or issue
potentially dilutive securities in the future. No assurance can be given as to
the Company's future acquisition and expansion opportunities or how such
opportunities will be financed.
The Company does not currently have material commitments for capital
expenditures and does not anticipate entering into any such commitments during
the next twelve months. The Company's current commitments consist primarily of
lease obligations for office space. The Company believes that its capital
resources are sufficient to meet its present obligations and those to be
incurred in the normal course of business for the next twelve months.
Year 2000 Readiness Disclosure
Since January 1, 2000, the Company has not experienced any significant problems
with its Y2K readiness. The Company believes it has achieved Y2K readiness by
replacing its computer systems with new, Y2K compliant hardware and software.
The new hardware/software system was put into production on September 1, 1999.
The cost of the new system and to be Y2K compliant was approximately $2,900,000.
However, there can be no assurance that there will be no material impact as a
result of Y2K issues, particularly considering the dependence and
interdependence that exists with third parties.
<PAGE>
PART II
OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
The Company held its Annual Meeting of Shareholders on April 27, 2000.
The following actions were taken:
1.) The following directors were elected to serve as Class A
directors on the Board of Directors, and shall serve terms
expiring at the Company's Annual Meeting in 2002, and until
their respective successors shall be elected and qualified.
Tabulated voting results were as follows:
Norman Berson (Class A) (For 9,881,924; Withheld 73,268)
Brian Delle Donne (Class A) (For 9,827,803; Withheld 127,389)
Each of the Class B directors of the Company, Robert B. Kerr and
Woodrow B. Moats, Jr., will continue to serve on the Board of Directors
for a term expiring at the Company's Annual Meeting in 2001, and until
his successor has been elected and qualified.
The Class C directors of the Company, Leon Kopyt and Stanton Remer,
will continue to serve on the Board of Directors for a term expiring at
the Company's Annual Meeting in 2002, and until his successor has been
elected and qualified.
2.) Approval of the adoption of the Company's 2000 Employee Stock
Incentive Plan.
Votes For - 4,181,394; Votes Against - 3,335,254;
Abstentions - 2,438,544
3.) Approval of Grant Thornton LLP as the independent auditing
firm for the Company for the fiscal year ending October 31,
2000.
Votes For - 9,690,822; Votes Against - 253,541;
Abstentions - 10,289
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27 Financial Data Schedule. (EDGAR version only)
(b) Reports on Form 8-K
On January 28, 2000, the Company filed a Current Report on Form
8-K reporting that the Company determined to change its fiscal
year end from October 31 to December 31.
<PAGE>
RCM TECHNOLOGIES, INC.
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.
RCM Technologies, Inc.
Date: August 7, 2000 By:/s/ Stanton Remer
Stanton Remer
Chief Financial Officer,
Treasurer, Secretary and Director
(Principal Financial Officer and
Duly Authorized Officer of the Registrant)
