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 March 31, 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 May 8, 2000
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
<
Item 1 - Consolidated Financial Statements
<TABLE>
Page
Consolidated Balance Sheets as of March 31, 2000 (Unaudited)
<S> <C>
and December 31, 1999 (Unaudited) 3
Unaudited Consolidated Statements of Income and Comprehensive Income
for the Three-Month Periods Ended March 31, 2000 and 1999 5
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Three-Month Period Ended March 31, 2000 6
Unaudited Consolidated Statements of Cash Flows for the Three-
Month Periods Ended March 31, 2000 and 1999 7
Notes to Unaudited Consolidated Financial Statements 9
ITEM 2
Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
PART II - OTHER INFORMATION
ITEM 6 - Exhibits and Reports on Form 8-K 16
SIGNATURES 16
</TABLE>
2
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2000 and December 31, 1999
ASSETS
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
---------------- ----------
(Unaudited) (Unaudited)
Current assets
<S> <C> <C>
Cash and cash equivalents $ 4,821,028 $ 4,025,808
Accounts receivable, net of allowance for doubtful accounts
of $1,060,000 (March 31, 2000) and $1,014,000
(December 31, 1999), respectively 64,470,654 66,654,677
Prepaid expenses and other current assets 4,403,994 3,257,207
--------------- --------------
Total current assets 73,695,676 73,937,692
--------------- --------------
Property and equipment, at cost
Equipment and leasehold improvements 10,336,591 9,789,996
Less: accumulated depreciation and amortization 3,563,121 3,151,626
--------------- --------------
6,773,470 6,638,370
------------- --------------
Other assets
Deposits 198,449 205,878
Intangible assets, net of accumulated amortization
of $5,954,000 (March 31, 2000) and $4,437,000
(December 31, 1999), respectively
Goodwill 110,476,477 103,168,944
--------------- --------------
110,674,926 103,374,822
-------------- --------------
Total assets $ 191,144,072 $ 183,950,884
=============== ==============
</TABLE>
3
The accompanying notes are an integral part of these financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 2000 and December 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY
<TABLE>
<CAPTION>
March 31, December 31,
2000 1999
--------------- ----------
(Unaudited) (Unaudited)
Current liabilities
<S> <C> <C>
Accounts payable and accrued expenses $ 5,719,589 $ 4,853,763
Accrued payroll 8,447,264 5,640,054
Taxes other than income taxes 548,798 1,269,265
Income taxes payable 791,173
--------------- --------------
Total current liabilities 14,715,651 12,554,255
--------------- --------------
Long-term debt 51,200,000 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
(March 31, 2000) and 10,496,225
(December 31, 1999) issued and outstanding 524,982 524,811
Accumulated other comprehensive income (loss) ( 21,812) ( 52,764 )
Additional paid-in capital 93,516,080 93,473,301
Retained earnings 31,209,171 30,151,281
--------------- --------------
125,228,421 124,096,629
------------- --------------
Total liabilities and shareholders' equity $ 191,144,072 $ 183,950,884
=============== ==============
</TABLE>
4
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 March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
---------------- ----------
<S> <C> <C>
Revenues $ 74,945,490 $ 76,153,747
Cost of services 55,906,199 57,787,692
--------------- --------------
Gross profit 19,039,291 18,366,055
--------------- --------------
Operating costs and expenses
Selling, general and administrative 14,056,099 11,263,594
Depreciation 277,824 160,266
Amortization 1,517,040 468,866
----------- ----------
15,850,963 11,892,726
------------- --------------
Operating income 3,188,328 6,473,329
--------- --------------
Other (expense) income
Interest (expense), net of interest income ( 848,920) 4,018
Gain on foreign currency translation 2,886 5,610
------------- --------------
( 846,034) 9,628
-------------- --------------
Income before income taxes 2,342,294 6,482,957
Income taxes 1,284,404 2,587,495
--------------- --------------
Net income 1,057,890 3,895,462
Other comprehensive income
Foreign currency translation adjustment 30,952 3,358
--------------- --------------
Comprehensive income $ 1,088,842 $ 3,898,820
=============== ==============
Basic earnings per share $.10 $.37
Weighted average number of common 10,496,724 10,481,725
shares outstanding
Diluted earnings per share $.10 $.35
Weighted average number of common
and common equivalent shares
outstanding 10,981,734 10,990,842
</TABLE>
5
The accompanying notes are an integral part of these financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Three Months Ended March 31, 2000
(Unaudited)
<TABLE>
<CAPTION>
Accumulated
Other Additional
Common Stock Comprehensive Paid-in Retained
------------
Income (Loss) Capital Earnings
Shares Amount
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 2000 10,496,225 $524,811 ($52,764) $93,473,301 $30,151,281
Exercise of stock options 3,426 171 42,779
Translation adjustment 30,952
Net income 1,057,890
--------- -------- ---------- --------- ---------
Balance, March 31, 2000 10,499,651 $524,982 ($21,812) $93,516,080 $31,209,171
========== ======== ========= =========== ===========
</TABLE>
6
The accompanying notes are an integral part of these financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
----------- ----------
Cash flows from operating activities:
<S> <C> <C>
Net income $ 1,057,890 $ 3,895,462
------------- --------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 1,794,864 629,132
Provision for losses on accounts
receivable 46,000 75,000
Changes in assets and liabilities:
Accounts receivable 2,138,023 ( 11,051,238 )
Prepaid expenses and other
current assets ( 1,146,787) ( 1,721,920 )
Accounts payable and accrued expenses 802,550 139,663
Accrued payroll 2,807,210 1,595,838
Taxes other than income taxes ( 720,467) 2,445,386
Income taxes payable ( 791,173) 1,393,355
------------ -------------
Total adjustments 4,930,220 ( 6,494,784 )
------------- ------------
Net cash provided by (used in) operating activities 5,988,110 ( 2,599,322 )
--------- ---------
</TABLE>
7
The accompanying notes are an integral part of these financial statements.
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Three Months Ended March 31, 2000 and 1999 - (Continued)
(Unaudited)
<TABLE>
<CAPTION>
2000 1999
------------- ----------
Cash flows from investing activities:
<S> <C> <C>
Property and equipment acquired ($ 395,206) ($ 470,989 )
(Increase) decrease in deposits 7,429 ( 9,124 )
Purchase of acquired companies including
contingent consideration, net of cash acquired ( 8,779,015) ( 10,827,698 )
------------ ------------
Net cash used in investing activities ( 9,166,792) ( 11,307,811 )
------------ ------------
Cash flows from financing activities:
Exercise of stock options 42,950 108,000
Borrowings of long-term debt 3,900,000 8,000,000
------------- -------------
Net cash provided by financing activities 3,942,950 8,108,000
------------- -------------
Effect of exchange rate changes on cash and cash equivalents 30,952 3,358
------------- -------------
Increase (decrease) in cash and cash equivalents 795,220 ( 5,795,775 )
Cash and cash equivalents at beginning of period 4,025,808 8,423,492
------------- -------------
Cash and cash equivalents at end of period $ 4,821,028 $ 2,627,717
============= =============
Supplemental cash flow information:
Cash paid for:
Interest expense $ 933,803 $ 64,589
Income taxes 2,145,577 1,194,140
</TABLE>
8
The accompanying notes are an integral part of these financial statements.
<PAGE>
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 three months ended March 31, 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 $750,000, or $.07 on a diluted earnings per share
basis, for the three months ended March 31, 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 March 31, 2000 was
6.90%. The amounts outstanding under the Revolving Credit Facility at March
31, 2000 and December 31, 1999 were $51.2 million and $47.3 million,
respectively.
5. Interest (Expense) Income, Net
Interest (expense) income, net consisted of the following:
Three Months Ended
March 31,
2000 1999
-------- ----------
Interest expense ($899,803) ($64,589)
Interest income 50,883 68,607
------- ------
($848,920) $ 4,018
========== =======
9
<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>
Three Months Ended Information Professional Commercial
March 31, 2000 Technology Engineering Services Corporate Total
---------- ----------- ----------------- ------------- --------
<S> <C> <C> <C> <C>
Revenue $58,823 $9,835 $6,287 $74,945
Operating expenses 54,808 9,136 6,018 69,962
------ ----- ----- -------
EBITDA (a) 4,015 699 269 4,983
Depreciation 202 68 8 278
Goodwill amortization 1,341 166 10 1,517
----- --- -- -----
Operating income $2,472 $465 $251 $3,188
====== ==== ==== ======
Total assets $162,839 $14,185 $4,696 $9,423 $191,144
Capital expenditures $380 $ 15 $ 8 $ $ 395
</TABLE>
<TABLE>
<CAPTION>
Three Months Ended
March 31, 1999
<S> <C> <C> <C> <C>
Revenue $52,630 $16,443 $7,081 $76,154
Operating expenses 47,293 14,988 6,770 69,051
------ ------ ----- ------
EBITDA (a) 5,337 1,455 311 7,103
Depreciation 109 49 2 160
Goodwill amortization 383 81 5 469
-------- -------- ------- -------
Operating income 4,845 1,325 304 6,474
======= ====== ==== ======
Total assets $106,606 $24,383 $24,383 $6,533 $143,197
Capital expenditures $ 100 $ 50 $ 321 $ 471
</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>
10
<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 March 31, 1999 and from
January 1, 2000 to March 31, 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.
11
<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, personnel downsizing and widespread business process re-engineering.
Increasingly, these companies are turning to IT solutions to address these
issues and to compete more effectively. As a result, the ability of an
organization to integrate and deploy new information technologies has become
critical.
Although many companies have recognized the importance of IT systems and
products to compete in today's business climate, the process of designing,
developing and implementing IT solutions has become increasingly complex. Some
companies continue to migrate away from centralized mainframes running
proprietary software toward decentralized, scalable architectures based on
personal computers, client/server architectures, local and wide area networks,
the Internet, shared databases and packaged application software. 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 use IT
systems and solutions in new ways and the number of end users within these
organizations 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, external economic factors have caused some organizations to focus on core
competencies and trim workforces in the IT management area. Accordingly, these
organizations often lack the quantity, quality and variety of IT skills
necessary to design and develop solutions. IT managers are charged with
developing and supporting increasingly complex systems and applications of
significant strategic value, while working under budgetary, personnel and
expertise constraints within their own organizations.
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.
12
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
<TABLE>
<CAPTION>
A summary of operating results for the three months ended March 31, 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 $ 74,945 100.0% $ 76,154 100.0 %
Cost of services 55,906 74.6 57,788 75.9
-------- ---- --------- ----
Gross profit 19,039 25.4 18,366 24.1
-------- ---- --------- ----
Selling, general and administrative 14,056 18.8 11,264 14.8
Depreciation 278 .4 160 .2
-------- -- --------- --
14,334 19.2 11,424 15.0
-------- ---- --------- ----
Operating income 4,705 6.3 6,942 9.1
Other (expense) income ( 846 ) ( 1.1) 10
--- --- --
Income before income taxes
and goodwill amortization 3,859 5.2 6,952 9.1
Income taxes 1,538 2.1 2,695 3.5
----------- --- --------- ---
Income before goodwill amortization 2,321 3.2 4,257 5.6
Goodwill amortization, net of income tax benefits 1,263 1.7 362 .5
-------- --- --------- --
Net income $ 1,058 1.4% $ 3,895 5.1 %
======== === ========= ===
Earnings per share: 2000 1999
------- --------
Basic:
Income before goodwill amortization $.22 $.41
Goodwill amortization .12 .04
--- ---
Net income $.10 $.37
==== ====
Diluted:
Income before goodwill amortization $.21 $.38
Goodwill amortization .11 .03
--- ---
Net income $.10 $.35
==== ====
</TABLE>
REVENUES. Revenues decreased 1.6%, or $1.2 million, for the three months ended
March 31, 2000 as compared to the comparable prior year period. Revenue decline
was primarily attributable to weakness in the Information Technology ("IT")
sector. The revenue decline was mitigated by revenue from acquisitions
subsequent to March 31, 1999.
COST OF SERVICES. Cost of services decreased 3.3%, or $1.9 million, for the
three months ended March 31, 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 and Professional
Engineering services. Cost of services as a percentage of revenues decreased to
74.6% for the three months ended March 31, 2000 from 75.9% for the comparable
prior year period.
13
<PAGE>
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended March 31, 2000 Compared to Three Months Ended March 31, 1999
- (Continued)
SELLING, GENERAL AND ADMINISTRATIVE. Selling, general and administrative
expenses increased 24.8%, or $2.8 million, for the three months ended March 31,
2000 as compared to the comparable prior year period. This increase was
primarily attributable to acquisitions subsequent to March 31, 1999.
DEPRECIATION. Depreciation increased 73.8%, or $118,000, for the three months
ended March 31, 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 March 31,
2000, actual interest expense of $900,000 was offset by $51,000 of interest
income, which was earned from the investment in interest bearing deposits.
Interest expense, net increased $853,000 for the three months ended March 31,
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 March 31, 1999, as well as to fund working capital
requirements.
INCOME TAX. Income tax expense decreased 42.9%, or $1.2 million, for the three
months ended March 31, 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 March 31, 2000 compared to the comparable prior year period.
GOODWILL AMORTIZATION. Goodwill amortization for the three months ended March
31, 2000 and 1999 was net of income tax benefit of $254,000 and $107,000,
respectively. The increase was primarily due to the amortization of intangible
assets incurred in connection with the acquisitions that occurred subsequent to
March 31, 1999. See footnote 3 appearing elsewhere in this document.
LIQUIDITY AND CAPITAL RESOURCES
Operating activities provided $6.0 million of cash for the three months ended
March 31, 2000 as compared to operating activities using $2.6 million of cash
for the three months ended March 31, 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 March 31, 1999.
Financing activities provided $3.9 million and $8.1 million for the three months
ended March 31, 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 March 31, 2000 was $51.2 million.
14
<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.
15
<PAGE>
PART II
OTHER INFORMATION
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.
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: May 8, 2000 By:/s/ Stanton Remer
--- ------- -----
Stanton Remer
Chief Financial Officer,
Treasurer, Secretary and Director
(Principal Financial Officer and
Duly Authorized Officer of the Registrant)
16
<PAGE>
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THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL
STATEMENTS FOR THE THREE MONTHS ENDED MARCH 31, 2000 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH STATEMENTS.
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<NAME> RCM TECHNOLOGIES, INC.
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