-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, H08pNubqKS3/T/QGfHwt8vZmGhQHcAz828zkt5E3Z+hZsE9+LTeLYSSnGPBIa0yv wfXBqiSQ8l1eItO+Re5mhA== 0000700841-00-000005.txt : 20000207 0000700841-00-000005.hdr.sgml : 20000207 ACCESSION NUMBER: 0000700841-00-000005 CONFORMED SUBMISSION TYPE: 10-QT PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19991231 FILED AS OF DATE: 20000204 FILER: COMPANY DATA: COMPANY CONFORMED NAME: RCM TECHNOLOGIES INC CENTRAL INDEX KEY: 0000700841 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-HELP SUPPLY SERVICES [7363] IRS NUMBER: 951480559 STATE OF INCORPORATION: NV FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-QT SEC ACT: SEC FILE NUMBER: 001-10245 FILM NUMBER: 523433 BUSINESS ADDRESS: STREET 1: 2500 MCCLELLAN AVE STE 350 CITY: PENNSAUKEN STATE: NJ ZIP: 08109 BUSINESS PHONE: 6094861777 MAIL ADDRESS: STREET 1: 2500 MCCLELLAN AVENUE STREET 2: STE 350 CITY: PENNSAUKEN STATE: NJ ZIP: 08109-4613 10-QT 1 TRANSITION REPORT 12/31/99 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q [X]TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from November 1, 1999 to December 31, 1999 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 10,498,151 Common Stock, $0.05 par value Outstanding as of February 4, 2000 1 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION
Item 1 - Consolidated Financial Statements Page Consolidated Balance Sheets as of December 31, 1999 (Unaudited) and October 31, 1999 (Audited) 3 Unaudited Consolidated Statements of Income and Comprehensive Income for the Two-Month Periods Ended December 31, 1999 and 1998 5 Unaudited Consolidated Statements of Income for the Two-Month Periods Ended December 31, 1999 and 1998 6 Unaudited Consolidated Statement of Changes in Shareholders' Equity for the Two-Month Period Ended December 31, 1999 7 Unaudited Consolidated Statements of Cash Flows for the Two- Month Periods Ended December 31, 1999 and 1998 8 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 17
2 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS December 31, 1999 and October 31, 1999 ASSETS
December 31, October 31, 1999 1999 -------------- --------- (Unaudited) (Audited) Current assets Cash and cash equivalents $ 4,025,808 $ 1,540,952 Accounts receivable, net of allowance for doubtful accounts of $1,014,000 (December 31, 1999) and $1,002,000 (October 31, 1999) 66,654,677 71,391,596 Prepaid expenses and other current assets 3,257,207 3,179,305 --------- --------- Total current assets 73,937,692 76,111,853 ---------- ---------- Property and equipment, at cost Equipment and leasehold improvements 9,789,996 9,602,593 Less: accumulated depreciation and amortization 3,151,626 3,117,773 --------- --------- 6,638,370 6,484,820 --------- --------- Other assets Deposits 205,878 201,485 Intangible assets (net of accumulated amortization of $4,437,000 (December 31, 1999) and $3,969,000 (October 31, 1999) Goodwill 103,168,944 101,249,388 ----------- -------------- 103,374,822 101,450,873 Total assets $ 183,950,884 $ 184,047,546 = =========== = ===========
The accompanying notes are an integral part of these financial statements. 3 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED December 31, 1999 and October 31, 1999
LIABILITIES AND SHAREHOLDERS' EQUITY December 31, October 31, 1999 1999 -------------- --------- (Unaudited) (Audited) Current liabilities Accounts payable and accrued expenses $ 4,853,763 $ 8,382,893 Accrued payroll 5,640,054 9,543,082 Taxes other than income taxes 1,269,265 1,003,550 Income taxes payable 791,173 2,315,851 ------- --------- Total current liabilities 12,554,255 21,245,376 ---------- ---------- Long-term debt 47,300,000 40,800,000 ---------- ---------- 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; 10,496,225 shares issued and outstanding 524,811 524,811 Accumulated other comprehensive income ( 52,764 ) ( 96,230 ) Additional paid-in capital 93,473,301 93,473,301 Retained earnings 30,151,281 28,100,288 ---------- ---------- 124,096,629 122,002,170 Total liabilities and shareholders' equity $ 183,950,884 $ 184,047,546 = =========== = ===========
The accompanying notes are an integral part of these financial statements. 4 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME
Two Months Ended December 31, 1999 1998 -------------------------- (Unaudited) (Unaudited) Revenues $ 51,397,429 $ 44,577,045 Cost of services 38,178,972 34,342,008 ---------- ---------- Gross profit 13,218,457 10,235,037 ---------- ---------- Operating costs and expenses Selling, general and administrative 8,703,066 6,730,979 Depreciation and amortization 655,041 370,375 ------- ------- 9,358,107 7,101,354 --------- --------- Operating income 3,860,350 3,133,683 --------- --------- Other expense Interest (expense), net of interest income ( 550,734) 126,813 Gain on foreign currency translation 2,766 ----- ( 547,968) 126,813 ------- ------- Income before income taxes 3,312,382 3,260,496 Income taxes 1,261,389 1,394,084 --------- --------- Net income 2,050,993 1,866,412 Other comprehensive income Foreign currency translation adjustment 43,466 ------ Comprehensive income $ 2,094,459 $ 1,866,412 = ========= = ========= Basic earnings per share $.20 $.18 Weighted average number of common 10,496,225 10,450,026 shares outstanding Diluted earnings per share $.19 $.17 Weighted average number of common and common equivalent shares outstanding 10,951,447 11,028,489
The accompanying notes are an integral part of these financial statements. 5 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Two Months Ended December 31, 1999 (Unaudited)
Accumulated Other Additional Common Stock Comprehensive Paid-in Retained ------------------------------- Shares Amount Income Capital Earnings Balance, October 31, 1999 10,496,225 $524,811 ($96,230) $93,473,301 $28,100,288 Translation adjustment 43,466 Net income 2,050,993 -------------------------------- --------------- -------------------- ----------- Balance, December 31, 1999 10,496,225 $524,811 ($52,764) $93,473,301 $30,151,281 ========== ======== ========= =========== ===========
The accompanying notes are an integral part of these financial statements. 6 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS
Two Months Ended December 31, 1999 1998 ---------------- ---------- (Unaudited) (Unaudited) Cash flows from operating activities: Net income $ 2,050,993 $ 1,866,412 ------------- -------------- Adjustments to reconcile net income to net cash provided by (used in) operating activities: Depreciation and amortization 655,041 370,375 Provision for losses on accounts receivable 12,000 25,000 Changes in assets and liabilities: Accounts receivable 4,724,919 ( 7,781,018 ) Prepaid expenses and other current assets ( 77,902) ( 16,753 ) Accounts payable and accrued expenses ( 3,551,439) 2,284,991 Accrued payroll ( 3,903,028) 766,292 Taxes other than income taxes 265,715 645,830 Income taxes payable ( 1,524,677) 2,241,349 --------- --------- Total adjustments ( 3,399,371) ( 1,430,428 ) --------- --------- Net cash provided by (used in) operating activities ( 1,348,378) 435,984 --------- -------
The accompanying notes are an integral part of these financial statements. 7 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS - (CONTINUED)
Two Months Ended December 31, 1999 1998 ---------------- ---------- (Unaudited) (Unaudited) Cash flows from investing activities: Property and equipment acquired ($ 333,902) ($ 710,376 ) Increase in deposits ( 4,393) ( 28,042 ) Purchase of acquired companies including contingent consideration, net of cash acquired ( 2,371,937) ( 13,680,360 ) ------------ ------------ Net cash used in investing activities ( 2,710,232) ( 14,418,778 ) ------------ ------------ Cash flows from financing activities: Exercise of stock options 218,750 Borrowings of long-term debt 6,500,000 ------------- Net cash provided by financing activities 6,500,000 218,750 ------------- ------------- Effect of exchange rate changes on cash and cash equivalents 43,466 ------------- Increase (Decrease) in cash and cash equivalents 2,484,856 ( 13,764,044 ) Cash and cash equivalents at beginning of period 1,540,952 22,187,536 ------------- ------------- Cash and cash equivalents at end of period $ 4,025,808 $ 8,423,492 ============= ============= Supplemental cash flow information: Cash paid for: Interest expense $ 613,492 $ 11,604 Income taxes 3,005,066 152,735
The accompanying notes are an integral part of these financial statements. 8 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 two months ended December 31, 1999 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 end from October 31 to December 31. As a result of the change, the Company has prepared this Form 10-Q covering the transition period from November 1, 1999 through and including December 31, 1999. 3. 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 December 31, 1999 was 6.88%. The amounts outstanding under the Revolving Credit Facility at December 31, 1999 and October 31, 1999 were $47.3 million and $40.8 million, respectively. 3. Interest (Expense) Income, Net Interest (expense) income, net consisted of the following: Two Months Ended December 31, 1999 1998 ---------------- ---------- Interest expense ($574,320) ($11,604) Interest income 23,586 138,417 ---------- ---------- ($550,734) $ 126,813 ========== ========= 9 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS 4. 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):
Two Months Ended Information Professional Commercial December 31, 1999 Technology Engineering Services Corporate Total ---------- ----------- -------------- ----------------------- Revenue $39,231 $8,286 $3,880 $ $51,397 Operating expenses 35,263 7,901 3,718 46,882 ------ ----- ----- ------- EBITDA (a) 3,968 385 162 4.515 Depreciation 145 37 5 187 Goodwill amortization 406 59 3 468 --- -- - --- Operating income $3,417 $289 $154 $ $3,860 ====== ==== ==== == ====== Total assets $159,350 $16,423 $4,041 $4,137 $183,951 Capital expenditures $272 $62 $ $ $334
Two Months Ended December 31, 1998 Revenue $31,871 $8,128 $4,578 $ $44,577 Operating expenses 29,093 7,609 4,371 41,073 ------ ----- ----- ------ EBITDA (a) 2,778 519 207 3,504 Depreciation 68 29 1 98 Goodwill amortization 231 38 4 272 --- -- - --- Operating income $2,480 $452 $202 $ $3,134 ====== ==== ==== == ====== Total assets $94,604 $16,409 $4,047 $10,030 $125,090 Capital expenditures $625 $ $ $85 $710
[FN] (a) 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. 10 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 November 1, 1998 to December 31, 1998 and from November 1, 1999 to December 31, 1999; (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. Overview This transition report on Form 10-Q is required to be filed as a result of the Company having changed its fiscal year end from October 31 to December 31. The financial information in this report covers the periods from November 1, 1998 to December 31, 1998 and from November 1, 1999 to December 31, 1999. The Company does not historically report information relating to such periods. 11 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Overview - (Continued) 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 77 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 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued)
Two Months Ended December 31, 1999 Compared to Two Months Ended December 31, 1998 Two Months Ended December 31, 1999 1998 ----------------------------------------------------------- % of % of Amount Revenue Amount Revenue Revenues $ 51,397,429 100.0% $ 44,577,045 100.0 % Cost of services 38,178,972 74.3 34,342,008 77.1 Gross profit 13,218,457 25.7 10,235,037 22.9 Selling, general and administrative 8,703,066 16.9 6,730,979 15.1 Depreciation and amortization 655,041 1.3 370,375 .7 Operating income 3,860,350 7.5 3,133,683 7.1 Interest (expense) income, net ( 550,734 ) ( 1.1) 126,813 .3 Gain on foreign currency translation 2,766 Income before income taxes 3,312,382 6.4 3,260,496 7.4 Income taxes 1,261,389 2.4 1,394,084 3.1 Net income $ 2,050,993 4.0% $ 1,866,412 4.3 % Earnings per share (diluted) $.19 $.17 ==== ====
Revenues. Revenues increased 15.3%, or $6.8 million, for the two months ended December 31, 1999 as compared to the comparable prior year period. Revenue growth was primarily attributable to acquisitions prior to November 1, 1999 and internal growth. Cost of Services. Cost of services increased 11.2%, or $3.8 million, for the two months ended December 31, 1999 as compared to the comparable prior year period. This increase was primarily due to increased salaries and compensation associated with the increased revenues experienced during the two months ended December 31, 1999. Cost of services as a percentage of revenues decreased to 74.3% for the two months ended December 31, 1999 from 77.1% for the comparable prior year period. This decline was attributable to an increasing amount of the Company's revenues being derived from information technology and other professional services. Selling, General and Administrative. Selling, general and administrative expenses increased 29.3%, or $2.0 million, for the two months ended December 31, 1999 as compared to the comparable prior year period. This increase was primarily attributable to a 15.3% increase in revenues which required additional administrative, marketing and sales expenses as well as infrastructure costs to support anticipated future growth. Selling, general and administrative expenses as a percentage of revenues increased to 16.9% for the two months ended December 31, 1999 as compared to 15.1% for the comparable prior year period, primarily due to the increase in infrastructure costs to support anticipated future revenue growth. Depreciation and Amortization. Depreciation and amortization increased 76.9%, or $.3 million, for the two months ended December 31, 1999 as compared to the comparable prior year period. This increase was primarily due to the amortization of intangible assets incurred in connection with the acquisitions that occurred during the Company's fiscal year ended October 31, 1999. 13 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES Management's Discussion and Analysis of Financial Condition and Results of Operations - (Continued) Two Months Ended December 31, 1999 Compared to Two Months Ended December 31, 1998 - (Continued) Interest (Expense) Income, Net. For the two months ended December 31, 1999, actual interest expense of $574,000 was offset by $23,600 of interest income, which was earned from the investment in interest bearing deposits. Interest expense, net increased $563,000 for the two months ended December 31, 1999 as compared to the comparable prior year period. This increase was primarily due to the increased borrowing requirements necessary to complete acquisitions subsequent to December 31, 1998, as well as to fund working capital requirements. Income Tax. Income tax expense decreased 9.5%, or $133,000, for the two months ended December 31, 1999 as compared to the comparable prior year period. This decrease was primarily due to prior period over accruals. Liquidity and Capital Resources Operating activities used $1.3 million of cash for the two months ended December 31, 1999 as compared to operating activities providing $436,000 of cash for the two months ended December 31, 1998. The increase in the use of cash was primarily attributable to a decrease in accounts payable, accrued expenses, accrued payroll and income taxes payable, which was partially offset by a decrease in accounts receivable and an increase in withheld payroll taxes and increased levels of profitability, and depreciation and amortization associated with the acquisitions subsequent to December 31, 1998. Investing activities utilized $2.7 million and $14.4 million for the two months ended December 31, 1999 and 1998, respectively. During the two months ended December 31, 1999, the Company invested $2.4 million in cash for deferred consideration payments in connection with its acquisitions. During the two months ended December 31, 1998, the Company invested $10.6 million in cash in the purchase of one consulting company and $3.1 million of deferred consideration payments. Financing activities provided $6.5 million and $219,000 for the two months ended December 31, 1999 and 1998, 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 December 31, 1999 was $47.3 million. 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. 14 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 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 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 complaint was approximately $2,900,000. The Company depends on its computer system for critical business functions, including time record keeping, billing, payroll, and accounts payable and receivable. The loss of these capabilities would have a material adverse impact on the Company. The Company believes its new computer system has remedied the millennium date change; however, in the event that weaknesses (Y2K or otherwise) in the new system are discovered, the Company will implement the contingency plan it has developed, which will utilize some of its staff of approximately 2,200 information technology professionals which can assist in achieving Y2K readiness. The Company's business does not depend on raw materials, parts or other goods supplied by third parties and, therefore, the Company believes the inability of its vendors to achieve Y2K compliance would not have a material adverse impact on the Company. The Company does use utility services (electricity, telecommunication, natural gas and the like) for its offices, and interruption of these services could have a material adverse impact on the Company's operations. The inability of the Company's clients to achieve Y2K compliance could have an impact on their ability to pay the Company for the services it renders to them, with a consequent adverse impact on the Company's cash flow. The Company's services addressing the Year 2000 problem involve key aspects of its clients' computer systems. A failure in a client's system could result in a claim for substantial damages against the Company, regardless of the Company's responsibility for such failure. Litigation, regardless of its outcome, could result in substantial cost to the Company. Accordingly, any contract liability claim or litigation against the Company could have an adverse effect on the Company's business, operations and financial results. The Company does not believe any reasonably likely worst-case Y2K scenario would have a material effect on its results of operations, liquidity or financial condition. 15 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. 16 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: February 4, 2000 By:/s/ Stanton Remer --- ------- ----- Stanton Remer Chief Financial Officer, Treasurer, Secretary and Director (Principal Financial Officer and Duly Authorized Officer of the Registrant) 17 EX-27 2 FDS --
5 THIS SCHEDULE SUMMARY FINANCIAL INFORMATION IS EXTRACTED FROM THE FINANCIAL STATEMENTS FOR THE TWO MONTHS ENDED DECEMBER 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH STATEMENTS. 0000700841 RCM TECHNOLOGIES, IC. 1 U.S. DOLLARS 2-Mos Dec-31-2000 Nov-1-1999 Dec-31-1999 1 4,028,808 0 67,668,677 1,014,000 0 73,937,692 9,789,996 3,151,626 183,950,884 12,554,255 0 0 0 524,811 123,571,818 183,950,884 51,397,429 51,397,429 38,178,972 9,358,107 0 0 550,734 3,312,382 1,261,389 2,050,993 0 0 0 2,050,993 .20 .19
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