-----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, Svm24ISKZl6cotzlO+lnfpIVd02hpv2sjJxT1JrkWnk+2XMjWDpsCgQZ+eZpvhH+ XW7zjKq4UMc4tWwoItPEFA== 0000700841-00-000010.txt : 20000509 0000700841-00-000010.hdr.sgml : 20000509 ACCESSION NUMBER: 0000700841-00-000010 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20000331 FILED AS OF DATE: 20000508 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-Q SEC ACT: SEC FILE NUMBER: 001-10245 FILM NUMBER: 621854 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-Q 1 FIRST QUARTER 03/31/00> 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 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES PART I - FINANCIAL INFORMATION < Item 1 - Consolidated Financial Statements Page Consolidated Balance Sheets as of March 31, 2000 (Unaudited) 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
2 RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS March 31, 2000 and December 31, 1999 ASSETS
March 31, December 31, 2000 1999 ---------------- ---------- (Unaudited) (Unaudited) Current assets 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 =============== ==============
3 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS - CONTINUED March 31, 2000 and December 31, 1999 LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31, 2000 1999 --------------- ---------- (Unaudited) (Unaudited) Current liabilities 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 =============== ==============
4 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME Three Months Ended March 31, 2000 and 1999 (Unaudited)
2000 1999 ---------------- ---------- 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
5 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY Three Months Ended March 31, 2000 (Unaudited)
Accumulated Other Additional Common Stock Comprehensive Paid-in Retained ------------ Income (Loss) Capital Earnings Shares Amount 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 ========== ======== ========= =========== ===========
6 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2000 and 1999 (Unaudited)
2000 1999 ----------- ---------- Cash flows from operating activities: 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 ) --------- ---------
7 The accompanying notes are an integral part of these financial statements. RCM TECHNOLOGIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended March 31, 2000 and 1999 - (Continued) (Unaudited)
2000 1999 ------------- ---------- Cash flows from investing activities: 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
8 The accompanying notes are an integral part of these financial statements. 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 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):
Three Months Ended Information Professional Commercial March 31, 2000 Technology Engineering Services Corporate Total ---------- ----------- ----------------- ------------- -------- 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
Three Months Ended March 31, 1999 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
[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. 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 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 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 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
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 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 ==== ====
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 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 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 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 EX-27 2 FDS --
5 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. 0000700841 RCM TECHNOLOGIES, INC. 1 U.S. DOLLARS 3-MOS DEC-31-2000 JAN-1-2000 MAR-31-2000 1 4,821,028 0 65,530,654 1,060,000 0 73,695,676 10,336,591 3,563,121 191,144,072 14,715,651 0 0 0 524,982 124,703,439 191,144,072 74,945,490 74,945,490 55,906,199 15,850,963 0 0 848,920 2,342,294 1,284,404 1,057,890 0 0 0 1,057,890 .10 .10
-----END PRIVACY-ENHANCED MESSAGE-----