UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 1-10245
RCM TECHNOLOGIES, INC.
(Exact name of Registrant as specified in its Charter)
Nevada 95-1480559
(State of Incorporation) (I.R.S. Employer Identification No.)
2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613
(Address of Principal Executive Offices) (Zip Code)
(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.
Common Stock, $0.05 par value, 10,499,651 shares outstanding as of May 3, 2001.
2
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
PART I - FINANCIAL INFORMATION
Page
Item 1 - Consolidated Financial Statements
Consolidated Balance Sheets as of March 31, 2001 (Unaudited)
and December 31, 2000 (Audited) 3
Unaudited Consolidated Statements of Income and Comprehensive Income
for the Three-Month Periods Ended March 31, 2001 and 2000 5
Unaudited Consolidated Statement of Changes in Shareholders'
Equity for the Three-Month Period Ended March 31, 2001 6
Unaudited Consolidated Statements of Cash Flows for the Three-
Month Periods Ended March 31, 2001 and 2000 7
Notes to Unaudited Consolidated Financial Statements 9
Item 2 - Management's Discussion and Analysis of Financial Condition
and Results of Operations 11
Item 3 - Quantitative and Qualitative Disclosures About Market Risk 15
PART II - OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 16
Signatures 16
2
ITEM 1. CONSOLIDATED FINANCIAL STATEMENTS
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
March 31, 2001 and December 31, 2000
ASSETS
March 31, December 31,
2001 2000
--------------- ---------------
(Unaudited) (Audited)
Current assets
Cash and cash equivalents $ 8,373,936 $ 3,170,658
Accounts receivable, net of allowance for doubtful accounts
of $2,054,000 (March 31, 2001) and $1,875,000
(December 31, 2000), respectively 57,005,721 64,032,564
Income tax refund receivable 3,974,352 7,417,258
Prepaid expenses and other current assets 2,513,556 3,161,235
Deferred tax assets 1,520,205 1,449,518
--------- ---------
Total current assets 73,387,770 79,231,233
--------------- ---------------
Property and equipment, at cost
Equipment and leasehold improvements 9,614,144 10,238,480
Less: accumulated depreciation and amortization 3,386,470 4,079,857
--------------- ---------------
6,227,674 6,158,623
--------------- ---------------
Other assets
Deposits 212,285 223,512
Intangible assets, net of accumulated amortization
of $9,922,000 (March 31, 2001) and $7,878,000
(December 31, 2000), respectively 89,920,964 88,655,460
---------------------------------
90,133,249 88,878,972
--------------- ---------------
Total assets $169,748,693 $174,268,828
=============== ===============
3
The accompanying notes are an integral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
March 31, 2001 and December 31, 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
March 31, December 31,
2001 2000
--------------- ---------------
(Unaudited) (Audited)
Current liabilities
Accounts payable and accrued expenses $ 15,861,162 $13,610,547
Accrued payroll 9,337,467 7,691,258
Payroll and withheld taxes 32,386 1,311,828
Income taxes payable 19,768 108,996
--------------- ---------------
Total current liabilities 25,250,783 22,722,629
--------------- ---------------
Long-term liabilities
Note payable 39,900,000 47,300,000
Income taxes payable 1,455,873 2,183,873
--------------- ---------------
41,355,873 49,483,873
--------------- ---------------
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 shares issued and outstanding 524,982 524,982
Accumulated other comprehensive loss (304,864) (233,631)
Additional paid-in capital 93,516,080 93,516,080
Retained earnings 9,405,839 8,254,895
--------------- ---------------
103,142,037 102,062,326
--------------- ---------------
Total liabilities and shareholders' equity $169,748,693 $174,268,828
=============== ===============
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, 2001 and 2000
(Unaudited)
2001 2000
---------------- ---------------
Revenues $ 64,653,787 $ 74,945,490
Cost of services 46,581,870 55,906,199
---------------- ---------------
Gross profit 18,071,917 19,039,291
---------------- ---------------
Operating costs and expenses
Selling, general and administrative 12,443,828 14,056,099
Depreciation 235,460 277,824
Amortization 2,043,490 1,517,040
---------------- ---------------
14,722,778 15,850,963
---------------- ---------------
Operating income 3,349,139 3,188,328
---------------- ---------------
Other expenses
Interest expense, net of interest income 741,821 848,920
Gain on foreign currency translation ( 4,061) ( 2,886)
---------------- ---------------
737,760 846,034
---------------- ---------------
Income before income taxes 2,611,379 2,342,294
Income taxes 1,460,435 1,284,404
---------------- ---------------
Net income 1,150,944 1,057,890
Other comprehensive income (loss)
Foreign currency translation adjustment ( 71,233) 30,952
---------------- ---------------
Comprehensive income $ 1,079,711 $ 1,088,842
================ ===============
Basic earnings per share $.11 $.10
==== ====
Weighted average number of common
shares outstanding 10,499,651 10,496,724
========== ==========
Diluted earnings per share $.11 $.10
==== ====
Weighted average number of common
and common equivalent shares outstanding 10,638,305 10,981,734
========== ==========
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, 2001
(Unaudited)
Accumulated
Other Additional
Common Stock Comprehensive Paid-in Retained
Shares Amount Income (Loss) Capital Earnings
Balance, January 1, 2001 10,499,651 $524,982 ($233,631) $93,516,080 $8,254,895
Translation adjustment ( 71,233)
Net income ________ _______ ________ __________ 1,150,944
---------
Balance, March 31, 2001 10,499,651 $524,982 ($304,864) $93,516,080 $9,405,839
========== ======== ========== =========== ==========
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, 2001 and 2000
(Unaudited)
2001 2000
--------------- --------------
Cash flows from operating activities:
Net income $ 1,150,944 $1,057,890
--------------- --------------
Adjustments to reconcile net income to net cash provided by (used in)
operating activities:
Depreciation and amortization 2,278,950 1,794,864
Provision for losses on accounts receivable 179,000 46,000
Changes in assets and liabilities:
Accounts receivable 6,847,842 2,138,023
Income tax refund receivable 3,442,906
Deferred tax asset ( 70,687)
Prepaid expenses and other current assets 648,030 ( 1,146,787)
Accounts payable and accrued expenses 1,305,700 802,550
Accrued payroll 1,646,209 2,807,210
Payroll and withheld taxes ( 1,279,442) ( 720,467)
Income taxes payable ( 817,228) ( 791,173)
--------------- --------------
Total adjustments 14,181,280 4,930,220
--------------- --------------
Net cash provided by operating activities 15,332,224 5,988,110
--------------- --------------
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, 2001 and 2000 - (Continued)
(Unaudited)
2001 2000
--------------- --------------
Cash flows from investing activities:
Property and equipment acquired ( $ 383,338) ( $ 395,206)
Decrease in deposits 11,227 7,429
Purchase of acquired companies including
contingent consideration, net of cash acquired ( 2,285,602) ( 8,779,015)
--------------- --------------
Net cash used in investing activities ( 2,657,713) ( 9,166,792)
--------------- --------------
Cash flows from financing activities:
Exercise of stock options 42,950
Borrowings of long-term debt ( 7,400,000) 3,900,000
--------------- --------------
Net cash provided by (used in) financing activities ( 7,400,000) 3,942,950
--------------- --------------
Effect of exchange rate changes on cash and cash equivalents ( 71,233) 30,952
--------------- --------------
Increase in cash and cash equivalents 5,203,278 795,220
Cash and cash equivalents at beginning of period 3,170,658 4,025,808
--------------- --------------
Cash and cash equivalents at end of period $ 8,373,936 $4,821,028
=============== ==============
Supplemental cash flow information:
Cash paid for:
Interest expense $ 595,870 $ 933,803
Income taxes ( $ 929,056) $2,145,577
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 Quarterly Report on Form 10-Q should be
read in conjunction with the Company's Annual Report on Form 10-K for the
year ended December 31, 2000. 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, 2001 are not necessarily
indicative of the results to be expected for the full year.
2. Goodwill
The net assets of businesses acquired, which are accounted for as
purchases, have been reflected at their fair values at dates of
acquisition. The excess of acquisition costs over such net assets
(goodwill) is reflected in the consolidated balance sheets as Intangible
Assets. Goodwill, net of amortization, at March 31, 2001 and December 31,
2000 was $89,921,000 and $88,655,000, respectively, and is being amortized
on a straight-line method over twenty years. Amortization expense for the
three months ended March 31, 2001 and 2000 was $2,043,000 and $1,517,000,
respectively.
It is the Company's policy to periodically review the net realizable value
of its intangible assets, including goodwill, through an assessment of the
estimated future cash flows related to such assets. Each business unit to
which these intangible assets relate is reviewed to determine whether
future cash flows over the remaining estimated useful lives of the assets
provide for recovery of the assets. In the event that assets are found to
be carried at amounts that are in excess of estimated undiscounted future
cash flows, then the intangible assets are adjusted for impairment to a
level commensurate with an undiscounted cash flow analysis of the
underlying assets.
3. Long Term Debt
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").
The Revolving Credit Facility was amended on September 18, 2000. Borrowings
under the Revolving Credit Facility bear interest at one of two alternative
rates, as selected by the Company. These alternatives are: LIBOR (London
Interbank Offered Rate), plus applicable margin, or the agent bank's prime
rate.
Borrowings under the Revolving Credit Facility are 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 restrictions on the
Company's ability to pay dividends. The Revolving Credit Facility expires
August 2002. The weighted average interest rates at March 31, 2001 and
December 31, 2000 were 7.27% and 8.33%, respectively. The amounts
outstanding under the Revolving Credit Facility at March 31, 2001 and
December 31, 2000 were $39.9 million and $47.3 million, respectively.
4. Interest (Expense) Income, Net
Interest (expense) income, net consisted of the following:
Three Months Ended March 31,
---------------------------------
2001 2000
----------------- -------------
Interest expense ($851,045) ($899,803)
Interest income 109,224 50,833
----------------- -------------
($741,821) ($848,920)
================= =============
9
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
5. 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, 2001 Technology Engineering Services Corporate Total
--------------- ------------- -------------- ------------- -------------
Revenue $48,574 $9,921 $6,159 $64,654
Operating expenses 43,781 9,321 5,924 59,026
------ ----- ----- ------
EBITDA (1) 4,793 600 235 5,628
Depreciation 178 48 10 236
Goodwill amortization 1,874 161 8 2,043
----- --- - -----
Operating income $2,741 $391 $217 $3,349
====== ==== ==== ======
Total assets $135,876 $11,894 $5,384 $16,595 $169,749
Capital expenditures $158 $225 $383
Three Months Ended
March 31, 2000
Revenue $58,823 $9,835 $6,287 $74,945
Operating expenses 54,808 9,136 6,018 69,962
------ ----- ----- ------
EBITDA (1) 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
<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
ITEM 2. MANAGEMENTS'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITON AND
RESULTS OF OPERATIONS
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 and 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
being 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 allocation
of costs and expenses to each of the Company's operating segments; and (xvii)
other economic, competitive and governmental factors affecting the Company's
operations, markets, 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 is a premier provider of business and technology solutions
designed to enhance and maximize the performance of its customers through the
adaptation and deployment of advanced information and engineering technologies.
RCM is an innovative leader in the development and delivery of E-Business,
Supply Chain Management and Enterprise Application Integration services across
multiple platforms, systems and networks. RCM's offices are located in major
metropolitan centers throughout North America. The Company has grown its
information technology competencies in the areas of resource augmentation,
e-business, Supply Chain Management, 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 and finance, healthcare,
insurance, pharmaceutical, telecommunications, utility, technology,
manufacturing and distribution and government sectors. The Company believes that
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, the challenge of
accelerating technological change, and the ongoing need for business process
re-engineering to take advantage of the Internet's potential to bring them
closer to their suppliers and customers. Increasingly, these companies are also
suffering from a shortage of qualified expert employees who can build these
solutions. As a result, the ability of an organization to effectively compete is
critically reliant on its ability to introduce and integrate these emerging
technologies in a timely fashion.
Although many companies have recognized the importance of the Internet and
information management technologies to competing in today's business climate,
the process of designing, developing and implementing these solutions has become
increasingly complex. Companies continue to migrate away from centralized
computing environments toward decentralized, scalable architectures based on
local and wide area networks, the Internet, Intranets, shared databases and
collaborative application software bringing them closer to their clients and
suppliers. These advances have enhanced the ability of companies to benefit from
the application of IT systems and solutions. Consequently, the number of
companies desiring to deploy these systems and solutions and the number of
connected users within these networks are rising rapidly.
As a result of the variety and complexity of these new technologies, IT managers
must integrate and manage computing environments consisting of multiple
computing platforms, operating systems, databases and networking protocols, and
must implement packaged software applications to support business objectives.
Companies also need to continually keep pace with new developments, which often
render existing equipment and internal skills obsolete. At the same time, the
rampant pace of these developments has left many companies unable to keep their
permanent staffs abreast in the technology evolution. Consequently, business
drivers cause IT managers to develop and support increasingly complex systems
and applications of significant strategic value, while working under budgetary,
personnel and expertise constraints within their own organizations. Many have
increasingly turned to consultants to assist them.
The Company realizes revenues from client engagements that range from the
placement of contract and temporary technical consultants to project assignments
that are based on defined deliverables. These services are primarily provided to
the client 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. The Company is
currently working to expand 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, 2001 Compared to Three Months Ended March 31, 2000
A summary of operating results for the three months ended March 31, 2001 and
2000 is as follows (in thousands, except for earnings per share data):
2001 2000
------------------------- ------------------------
% of % of
Amount Revenue Amount Revenue
Revenues $ 64,654 100.0% $ 74,945 100.0 %
Cost of services 46,582 72.0 55,906 74.6
-------- ---- --------- ----
Gross profit 18,072 28.0 19,039 25.4
-------- ---- --------- ----
Selling, general and administrative 12,444 19.2 14,056 18.8
Depreciation 235 .4 278 .4
-------- ------ --------- ------
12,679 19.6 14,334 19.2
-------- ---- --------- ----
Operating income 5,393 8.4 4,705 6.3
Other expense ( 738 ) ( 1.1) ( 846) ( 1.1 )
------- --- -------- ---
Income before income taxes
and goodwill amortization 4,655 7.2 3,859 5.2
Income taxes 1,856 2.9 1,538 2.1
-------- --- --------- ---
Income before goodwill amortization 2,799 4.3 2,321 3.1
Goodwill amortization, net of income tax benefits 1,648 2.5 1,263 1.7
-------- --- --------- ---
Net income $ 1,151 1.8% $ 1,058 1.4 %
======== === ========= ===
2001 2000
---------- ---------
Earnings per share:
Basic:
Income before goodwill amortization $.26 $.22
Goodwill amortization .15 .12
----- -----
Net income $.11 $.10
==== ====
Diluted:
Income before goodwill amortization $.26 $.21
Goodwill amortization .15 .11
----- -----
Net income $.11 $.10
==== ====
Revenues. Revenues decreased 13.7%, or $10.3 million, for the three months ended
March 31, 2001 as compared to the same period in the prior year (the "comparable
prior year period"). Revenue decline was primarily attributable to softness in
the Information Technology ("IT") sector.
Cost of Services. Cost of services decreased 16.7%, or $9.3 million, for the
three months ended March 31, 2001 as compared to the comparable prior year
period. This decrease was primarily due to a decrease in salaries and
compensation associated with decreased revenues experienced during the three
months ended March 31, 2001. Cost of services as a percentage of revenues
decreased to 72.1% for the three months ended March 31,2001 from 74.6% for the
comparable prior year period. This decline was primarily attributable to a
continuing increase of the Company's revenues being derived from higher margin
Information Technology Solutions services.
13
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Three Months Ended March 31, 2001 Compared to Three Months Ended
March 31, 2000 - (Continued)
Selling, General and Administrative. Selling, general and administrative
expenses decreased 11.5%, or $1.6 million, for the three months ended March 31,
2001 as compared to the comparable prior year period. This decrease was
primarily attributable to a reduction in revenues and a corresponding reduction
in the related variable costs and general cost cutting initiatives. Included in
the Selling, General and Administrative expenses for the three months ended
March 31, 2001 were charges relating to the write-down of approximately $500,000
of accounts receivable from two customers in the telecommunications industry.
The Company, during the three months ending June 30, 2001, expects to write-down
an additional $180,000 of accounts receivable relating to sales subsequent to
March 31, 2001 from one of the same customers.
Depreciation. Depreciation decreased 15.5%, or $43,000, for the three months
ended March 31, 2001 as compared to the comparable prior year period. This
decrease was primarily due to the write down of certain fixed assets to net
realizable value in the fiscal year ended December 31, 2000.
Other Expense. Other expense consists principally of interest expense, net of
interest income. For the three months ended March 31, 2001, actual interest
expense of $851,000 was offset by $109,000 of interest income, which was earned
from the investment in interest bearing deposits. Interest expense, net
decreased $107,000 for the three months ended March 31, 2001 as compared to the
comparable prior year period. This increase was primarily due to the increased
cash derived from operating activities which was used to reduce interest bearing
debt.
Income Tax. Income tax expense increased 20.7%, or $318,000, for the three
months ended March 31, 2001 as compared to the comparable prior year period.
This increase was attributable to a higher level of income before taxes for the
three months ended March 31, 2001 compared to the comparable prior year period.
Goodwill Amortization. Goodwill amortization for the three months ended March
31, 2001 and 2000 was net of income tax benefit of $395,000 and $254,000,
respectively. Goodwill increased 30.5%, or $385,000 for the three months ended
March 31, 2001 as compared to the comparable prior year period. The increase was
due primarily to the acceleration of goodwill amortization related to the final
payment on a certain acquisition.
Liquidity and Capital Resources
Operating activities provided $15.3 million of cash for the three months ended
March 31, 2001 as compared to operating activities using $6.0 million of cash
for the three months ended March 31, 2000. The increase in cash provided by
operating activities was primarily attributable to decreases in accounts
receivable, income tax refund receivable, deferred tax asset, and prepaid
expenses and other current assets, and increases in accounts payable and accrued
expenses and accrued payroll, which was partially offset by decreases in payroll
and withheld taxes and income taxes payable, and increased levels of
depreciation and amortization associated with the acquisitions subsequent to
March 31, 2000.
Investing activities used $2.7 million for the three months ended March 31, 2001
as compared to $9.2 million for the comparable period. The reduction in the use
of cash for the three months ended March 31, 2001 as compared to the comparable
period was primarily attributable to a reduction in acquisition and deferred
consideration payments.
Financing activities (principally debt reduction activities) used $7.4 million
for the three months ended March 31, 2001 as compared to financing activities
providing $3.9 million for the comparable period.
The Company and its subsidiaries are parties to 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"). The
Revolving Credit Facility was amended on September 18, 2000. Borrowings under
the Revolving Credit Facility bear interest at one of two alternative rates, as
selected by the Company. These alternatives are: LIBOR (London Interbank Offered
Rate), plus applicable margin, or the agent bank's prime rate.
14
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
Management's Discussion and Analysis of
Financial Condition and Results of Operations - (Continued)
Liquidity and Capital Resources - (Continued)
Borrowings under the Revolving Credit Facility are 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 restrictions on the Company's ability to
pay dividends. The Revolving Credit Facility expires August 2002. The weighted
average interest rates at March 31, 2001 and December 31, 2000 were 7.27% and
8.33%, respectively. The amounts outstanding under the Revolving Credit Facility
at March 31, 2001 and December 31, 2000 were $39.9 million and $47.3 million,
respectively.
The Company anticipates that its primary uses of capital in future periods will
be for working capital purposes. Funding for any future acquisitions will be
derived from one or more of 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 from time
to time engages 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.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
There have been no material changes to the Company's exposure to market risk
since its Annual Report on Form 10-K for the year ended December 31, 2000.
15
PART II
OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
None
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 3, 2001 By:/s/ Stanton Remer
--- ------- -----
Stanton Remer
Chief Financial Officer,
Treasurer, Secretary and Director
(Principal Financial Officer and
Duly Authorized Officer of the Registrant)