SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 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 IRS Employer Identification No.
2500 McClellan Avenue, Suite 350, Pennsauken, New Jersey 08109-4613
Address of principal executive offices
Registrant's telephone number, including area code:
(856) 486-1777 Securities registered pursuant to
Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
None None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock, par value $.05
(Title of Class)
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 by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of Registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X ]
The aggregate market value of Common Stock held by non-affiliates of
the Registrant on February 22, 2002 was approximately $53,628,000 based upon the
closing price of the Common Stock on such date on The Nasdaq National Market of
$5.11. The information provided shall in no way be construed as an admission
that any person whose holdings are excluded from the figure is an affiliate or
that any person whose holdings are included is not an affiliate and any such
admission is hereby disclaimed. The information provided is included solely for
record keeping purposes of the Securities and Exchange Commission.
The number of shares of Registrant's Common Stock (par value $0.05 per
share) outstanding as of February 22, 2002: 10,571,761.
Documents Incorporated by Reference
Portions of the Proxy Statement for the Registrant's 2002 Annual
Meeting of Stockholders ("the 2002 Proxy Statement") are incorporated by
reference into Items 10,11,12 and 13 in Part III of this Annual Report on Form
10-K. If the 2002 Proxy Statement is not filed by April 30, 2002, an amendment
to this Annual Report on Form 10-K setting forth this information will be duly
filed with the Securities and Exchange Commission.
PART I
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 which include, among others, statements regarding the Company's
intentions as to changes to its product offerings, its concentration or higher
margin service areas, its pursuit of strategic alliances, partnerships, clients
and acquisitions, the increased use of the SAP platform and the increased
propensity of clients to outsource IT functions, 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.
2
ITEM 1. BUSINESS
General
RCM Technologies, a Nevada corporation formed in 1971, 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 technology and engineering services. RCM
is an innovative leader in the design, development and delivery of these
services to various industries. RCM's offices are located in throughout
North America, including major metropolitan centers. The Company provides a
diversified and extensive range of service offerings and deliverables. Its
portfolio of Information Technology services includes e-Business,
Enterprise Management, Enterprise Application Integration and Supply Chain.
RCM's Engineering services focus on Engineering Design, Technical Support,
and Project Management and Implementation. The Company's Commercial
Services Group provides Specialty Healthcare professionals as well as
General Support Services. The Company provides its services to clients in
banking and finance, healthcare, insurance, aerospace, pharmaceutical,
telecommunications, utility, technology, manufacturing and distribution and
government sectors. The Company believes that the breadth of services
fosters long-term client relationships, affords cross-selling opportunities
and minimizes the Company's dependence on any single technology or industry
sector.
During the fiscal year ended December 31, 2001, approximately 70% of RCM's
total revenues were derived from IT services, 20% from Engineering services
and the remaining 10% from Commercial Services.
RCM sells and delivers its services through a network of 52 branch offices
located in selected regions throughout North America. The Company has
executed a regional strategy to better leverage its consulting services
offering. The Company has also implemented a reorganization of its
Solutions practices to centralize management oversight and to expand the
sales and marketing of those services.
Growth in demand for IT consulting services has slowed in the past two
years after several years of rapid growth. The decline in sales along with
a decline in operating income of certain branch offices has resulted in
impairment charges for the years ended December 31, 2001 and 2000. Despite
a sales slow down, RCM has achieved positive growth of the gross margin
percentages for the services delivered.
Industry Overview
Businesses today face intense competition, the challenge of constant
technological change, and the ongoing need for business process
optimization. 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 competing in today's business climate, the process of
designing, developing and implementing IT solutions has become increasingly
complex. With the prevailing economic conditions, many customers have
nonetheless elected to defer, redefine or actually cancel investments in
new systems or software. Many companies are focusing now on making the most
effective use of existing investments they have already made in software
and technology solutions. Many of the Company's clients are facing
challenging economic times. This is creating uncertainty in their ability
to pursue technology projects, which had previously been considered a
competitive imperative. Many clients are laying off their own permanent
staff and reducing the demand for consulting services in attempts to
maintain profitability. This has a direct impact on RCM's revenues.
3
ITEM 1. BUSINESS (CONTINUED)
Industry Overview (Continued)
The current economic environment has further challenged many companies as
they evaluate and determine which investment or funding choices they should
make or maintain or enhancements to business critical applications. IT
managers must integrate and manage computing environments consisting of
multiple computing platforms, operating systems, databases and networking
protocols, and off-the-shelf software applications to support business
objectives. Companies also need to keep pace with new developments in
technology, which often render existing equipment and internal skills
obsolete. At the same time, external economic factors have caused many
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 support IT
solutions. IT managers are charged with supporting increasingly complex
systems and applications of significant strategic value, while working
under budgetary, personnel and expertise constraints within their own
organizations.
The Company believes the strongest demand for IT services is among
middle-market companies, which typically lack the time and technical
resources to satisfy all of there IT needs internally. These companies
typically require sophisticated, experienced IT assistance to achieve their
business objectives. These companies often rely on IT service providers to
help implement and manage their systems. However, many middle-market
companies rely on multiple providers for their IT needs. Generally, the
Company believes that this reliance on multiple providers results from the
fact that larger IT service providers do not target these companies, while
smaller IT service providers lack sufficient breadth of services or
industry knowledge to satisfy all of these companies' needs. The Company
believes this reliance on multiple service providers creates multiple
relationships that are more difficult and less cost-effective to manage
than a single relationship would be and can adversely impact the quality
and compatibility of IT solutions. RCM is structured to provide
middle-market companies an objective, single-source for there IT needs.
Business Strategy
RCM is dedicated to providing solutions to meet its customers' business
needs by delivering information technology and professional engineering
services. The Company's objective is to be a recognized leader of specialty
professional consulting services and solutions in major markets throughout
North America. The Company has developed operating strategies to achieve
this objective. Key elements of its growth and operating strategies are as
follows:
Growth Strategy
Full Cycle Solution. The Company is building out its Full Cycle Solution
capability. The goal of the full cycle strategy is to fully address a
client's project implementation cycle. This entails the Company working
with its clients from the initial conceptualization of a project through
its design and project execution, and extending into ongoing management and
support of the delivered product. RCM's strategy is to selectively build
projects and solutions offerings, which utilize its extensive resource
base. The Company believes that the effective execution of this strategy
will generate improved margins on the existing resources. The completion of
this service-offering continuum affords the Company the opportunity to
strengthen long-term client relationships that will further improve the
quality of earnings.
In addition to building out the Full Cycle Solution Offering, the Company
will continue to focus on transitioning into higher value oriented services
to increase its margins on its various service lines. These measures will
be accomplished through expansion of its client relationships and, at the
same time, pursuing strategic alliances and partnerships.
Promote Internal Growth. The Company continues to evolve its internal
growth strategies. Several initiatives were launched during the year ended
December 31, 2001 ("fiscal 2001"). The results of these efforts have
produced gains in margin growth, RCM's customer service focus and national
account coordination, as well as greater client penetration.
4
ITEM 1. BUSINESS (CONTINUED)
Growth Strategy (Continued)
Gross margins increased as a direct result of implementing a program at all
operating branches of the Company to conduct business at certain margin
thresholds. The policies developed during this initiative continue to be
refined and administered.
In geographic regions where the Company has a high density of offices,
sales management programs were designed and implemented to segregate
clients into regional accounts. This process has provided a higher degree
of account coordination so clients can benefit from the wider array of
services that are offered by the Company.
During fiscal 2001, RCM continued a company-wide training initiative in
which sales managers and professionals received advanced sales training.
The purpose of the training, which is a multi-semester program, is to
sharpen sales skills and to further assist the sales force in identifying,
developing and closing solution sales.
RCM has adopted an industry-centric approach to sales and marketing. This
initiative recognizes that clients within the same industry sectors tend to
have common business challenges. It therefore allows the Company to present
and deliver enhanced value to those clients in the industrial sectors in
which RCM has assembled the greatest work experience. RCM's consultants
have acquired project experience that offers differentiated awareness of
the business challenges that clients in that industry are facing. This
alignment also facilitates and creates additional cross-selling
opportunities. The Company believes that the overall result is greater
account penetration and enhanced client relationships.
Operational strategies contributing to RCM's internal productivity include
the delineation of certain new technical practice areas in markets where
its clients had historically known the Company as a contract service
provider. The formation of these practice areas has facilitated the flow of
project opportunities and the delivery of project-based solutions. These
projects have had the positive effect of expanding the margins for the core
technical competencies of a number of Company consultants.
Continue Selective Strategic Acquisitions. The industry for the Company's
services continues to be highly fragmented, and the Company plans to
continue to assess opportunities to make strategic acquisitions as such
opportunities are presented to the Company. The Company's past acquisition
strategy has been designed to broaden the scope of services and technical
competencies and grow its Full Cycle Solution capabilities, and the Company
would continue to consider such goals in any future acquisitions. In
considering acquisitions, the Company focuses on companies with (i)
technologies RCM has targeted for strategic value enhancement, (ii) margins
that will not dilute the margins now being delivered, (iii) experienced
management personnel, (iv) substantial growth prospects and (v) sellers who
desire to join the Company's management team. To retain and provide
incentives for management of its acquired companies, the Company has
generally structured a significant portion of the acquisition price in the
form of multi-tiered consideration based on growth of operating
profitability of the acquired company over a two to three-year period.
Operating Strategy
Foster a Decentralized Entrepreneurial Environment. A key element of the
Company's operating strategy is to foster a decentralized, entrepreneurial
environment for its employees. The Company fosters this environment by
continuing to build on local market knowledge of each branch's reputation
and customer relationships and expertise. The Company believes an
entrepreneurial business atmosphere allows its branch offices to quickly
and creatively respond to local market demands and enhances the Company's
ability to motivate, attract and retain managers and to maximize growth and
profitability.
Develop and Maintain Strong Customer Relationships. The Company seeks to
develop and maintain strong interactive customer relationships by
anticipating and focusing on its customers' needs. The Company emphasizes a
relationship-oriented approach to business, rather than the transaction or
assignment-oriented approach that the Company believes is used by many of
its competitors. The industry-centric strategy has allowed RCM to further
expand its relationships with clients in RCM's targeted sectors.
5
ITEM 1. BUSINESS (CONTINUED)
Operating Strategy (Continued)
To develop close customer relationships, the Company's practice managers
regularly meet with both existing and prospective clients to help design
solutions for, and identify the resources needed to execute, their
strategies. The Company's managers also maintain close communications with
their customers during each project and on an ongoing basis after its
completion. The Company believes that this relationship-oriented approach
results in greater customer satisfaction and reduced business development
expense. Additionally, the Company believes that by partnering with its
customers in designing business solutions, it generates new opportunities
to cross sell additional services that the Company has to offer. The
Company focuses on providing customers with qualified individuals or teams
of experts compatible with the business needs of our customers and makes a
concerted effort to follow the progress of such relationships to ensure
their continued success.
Attract and Retain Highly Qualified Consultants and Technical Resources.
The Company believes it has been successful in attracting and retaining
qualified consultants and contractors by (i) providing stimulating and
challenging work assignments, (ii) offering competitive wages, (iii)
effectively communicating with its candidates, (iv) providing training to
maintain and upgrade skills and (v) aligning the needs of its customers
with the appropriately skilled personnel. The Company has been successful
in retaining these personnel due in part to its use of practice managers or
"ombudsmen" who are dedicated to maintaining contact with, and monitoring
the satisfaction levels of, the Company's consultants while they are on
assignment.
Centralize Administrative Functions. The Company seeks to maximize its
operational efficiencies by integrating general and administrative
functions at the corporate or regional level, and reducing or eliminating
redundant functions formerly performed at smaller branch offices. This
enables the Company to quickly realize savings and synergies, efficiently
control, and monitor its operations. It also allows local branches to focus
more on growing their sales and delivering capabilities.
To accomplish this, the Company is centralized on an SAP operating system
into which it integrated all of its operating units. This year all Canadian
operations implemented the SAP system completing the roll out to all
locations. The software is configured to perform all back office functions
including payroll, project management, project cost accounting, billing,
human resource administration and all financial consolidation and reporting
functions. The Company believes that this system provides a robust and
highly scalable platform from which to manage daily operations, and that
this system has the capacity to accommodate increased usage.
Information Technology
The Company's Information Technology Group offers responsive, timely and
comprehensive business and information technology consulting and solutions
to support the entire systems applications development and implementation
process. The Company's information technology professionals have expertise
in a variety of technical disciplines, including e-business development,
supply chain enterprise software, application integration, network
communications, knowledge management and support of client applications.
The Company has a wide array of service offerings and deliverables within
this spectrum. Within its e-business offering, RCM delivers web strategies,
web enablement of client applications, e-commerce solutions, Intranet
solutions, corporate portals and complete web sites. Within its business
intelligence practice, RCM provides data architecture design, data
warehousing projects, knowledge management, and customer relationship
management and supply chain management solutions. In its Enterprise
Applications area, RCM delivers software sales for certain applications,
implementation services, infrastructure support, integration services, and
an array of post implementation support services. In its enterprise
application integration work, the Company integrates diverse but related
enterprise applications into unified cohesive operating environments. The
Company believes that its ability to deliver information technology
solutions across a wide range of technical platforms provides an important
competitive advantage.
The Company also ensures that its consultants have the expertise and skills
needed to keep pace with rapidly evolving information technologies. The
Company's strategy is to maintain expertise and acquire knowledge in
multiple technologies so it can offer its clients non-biased solutions best
suited to their business needs.
6
ITEM 1. BUSINESS (CONTINUED)
Information Technology (Continued)
The Company provides its IT services through a number of delivery methods.
These include management consulting engagements, project management of
client efforts, project implementation of client initiatives, outsourcing,
both on and off site, and a full complement of resourcing alternatives.
As of December 31, 2001, the Company employed approximately 1,250
information technology personnel.
Professional Engineering
The Company's Professional Engineering Group provides personnel to perform
project engineering, computer aided design, and other managed task
technical services either at the site of the customer or, less frequently,
at the Company's own facilities. Representative services include utilities
process and control, electrical engineering design, system engineering
design and analysis, mechanical engineering design, procurement
engineering, civil structural engineering design, computer aided design and
code compliance. The Professional Engineering Group has developed an
expertise in providing engineering, design and technical services to many
customers in the aeronautical, paper products manufacturing and nuclear
power, fossil fuel and electric utilities industries.
The Company believes that the deregulation of the utilities industry and
the aging of nuclear power plants offer the Company an opportunity to
capture a significant share of professional staffing and project management
requirements of the utilities industry both in professional engineering
services and through cross-selling of its information technology services.
Heightened competition, deregulation and rapid technological advances are
forcing the utilities industry to make fundamental changes in its business
process. These pressures have compelled the utilities industry to focus on
internal operations and maintenance activities and to increasingly
outsource their personnel requirements. Additionally, the Company believes
that increased performance demands from deregulation should increase the
importance of information technology to this industry. The Company believes
that its expertise and strong relationships with certain customers within
the utilities industry position the Company to be a leading provider of
professional services to the utilities industry.
The Company provides its engineering services through a number of delivery
methods. These include managed tasks and resources, complete project
services, outsourcing, both on and off site, and a full complement of
resourcing alternatives.
As of December 31, 2001, the Company employed approximately 540 engineering
personnel.
Commercial Services
The Company's Commercial Services Group consists of Specialty Healthcare
and General Support Services. The Company's General Support Services Group
provides contract and temporary services, as well as permanent placement
services, for full time and part time personnel in a variety of functional
areas, including office, clerical, data entry, secretarial, light
industrial, shipping and receiving and general warehouse. Contract and
temporary assignments range in length from less than one day to several
weeks or months.
The Company's Specialty Healthcare Group provides skilled, licensed
healthcare professionals, primarily physical therapists, occupational
therapists, speech language pathologists and trauma nurses. The Specialty
Healthcare Group provides services to hospitals, nursing homes, pre-schools
and lower schools, sports medicine facilities and private practices.
Services include in-patient, outpatient, sub-acute and acute care,
multilingual speech pathology, rehabilitation, and geriatric, pediatric and
adult day care. The Specialty Healthcare Group does not provide general
nursing or home healthcare services. Typical engagements range either from
three to six months or are on a day-to-day shift basis.
As of December 31, 2001, the Company employed approximately 780 commercial
services personnel.
7
ITEM 1. BUSINESS (CONTINUED)
Branch Offices
The Company's organization consists of five operating regions with 52
branch offices located in 17 states and Canada. The region of and services
provided by each branch office are set forth in the table below.
NUMBER OF
REGION OFFICES SERVICES PROVIDED(1)
EAST
Connecticut................................... 2 PE
Maryland...................................... 1 IT
New Hampshire................................. 1 IT
New Jersey.................................... 5 IT, PE, CS
New York...................................... 4 IT, PE, CS
Pennsylvania.................................. 2 IT, PE
South Carolina................................ 1 PE
Tennessee..................................... 1 PE
Vermont....................................... 1 PE
18
GREAT LAKES
Illinois...................................... 1 IT
Michigan...................................... 5 IT, PE
Minnesota..................................... 1 IT
Wisconsin..................................... 3 IT, PE
10
CENTRAL
Texas......................................... 3 IT
3
WEST
Arizona....................................... 1 PE
Colorado...................................... 1 IT
Northern California........................... 2 IT
Southern California........................... 9 IT, CS
13
CANADA.......................................... 8 IT, PE
(1) Services provided are abbreviated as follows:
IT - Information Technology
PE - Professional Engineering
CS - Commercial Services
Branch offices are primarily located in regions that the Company believes
have strong growth prospects for information technology and engineering
services. The Company's branches are operated in a decentralized,
entrepreneurial manner with most branch offices operating as independent
profit centers. The Company's branch managers are given significant
autonomy in the daily operations of their respective offices and, with
respect to such offices, are responsible for overall guidance and
supervision, budgeting and forecasting, sales and marketing strategies,
pricing, hiring and training. Branch managers are paid on a
performance-based compensation system designed to motivate the managers to
maximize growth and profitability.
8
ITEM 1. BUSINESS (CONTINUED)
Branch Offices (Continued)
The Company believes that a substantial portion of the buying decisions
made by users of the Company's services are made on a local or regional
basis and that the Company's branch offices most often compete with local
and regional providers. Since the Company's branch managers are in the best
position to understand their local markets, and customers often prefer
local providers, the Company believes that a decentralized operating
environment maximizes operating performance and contributes to employee and
customer satisfaction.
From it's headquarter locations in New Jersey, the Company provides its
branch offices with centralized administrative, marketing, finance, MIS,
human resources and legal support. Centralized administrative functions
minimize the administrative burdens on branch office managers and allow
them to spend more time focusing on sales and marketing and practice
development activities.
Our principle sales offices have one General Manager, one sales manager,
three to six sales people, one to five practice managers and several
recruiters. The General Managers report to Regional Managers who are
responsible for ensuring performance goals are achieved. The Company's
branch managers meet frequently to discuss "best practices" and ways to
increase the Company's cross selling of its professional services. The
Company's practice managers meet periodically to strategize, maintain
continuity, and identify developmental needs and cross-selling
opportunities.
Sales And Marketing
Sales and marketing efforts are conducted at the local and regional level
through the Company's network of branch offices. The Company emphasizes
long-term personal relationships with customers that are developed through
regular assessment of customer requirements and proactive monitoring of
personnel performance. The Company's sales personnel make regular visits to
existing and prospective customers. New customers are obtained through
active sales programs and referrals. The Company encourages its employees
to participate in national and regional trade associations, local chambers
of commerce and other civic associations. The Company seeks to develop
strategic partnering relationships with its customers by providing
comprehensive solutions for all aspects of a customer's information
technology, engineering and other professional services needs. The Company
concentrates on providing carefully screened professionals with the
appropriate skills in a timely manner and at competitive prices. The
Company constantly monitors the quality of the services provided by its
personnel and obtains feedback from its customers as to their satisfaction
with the services provided.
The Company has elevated the importance of working with and developing its
partner alliances with technology firms. Partner programs are in place with
firms RCM has identified as strategically important to the completeness of
the service offering of the Company. Relations have been established with
firms such as Microsoft, Great Plains, i2, QAD, Dorado, GEAC, Mercury, IBM,
Compaq and Oracle among others. The Partner programs may be managed either
at a national level from RCM's corporate offices or at a regional level
from its branch offices.
Some of the Company's larger representative customers include 3M, Apple,
Bruce Power, Ericsson, IBM, Liberty Mutual Insurance, Lockheed Martin,
Medtronic, Merck, Merrill Lynch, Ontario Power, Sun Microsystems, Toyota,
United Technologies, Vermont Yankee Nuclear Power, U.S. Treasury and Wells
Fargo. The Company serves Fortune 1000 companies and many middle market
clients. The Company's relationships with these customers are typically
formed at the local or regional level or, when appropriate, at the
corporate level for national accounts.
During fiscal 2001, no one customer accounted for more than 5% of the
Company's revenues. The Company's five and ten largest customers accounted
for approximately 20% and 28%, respectively, of the Company's revenues for
fiscal 2001.
9
ITEM 1. BUSINESS (CONTINUED)
Recruiting And Training
The Company devotes a significant amount of time and resources, primarily
at the branch level, to locating, training and retaining its professional
personnel. Full-time recruiters utilize the Company's proprietary databases
of available personnel, which are cross-indexed by competency and skill to
match potential candidates with the specific project requirements of the
customer. The qualified personnel in the databases are identified through
numerous activities, including networking, referrals, the Internet, job
fairs, schools, newspaper and trade journal advertising, attendance at
industry shows and presentations.
The Company believes that a significant element to the Company's success in
retaining qualified consultants and contract personnel is the Company's use
of Consultant Relationship Managers ("CRM") and technical practice
managers. CRM are qualified Company personnel dedicated to maintaining
on-site contact with, and monitoring the satisfaction levels of, the
Company's consultants and contract personnel while they are on assignment.
Practice managers are consulting managers responsible for the technical
development and career development of the Company's technical personnel
within the defined practice areas. The Company employs various methods of
technical training and skills development including sending consultants to
application vendor provided courses, the use of computer-based training
tools and on-the-job training through mentoring programs.
Information Systems
The Company has invested, and intends to continue to invest, in the SAP R/3
software that it has installed. This system is deployed on clustered Compaq
servers and is running on a SQL 7.0 database. The branch offices of the
Company are networked to the corporate offices so the SAP application is
accessed at all operational locations. This system supports Company-wide
operations such as payroll, billing, human resources, project systems,
accounts receivable, accounts payable, all general ledger accounting and
consolidation reporting functionality. In addition to SAP, each of the
service groups maintains databases to permit efficient tracking of
available personnel on a local basis. These databases facilitate efficient
matching of customers' requirements with available technical personnel.
Competition
The market for IT and engineering services includes a large number of
competitors, is subject to rapid change and is highly competitive. As the
market demand has shifted many software companies have adopted tactics to
pursue services and consulting offerings making them direct competitors
when in the past they may have been alliance partners. Primary competitors
include participants from a variety of market segments, including publicly
and privately held firms, systems consulting and implementation firms,
application software firms, service groups of computer equipment companies,
facilities management companies, general management consulting firms and
staffing companies. In addition, the Company competes with its clients'
internal resources, particularly where these resources represent a fixed
cost to the client. Such competition may impose additional pricing
pressures on the Company.
The Company believes its principal competitive advantages in the IT and
professional engineering services market include: focus on the middle
market, breadth of services offered, technical expertise, knowledge and
experience in the industry, perceived value, quality of service,
responsiveness to client needs and speed in delivering IT solutions.
Additionally, the Company competes for suitable acquisition candidates
based on its differentiated acquisition model, its entrepreneurial and
decentralized operating philosophy, its strong corporate-level support and
resources, its status as a public company and its ability to offer
management of the acquired companies an opportunity to join and participate
in the expansion of a growing provider of information technology and other
engineering services.
10
ITEM 1. BUSINESS (CONTINUED)
Employees
As of December 31, 2001, the Company employed an administrative staff of
approximately 290 people, including certified IT specialists and licensed
professional engineers who, from time to time, participate in IT and
engineering design projects undertaken by the Company. As of December 31,
2001, approximately 1,250 information technology professionals and 540
engineering and technical personnel were employed by the Company to work on
client projects for various periods. The Company also employed
approximately 780 commercial services personnel as of December 31, 2001.
None of the Company's employees are represented by a collective bargaining
agreement. The Company considers its relationship with its employees to be
good.
ITEM 2. PROPERTIES
The Company provides specialty professional consulting services,
principally performed at various client locations, through 52 offices in 17
states and Canada. The Company's administrative and sales offices typically
consist of 1,000 to 3,000 square feet and are leased by the Company for
terms of one to three years. Offices in larger or smaller markets may vary
in size from the typical office. The Company does not expect that it will
be difficult to maintain or find suitable lease space at reasonable rates
in its markets or in areas where the Company contemplates expansion.
The Company's executive office is located at 2500 McClellan Avenue, Suite
350, Pennsauken, New Jersey 08109-4613. These premises consist of
approximately 9,100 square feet and are leased at a rate of $12.50 per
square foot per month for a term ending on January 31, 2003.
The Company's operational office is located at 20 Waterview Boulevard, 4th
Floor, Parsippany, NJ 07054. These premises consist of approximately 28,000
square feet and are leased at a rate of $25.00 per square foot per month
for a term ending on June 30, 2012.
ITEM 3. LEGAL PROCEEDINGS
In 1998, two former officers filed suit against the Company alleging
wrongful termination of their employment, wrongful failure to make
severance payments and wrongful conduct by the Company in connection with
the grant and non-vestiture of Stock Options to the plaintiffs. The
complaint also alleged that the Company wrongfully limited the number of
shares of Company stock that could be sold by the plaintiffs under a
Registration Rights Agreement and made various other claims. The
plaintiffs' complaint sought damages of approximately $480,000 and further
sought additional unliquidated damages. The claims relating to wrongful
termination of employment and wrongful conduct by the Company in connection
with the grant of Stock Options to the plaintiffs have been resolved in
binding arbitration. With respect to the Company's alleged wrongful
limiting of the number of shares the plaintiffs could sell and one
plaintiff's claim of entitlement to severance pay of $240,000, the Company
is awaiting completion of discovery and the fixing of a trial date. The
Company is also awaiting the court's ruling on its motion for summary
judgment in its favor with respect to the plaintiffs' claims concerning the
non-vestiture of their stock options. Substantial damages are being sought
on the share-selling limitation and stock option claims; however, the
alleged damages are subject to significant reduction for having been
avoidable losses. Management believes the suit is without merit and will
continue to defend the claims vigorously.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the
quarter ended December 31, 2001.
11
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Company's Common Stock is traded on The Nasdaq National Market under
the Symbol "RCMT". The following table sets forth approximate high and low
sales prices for the two years in the period ended December 31, 2001 as
reported by The Nasdaq National Market:
Common Stock
--------------------------------
Fiscal 2000 High Low
First Quarter.............. $19.13 $10.50
Second Quarter............. 12.94 7.25
Third Quarter.............. 8.25 3.88
Fourth Quarter............. 5.69 2.38
Fiscal 2001
First Quarter.............. 8.00 2.88
Second Quarter............. 5.70 2.85
Third Quarter.............. 6.48 3.10
Fourth Quarter............ $ 4.75 $ 3.41
Holders
As of February 19, 2002, the approximate number of holders of record of the
Company's Common Stock was 602. Based upon the requests for proxy
information in connection with the Company's most recent Annual Meeting of
Stockholders, the Company believes the number of beneficial owners of its
Common Stock is approximately 3,200.
Dividends
The Company has never declared or paid a cash dividend on the Common Stock
and does not anticipate paying any cash dividends in the foreseeable
future. It is the current policy of the Company's Board of Directors to
retain all earnings to finance the development and expansion of the
Company's business. Any future payment of dividends will be at the
discretion of the Board of Directors and will depend upon, among other
things, the Company's earnings, financial condition, capital requirements,
level of indebtedness, contractual restrictions and other factors that the
Board of Directors deems relevant. The Revolving Credit Facility (as
defined in Item 7 hereof) prohibits the payment of dividends or
distributions on account of the Company's capital stock without the prior
consent of the majority of the Company's lenders.
12
ITEM 6. SELECTED CONSOLIDATED FINANCIAL DATA
The selected historical consolidated financial data was derived from the
Company's Consolidated Financial Statements. The selected historical
consolidated financial data should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the Consolidated Financial Statements of the Company, and
notes thereto, included elsewhere herein.
Years Ended Two Months Years Ended
Ended
-----------------------------------------------------------------------------------------------
December 31, October 31,
-----------------------------------------------------------------------------------------------
2001 2000 1999 1999 1998 1997
-----------------------------------------------------------------------------------------------
Income Statement
Revenues $224,893,800 $296,001,276 $51,397,429 $313,385,772 $201,452,318 $113,959,093
Gross profit 62,795,609 78,485,616 13,218,972 76,639,326 48,424,223 27,126,745
Income before unusual items 16,237,466 16,910,326 2,050,993 4,839,933
Unusual items ( 34,993,435) ( 38,806,712)
Income (loss) from continuing
operations ( 18,755,969) ( 21,896,386) 2,050,993 14,948,248 9,796,705 4,839,933
Loss from discontinued
operations (362,500)
Net income (loss) ($ 18,755,969) ($ 21,896,386) $2,050,993 $14,948,248 $ 9,796,705 $ 4,477,433
Earnings Per Share (1)
Income (loss) from continuing
Operations (diluted) ($1.78) ($2.09) $.19 $1.37 $1.07 $.76
Loss from discontinued
Operations (diluted) ($.06)
Net income (loss) (diluted) ($1.78) ($2.09) $.19 $1.37 $1.07 $.70
Net income (loss) (basic) ($1.78) ($2.09) $.20 $1.43 $1.11 $.74
December 31, October 31,
-----------------------------------------------------------------------------------------------
2001 2000 1999 1999 1998 1997
-----------------------------------------------------------------------------------------------
Balance Sheet
Working capital $10,977,131 $56,508,604 $61,383,437 $54,866,477 $53,672,589 $17,279,115
Total assets 131,155,945 174,268,828 183,950,884 184,047,546 117,067,151 54,082,596
Long term liabilities - 49,483,873 47,300,000 40,800,000 - 308,129
Total liabilities 47,866,145 72,206,502 59,854,255 62,045,376 10,395,024 9,471,611
Shareholders' equity $83,289,800 $102,062,326 $124,096,629 $122,002,170 $106,672,127 $44,611,985
(1) Shares used in computing
earnings per share:
Basic 10,519,701 10,499,305 10,496,225 10,484,764 8,787,334 6,068,713
Diluted 10,519,701 10,499,305 10,951,447 10,942,146 9,151,903 6,361,181
13
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
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 technology and engineering
services. RCM is an innovative leader in the design, development and delivery of
these services to various industries. RCM's offices are located throughout North
America, including many major metropolitan centers. The Company provides a
diversified and extensive range of service offerings and deliverables. Its
portfolio of Information Technology services includes e-Business, Enterprise
Management, Enterprise Application Integration and Supply Chain. RCM's
Engineering services focus on Engineering Design, Technical Support, and Project
Management and Implementation. The Company's Commercial services business unit
provides Healthcare contract professionals as well as Clerical and Light
Industrial temporary personnel. The Company provides its services to clients in
banking and finance, healthcare, insurance, aerospace, pharmaceutical,
telecommunications, utility, technology, manufacturing and distribution and
government sectors. The Company believes that the breadth of services 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
regional strategy to better leverage its consulting services offering. The
Company has also implemented a reorganization of its Solutions practices to
centralize management oversight and to expand the sales and marketing of those
services.
Many of the Company's clients are facing challenging economic times. This is
creating uncertainty in their ability to pursue technology projects, which had
previously been considered a competitive imperative. Many clients are laying off
their own permanent staff and reducing the demand for consulting services in
attempts to maintain profitability. This has had a direct impact on RCM's
revenues.
Most companies have recognized the importance of the Internet and information
management technologies to competing in today's business climate. However, the
uncertain economic environment curtailed companies' motivation for rapid
adoption of many technological enhancements. The process of designing,
developing and implementing software solutions has become increasingly complex.
Companies today are focused on return on investment analysis in prioritizing the
initiatives they undertake. This has had the effect of delaying or totally
negating the spending on many emerging new solutions, which were formally
anticipated.
Nonetheless, 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 existing business objectives. Companies also need to continually keep
pace with new developments, which often render existing equipment and internal
skills obsolete. Consequently, business drivers cause IT managers to support
increasingly complex systems and applications of significant strategic value,
while working under budgetary, personnel and expertise constraints. This has
given rise to increasing demand for outsourcing. Clients are increasingly
evaluating the potential for outsourcing business critical applications and
entire business functions. The Company is positioned to take advantage of this
accelerating trend.
The Company presently realizes revenues from client engagements that range from
the placement of contract and temporary technical consultants to project
assignments that entail the delivery of end-to-end solutions. 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, experience and the
type of work performed. The Company also provides project management and
consulting work which are billed either by an agreed upon fixed fee or hourly
rates, or a combination of both. The billing rates and profit margins for
project management and solutions work are higher than those for professional
consulting services. The Company is currently working to expand its sales of
higher margin solution and project management services.
14
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Overview (Continued)
The majority of the Company's services are provided under purchase orders.
Contracts are utilized on more of the complex assignments where the engagements
are for longer terms or where precise documentation on the nature and scope of
the assignment is necessary. Contracts, although they normally relate to
longer-term and more complex engagements, generally do not obligate the customer
to purchase a minimum level of services and are generally terminable by the
customer on 60 to 90 days' notice. Revenues are recognized when services are
provided.
Costs of services consist primarily of salaries and compensation-related
expenses for billable consultants, including payroll taxes, employee benefits
and insurances. Selling, general and administrative expenses consist primarily
of salaries and benefits of personnel responsible for business development,
recruiting, operating activities and training, and include corporate overhead
expenses. Corporate overhead expenses relate to salaries and benefits of
personnel responsible for corporate activities, including the Company's
acquisition program and corporate marketing, administrative and reporting
responsibilities. The Company records these expenses when incurred. Depreciation
relates primarily to the fixed assets of the Company. Amortization relates
principally to the goodwill resulting from the Company's acquisitions. These
acquisitions have been accounted for under the purchase method of accounting for
financial reporting purposes and have created goodwill, which is being amortized
over a 20-year period effective January 1, 2000. See Footnote 1 to financial
statements.
15
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Results of Operations (In thousands, except for earnings per share data)
Year Ended Year Ended Year Ended
December 31, 2001 December 31, 2000 October 31, 1999
------------------------ ------------------------ ------------------------
% of % of % of
Amount Revenue Amount Revenue Amount Revenue
---------- ------------ ----------- ------------ ----------- ------------
Revenues $224,894 100.0% $296,000 100.0% $313,386 100.0%
Cost of services 162,098 72.1 217,516 73.5 236,747 75.5
---------- ------------ ----------- ------------ ----------- ------------
Gross profit 62,796 27.9 78,486 26.5 76,639 24.5
---------- ------------ ----------- ------------ ----------- ------------
Selling, general and administrative 43,094 19.2 54,846 18.5 48,089 15.3
Depreciation 1,125 .5 1,154 .4 863 .3
---------- ------------ ----------- ------------ ----------- ------------
44,219 19.7 56,000 18.9 48,952 15.6
---------- ------------ ----------- ------------ ----------- ------------
Income before other expense (income),
income taxes, goodwill amortization, and
unusual charges 18,577 8.3 22,486 7.6 27,687 8.9
Other expense (2,268) (1.0) (3,702) (1.3) (920) (.3)
---------- ------------ ----------- ------------ ----------- ------------
Income before income taxes and
goodwill amortization 16,309 7.3 18,784 6.3 26,767 8.6
Income taxes 6,922 3.1 7,673 2.6 10,287 3.3
---------- ------------ ----------- ------------ ----------- ------------
Income before goodwill amortization 9,387 4.2 11,111 3.7 16,480 5.3
Goodwill amortization, net of income
tax benefit (5,385) 2.4 (4,390) (1.5) (1,532) (.5)
Goodwill impairment, restructuring and
unusual charges, net of tax benefit (22,758) 10.0 (28,617) (9.7)
---------- ------------ ----------- ------------ ----------- ------------
Net income (loss) ($ 18,756) (8.3)% ($ 21,896) (7.4)% $14,948 4.8%
========== ============ =========== ============ =========== ============
Earnings per share
Basic:
Income before goodwill amortization
and unusual charges $.89 $1.06 $1.58
Goodwill amortization ( .51) ( .42) ( .15)
Unusual charges ( 2.16) ( 2.73)
---------- ----------- -----------
Net income (loss) ($1.78) ($2.09) $1.43
========== =========== ===========
Diluted:
Income before goodwill amortization
and unusual charges $.89 $1.06 $1.51
Goodwill amortization ( .51) ( .42) ( .14)
Unusual charges ( 2.16) ( 2.73)
---------- ----------- -----------
Net income (loss) ( $1.78) ( $2.09) $1.37
========== =========== ===========
The above summary is not a presentation of results of operations under generally
accepted accounting principles and should not be considered in isolation or as
an alternative to results of operations as an indication of the Company's
performance.
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000
Revenues. Revenues decreased 24.0%, or $71.1 million, for fiscal 2001 as
compared to fiscal 2000. The revenue decline was primarily attributable to
softness in the information technology ("IT") sector. Management attributes
this softness to overall economic conditions as well as a hesitancy by
customers to launch new capital spending programs.
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year Ended December 31, 2001 Compared to Year Ended December 31, 2000(Continued)
Cost of Services. Cost of services decreased 25.5%, or $55.4 million, for
fiscal 2001 as compared to fiscal 2000. This decrease was primarily due to
a decrease in salaries and compensation associated with the decreased
revenues experienced during fiscal 2001. Cost of services as a percentage
of revenues decreased to 72.1% for fiscal 2001 from 73.5% for fiscal 2000.
This decline was primarily attributable to continuing efforts by the
Company to seek higher margin business. However, there can be no assurances
that this improvement in gross margin percentage will continue.
Selling, General and Administrative. Selling, general and administrative
("SGA") expenses decreased 21.4%, or $11.8 million, for fiscal 2001 as
compared to fiscal 2000. This decrease was primarily attributable to a
reduction in revenues and a corresponding reduction in the related variable
costs and cost cutting initiatives. SGA expenses, as a percentage of
revenues was 19.2% for fiscal 2001 as compared 18.5% for fiscal 2000. The
0.7% increase results from certain SGA costs, which could not be reduced in
direct portion to the reduction in revenues.
Depreciation. Depreciation decreased 2.5%, or $29,000, for fiscal 2001 as
compared to fiscal 2000. This decrease was primarily due to write down of
certain fixed assets to net realizable value in fiscal 2000.
Other (Expense) Income, Net. Other (expense) income consists principally of
interest expense, net of interest income. For fiscal 2001, actual interest
expense of $2.6 million was offset by $297,000 of interest income, which
was earned from the investment in interest bearing deposits. Interest
expense, net decreased 38.7%, or $1.4 million for fiscal 2001 as compared
to fiscal year 2000. This decrease was primarily due to the increased cash
derived from operating activities, which was used to reduce
interest-bearing debt.
Income Tax. Income tax expense decreased $751,000, for fiscal 2001 as
compared to fiscal 2000. This decrease was attributable to a lower level of
income before taxes and goodwill amortization for fiscal 2001 compared to
fiscal 2000.
Goodwill Amortization. Goodwill amortization for fiscal 2001 and fiscal
2000 was net of income tax benefit of $706,000 and $1.1 million,
respectively. Goodwill amortization net of tax benefit increased 22.7% or
$995,000 for fiscal 2001 as compared to fiscal 2000. This increase was
primarily due to the amortization of intangible assets acquired in
connection with acquisitions completed prior to fiscal 2001.
Restructuring and Non-Recurring Charges. As a result of the softness
experienced in the IT sector and the resultant revenue decline, management
had been closely monitoring the operating results of its IT branches
throughout the year, instituting significant reduction in selling, general
and administrative expenses and increasing efforts to revitalize sales
levels. However, during the fourth quarter, given the current economic
environment and continued reduction of capital spending on technology,
management determined that operating performance of certain of its branches
indicated that the possibility of impairment of goodwill arising at
acquisition might be impaired. Based on current operating results and
existing business conditions, management projected cash flows for these
branches and compared such projected flows to the carrying value of the
respective branch's goodwill. The analysis revealed that goodwill,
amounting to approximately $35.0 million ($22.8 million after taxes) had
been impaired and, therefore, would not be recoverable through future
profitable operations of these branches.
Year Ended December 31, 2000 Compared to Year Ended October 31, 1999
General. The Company changed its fiscal year end to December 31 from
October 31. Accordingly, the following discussion compares the twelve-month
period ended December 31, 2000 ("fiscal 2000") with the twelve-month period
ended October 31, 1999 ("fiscal 1999").
17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Year Ended December 31, 2000 Compared to Year Ended October 31, 1999 (Continued)
Revenues. Revenues decreased 5.5%, or $17.4 million, for fiscal 2000 as
compared to fiscal 1999. Revenue decline was primarily attributable to a
loss of certain engineering contracts and softness in the information
technology ("IT") sector.
Cost of Services. Cost of services decreased 8.1%, or $19.2 million, for
fiscal 2000 as compared to fiscal 1999. This decrease was primarily due to
a decrease in salaries and compensation associated with the decreased
revenues experienced during fiscal 2000 that was partially offset by an
increase in gross margin percentage from information technology. Cost of
services as a percentage of revenues decreased to 73.5% for fiscal 2000
from 75.5% for fiscal 1999. This decline was primarily attributable to a
continuing increase of the Company's revenues being derived from
information technology and other professional services, which offer higher
margins than other services.
Selling, General and Administrative. Selling, general and administrative
expenses increased 14.1%, or $6.8 million, for fiscal 2000 as compared to
fiscal 1999. Selling, general and administrative expenses as a percentage
of revenues increased to 18.5% for fiscal 2000 as compared to 15.3% for
fiscal 1999. The increase in percentage was primarily attributable to
increased expenditures required to upgrade and support back office
administrative systems as well as expenditures attributable to acquisitions
subsequent to December 31, 1999.
Depreciation. Depreciation increased 33.7%, or $291,000, for fiscal 2000 as
compared to fiscal 1999. This increase was primarily due to the
depreciation of property and equipment associated with infrastructure
improvements that occurred during the previous fiscal periods.
Other (Expense) Income, Net. Other (expense) income consists principally of
interest expense, net of interest income. For fiscal 2000, actual interest
expense of $4.0 million was offset by $315,000 of interest income, which
was earned from the investment in interest bearing deposits. Interest
expense, net increased 302%, or $2.8 million for fiscal 2000 as compared to
fiscal year 1999. This increase was primarily due to the increased
borrowing requirements necessary to complete acquisitions subsequent to
December 31, 1999, as well as to fund working capital requirements.
Income Tax. Income tax expense decreased $13.2 million, for fiscal 2000 as
compared to fiscal 1999. This decline was attributable to a net loss for
fiscal year 2000 arising in taxes recoverable of $7.4 million at December
31, 2000.
Goodwill Amortization. Goodwill amortization for fiscal 2000 and fiscal
1999 was net of income tax benefit of $1.1 million and $654,000,
respectively. Goodwill amortization net of tax benefit increased 186.6% or
$2.9 million for fiscal 2000 as compared to fiscal 1999. This increase was
primarily due to a change in the amortization period of goodwill associated
with acquisitions from 40 years to 20 years effective January 1, 2000. See
footnote 1 to the financial statements.
Restructuring and Non-Recurring Charges. The Company performs an impairment
review on a quarterly basis in accordance with the requirements of SFAS No.
121. In the third quarter of 2000, the Company recorded an impairment of
goodwill, a restructuring charge associated with the consolidation of
certain offices and certain non recurring items associated with the
integration of employee benefit plans and vacation plans in the amounts of
$35.3 million, $1.4 million and $2.1 million, respectively. Restructuring
and non-recurring charges reduced income before the related tax benefits
for fiscal 2000 by $38.8 million, and by $28.6 million after the related
tax benefits.
18
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity And Capital Resources
Operating activities provided $29.9 million of cash for fiscal 2001 as
compared to operating activities providing $26.7 million and using $3.8
million of cash during fiscal 2000 and 1999, respectively. The increase in
cash provided by operating activities in fiscal 2001 was primarily
attributable to decreases in accounts receivable, income tax refund
receivable, prepaid expenses and other current assets and a non-cash
goodwill impairment charge. The aforementioned items were partially offset
by an increase in deferred tax asset and decreases in accounts payable and
accrued expenses, accrued payroll and income taxes payable.
Investing activities used $15.0 million for fiscal 2001 as compared to
using $27.4 million and $58.0 million in fiscal 2000 and 1999,
respectively. The reduction in the use of cash for investing activities for
the fiscal year 2001 as compared to fiscal 2000 was primarily attributable
to a reduction in acquisition and deferred consideration payments.
Financing activities (principally debt reduction activities) used
$15.6 million for fiscal 2001 as compared to financing activities
providing $43,000 for fiscal 2000. As the Company accumulates cash from
operations, it often uses the cash to reduce its borrowings under the
Revolving Credit Facility but may consider using cash in the future for
different purposes.
The Company and its subsidiaries are parties to an agreement with Citizens
Bank, N.A. (successor to 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"). 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
in August 2002. Management of the Company has commenced negotiations for
renewal or replacement of the Revolving Credit Facility. Management has
renewed this Revolving Credit Facility in the past and anticipates that it
will do so again. The weighted average interest rates for the years ended
December 31, 2001 and 2000 were 6.49% and 8.33%, respectively. The amounts
outstanding under the Revolving Credit Facility at December 31, 2001 and
2000 were $31.5 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 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 12
months. Although, the Company currently believes that it has sufficient
capital resources to meet its anticipated working capital and capital
expenditures beyond the next 12 months, unanticipated events and
opportunities may make it necessary for the Company to increase its current
credit facility or establish new credit facilities or raise capital in
public and/or private transactions in order to meet its capital
requirements.
19
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Liquidity And Capital Resources (Continued)
The Company is involved in several litigation matters. See Note 15 to the
Financial Statements. Should a significant number of such matters be
resolved against the Company, the Company will need to devote capital it
anticipates using for other purposes to such litigation matters, which
could result in an increased need for capital.
Seasonal Variations
The number of billing days in the quarter and the seasonality of its
customers' businesses affect the Company's quarterly results. The Company
usually experiences higher revenues in its first and second quarters due to
increased economic activity and experiences lower revenues in the third and
fourth quarters of the fiscal years.
Impact of Inflation
The effects of inflation on the Company's operations were not significant
during the periods presented.
Recently Issued Accounting Standards
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001. SFAS
142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS 142. Major provisions of these Statements and their effective dates
for the Company are as follows: (1) all business combinations initiated
after June 30, 2001 must use the purchase method of accounting. The pooling
of interest method of accounting is prohibited except for transactions
initiated before July 1, 2001, (2) intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either
individually or as part of a related contract, asset or liability, (3)
goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002, all
previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization, (4) effective January 1, 2002,
goodwill and intangible assets with indefinite lives will be tested for
impairment annually and whenever there is an impairment indicator, (5) all
acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting. The adoption of SFAS No. 142 will
have a significant impact on the results of operations of the Company.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 retains the existing
requirements to recognize and measure the impairment of long-lived assets
to be held and used or to be disposed of by sale. However, SFAS 144 makes
changes to the scope and certain measurement requirements of existing
accounting guidance. SFAS 144 also changes the requirements relating to
reporting the effects of a disposal or discontinuation of a segment of a
business. SFAS 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001 and interim periods within those
fiscal years. The adoption of this statement is not expected to have a
significant impact on the financial condition or results of operations of
the Company.
20
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company's exposure to market risk for changes in interest rates relates
primarily to the Company's investment portfolio. The Company does not have
any derivative financial instruments in its portfolio. The Company places
its investments in instruments that meet high credit quality standards. The
Company is adverse to principal loss and ensures the safety and
preservation of its invested funds by limiting default risk, market risk
and reinvestment risk. As of December 31, 2001, the Company's investments
consisted of cash and money market funds. The Company does not use interest
rate derivative instruments to manage its exposure to interest rate
changes. The Company does not expect any material loss with respect to its
investment portfolio.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTAL DATA
The financial statements, together with the report of the Company's
independent auditors, begin on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING
AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information in the 2002 Proxy Statement beginning immediately following
the caption "ELECTION OF DIRECTORS" to, but not including, the caption
"EXECUTIVE COMPENSATION" and the additional information in the 2002 Proxy
Statement beginning immediately following the caption "COMPLIANCE WITH
SECTION 16(a) OF THE EXCHANGE ACT" to, but not including, the caption
"BOARD MEETINGS AND COMMITTEES" is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information in the 2002 Proxy Statement beginning immediately following
the caption "EXECUTIVE COMPENSATION" to, but not including, the caption
"COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS" and the additional
information in the 2002 Proxy Statement beginning immediately following the
caption "COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION" to,
but not including, the caption "CERTAIN RELATIONSHIPS AND RELATED
TRANSACTIONS" is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information in the 2002 Proxy Statement beginning immediately following
the caption "SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND
MANAGEMENT" to, but not including, the caption "ELECTION OF DIRECTORS" is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information in the 2002 Proxy Statement beginning immediately following
the caption "CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS" is
incorporated herein by reference.
21
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. and 2. Financial Statement Schedules -- See "Index to Financial
Statements and Schedules" on F-1.
3. See Item (c) below.
(b) Reports on Form 8-K
None.
(c) Exhibits
(3)(a) Articles of Incorporation, as amended; incorporated by reference
to Exhibit 3(a) to the Registrant's Annual Report on Form 10-K for
the year ended October 31, 1994.
(3)(b) Bylaws, as amended; incorporated by reference to Exhibit 3 to
the Registrant's Quarterly Report on Form 10-Q for the
quarter ended January 31, 1996.
(4)(a) Rights Agreement dated as of March 14, 1996, between RCM
Technologies, Inc. and American Stock Transfer & Trust Company, as
Rights Agent; incorporated by reference to Exhibit 4 to the
Registrant's Current Report on Form 8-K dated March 21, 1996.
(10)(a) Loan and Security Agreement dated August 19, 1998 between RCM
Technologies, Inc. and all of its Subsidiaries and Mellon Bank,
N.A. as Agent; incorporated by reference to Exhibit 10 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended
July 31, 1998.
(10)(b) RCM Technologies, Inc. 1992 Incentive Stock Option Plan;
incorporated by reference to Exhibit A of the Registrant's Proxy
Statement dated April 23, 1992, filed with the Commission on March
9, 1992.
(10)(c) RCM Technologies, Inc. 1994 Non-employee Director Stock Option
Plan; incorporated by reference to Exhibit A of the Registrant's
Proxy Statement dated May 19, 1994, filed with the Commission on
June 22, 1994.
(10)(d) RCM Technologies, Inc. 1996 Executive Stock Option Plan dated
August 15, 1996; incorporated by reference to Exhibit 10(l) to the
Registrant's Annual Report on Form 10-K for the year ended October
31, 1996 (the "1996 10-K").
* (10)(e) Second Amended and Restated Termination Benefits Agreement
dated March 18, 1997 between the Registrant and Leon Kopyt;
incorporated by reference to Exhibit 10(g) to the Registrant's
Registration Statement on Form S-1 dated March 21, 1997
(Commission File No. 333-23753).
* (10)(f) Amended and Restated Employment Agreement dated November 30, 1996
between the Registrant, Intertec Design, Inc. and Leon Kopyt;
incorporated by reference to Exhibit 10(g) to the 1996 10-K.
(10)(g) Registration Rights Agreement dated March 11, 1996 by and between
RCM Technologies, Inc. and the former shareholders of The
Consortium; incorporated by reference to Exhibit (c)(2) to the
Registrant's Current Report on Form 8-K dated March 19, 1996.
(10)(h) RCM Technologies, Inc. 2000 Employee Stock Incentive Plan;
incorporated by reference to Exhibit A to the Registrant's Proxy
Statement dated March 3, 2000, filed with the Commission on
February 28, 2000.
(10)(j) Amended Loan and Security Agreement dated October 10, 2001
between RCM Technologies, Inc. and all of its Subsidiaries and
Mellon Bank, N.A. as Agent (filed herewith).
(11) Computation of Earnings Per Share.
(21) Subsidiaries of the Registrant.
(23) Consent of Grant Thornton, LLP.
* Constitutes a management contract or compensatory plan or arrangement.
22
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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 19, 2002 By:/s/ Leon Kopyt
Leon Kopyt
Chairman, President,
Chief Executive Officer and Director
Date: February 19, 2002 By:/s/ Stanton Remer
Stanton Remer
Chief Financial Officer, Treasurer,
Secretary and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, the
following persons on behalf of the Registrant and in the capacities and on the
dates indicated have signed this report below.
Date: February 19, 2002 /s/ Leon Kopyt
Leon Kopyt
Chairman, President,
Chief Executive Officer
(Principal Executive Officer) and Director
Date: February 19, 2002 /s/ Brian Delle Donne
Brian Delle Donne
Chief Operating Officer
(Principal Operating Officer)
and Director
Date: February 19, 2002 /s/ Stanton Remer
Stanton Remer
Chief Financial Officer, Treasurer,
Secretary
(Principal Financial and
Accounting Officer) and Director
Date: February 19, 2002 /s/ Norman S. Berson
Norman S. Berson
Director
Date: February 19, 2002 /s/ Robert B. Kerr
Robert B. Kerr
Director
Date: February 19, 2002 /s/ David Gilfor
David Gilfor
Director
23
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Page
Consolidated Balance Sheets, December 31, 2001 and 2000 F-2
Consolidated Statements of Operations,
Years Ended December 31, 2001 and 2000, Two Months Ended
December 31, 1999 and Year Ended October 31, 1999 F-4
Consolidated Statements of Changes in Shareholders' Equity and
Consolidated Statements of Comprehensive Income (loss),
Years Ended December 31, 2001 and 2000, Two Months Ended F-5 December 31,
1999 and Year Ended October 31, 1999
Consolidated Statements of Cash Flows,
Years Ended December 31, 2001 and 2000, Two Months Ended
December 31, 1999 and Year Ended October 31, 1999 F-6
Notes to Consolidated Financial Statements F-8
Independent Auditors' Report F-24
Schedules I and II F-25
F-1
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 31, 2001 and 2000
ASSETS
2001 2000
--------------- ---------------
Current assets
Cash and cash equivalents $ 2,289,743 $ 3,170,658
Accounts receivable, net of allowance for doubtful accounts
of $1,795,000 and $1,875,000 in 2001
and 2000, respectively 41,174,828 64,032,564
Income tax refund receivable 6,810,093 7,417,258
Prepaid expenses and other current assets 2,968,612 3,161,235
Deferred tax assets 5,600,000 1,449,518
--------------- ---------------
Total current assets 58,843,276 79,231,233
--------------- ---------------
Property and equipment, at cost
Equipment and leasehold improvements 11,131,750 10,238,480
Less: accumulated depreciation and amortization 4,282,985 4,079,857
--------------- ---------------
6,848,765 6,158,623
--------------- ---------------
Other assets
Deposits 175,691 223,512
Intangible assets, net of accumulated amortization
of $10,669,000 and $7,878,000 in 2001
and 2000, respectively 62,619,400 88,655,460
Deferred tax assets 2,668,813
--------------- ---------------
65,463,904 88,878,972
--------------- ---------------
Total assets $131,155,945 $174,268,828
=============== ===============
F-2
The accompanying notes are an intergral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS - CONTINUED
December 31, 2001 and 2000
LIABILITIES AND SHAREHOLDERS' EQUITY
2001 2000
--------------- ---------------
Current liabilities
Note payable $31,500,000 $
Accounts payable and accrued expenses 8,653,876 13,610,547
Accrued payroll 5,137,336 7,691,258
Payroll and withheld taxes 375,784 1,311,828
Income taxes payable 2,199,149 108,996
--------------- ---------------
Total current liabilities 47,866,145 22,722,629
--------------- ---------------
Long-term liabilities
Note payable - 47,300,000
Income taxes payable - 2,183,873
--------------- ---------------
- 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; 10,571,761 and
10,499,651 shares issued and outstanding in
2001 and 2000, respectively 528,588 524,982
Accumulated other comprehensive loss (484,283) (233,631)
Additional paid-in capital 93,746,569 93,516,080
(Accumulated deficit) retained earnings (10,501,074) 8,254,895
--------------- ---------------
83,289,800 102,062,326
--------------- ---------------
Total liabilities and shareholders' equity $131,155,945 $174,268,828
=============== ===============
F-3
The accompanying notes are an intergral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 31, 2001 and 2000, Two Months Ended
December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
-------------- -------------- --------------- ---------------
Revenues $224,893,800 $296,001,276 $51,397,429 $313,385,772
Cost of services 162,098,191 217,515,660 38,178,972 236,746,446
-------------- -------------- --------------- ---------------
Gross profit 62,795,609 78,485,616 13,218,457 76,639,326
-------------- -------------- --------------- ---------------
Operating costs and expenses
Selling, general and administrative 43,093,799 54,845,757 8,703,066 48,088,801
Depreciation 1,124,601 1,153,998 186,588 862,642
Amortization 6,292,942 5,494,141 468,453 2,185,690
Unusual items
Impairment of goodwill 34,993,435 35,334,972
Restructuring charge 1,371,740
Non recurring 2,100,000
-------------- -------------- --------------- ---------------
85,504,777 100,300,608 9,358,107 51,137,133
-------------- -------------- --------------- ---------------
Operating income (loss) (22,709,168 ) (21,814,992 ) 3,860,350 25,502,193
-------------- -------------- --------------- ---------------
Other income (expenses)
Interest (expense), net of interest (2,289,096 ) (3,677,577 ) (550,734 ) (920,208)
income
Gain (loss) on foreign
currency transactions 20,837 (24,728 ) 2,766
-------------- -------------- --------------- ---------------
(2,268,259 ) (3,702,305 ) (547,968 ) (920,208)
-------------- -------------- --------------- ---------------
Income (loss) before income taxes (24,977,427 ) (25,517,297 ) 3,312,382 24,581,985
Income taxes (credit) (6,221,458 ) (3,620,911 ) 1,261,389 9,633,737
-------------- -------------- --------------- ---------------
Net income (loss) ($18,755,969 ) ($ 21,896,386 ) $2,050,993 $14,948,248
============== ============== =============== ===============
Basic earnings (loss) per share ($1.78 ) ($2.09 ) $.20 $1.43
Weighted average number of common
shares outstanding 10,519,701 10,499,305 10,496,225 10,484,764
Diluted earnings (loss) per share ($1.78 ) ($2.09 ) $.19 $1.37
Weighted average number of common
and common equivalent shares
outstanding 10,519,701 10,499,305 10,951,447 10,942,146
F-4
The accompanying notes are an intergral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
Years Ended December 31, 2001 and 2000, Two Months Ended December 31, 1999
and Year Ended October 31, 1999
Accumulated Retained
Other Additional Earnings
Common Stock Comprehensive Paid-in (Accumulated
Shares Loss Capital Deficit)
Amount
Balance, October 31, 1998 10,447,525 $522,376 $ $92,997,711 $13,152,040
Exercise of stock options 48,700 2,435 475,590
Translation adjustment (96,230)
Net income 14,948,248
-------------- ------------- ------------------ ---------------- ---------------
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
Exercise of stock options 3,426 171 42,779
Translation adjustment (180,867)
Net loss (21,896,386)
-------------- ------------- ------------------ ---------------- ---------------
Balance, December 31, 2000 10,499,651 524,982 (233,631) 93,516,080 8,254,895
Issuance of stock under employee
stock purchase plan 72,110 3,606 230,489
Translation adjustment (250,652)
Net loss (18,755,969)
-------------- ------------- ------------------ ---------------- ---------------
Balance, December 31, 2001 10,571,761 $528,588 ($484,283) $93,746,569 ($10,501,074)
============== ============= ================== ================ ===============
CONSOLIDATED STATEMENTS OF COMPREHENSIVE
(LOSS) INCOME Years Ended December 31, 2001 and 2000, Two
Months Ended December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
-------------- --------------- --------------- ------------------
Net (loss) income ($18,755,969 ) ($21,896,386 ) $2,050,993 $14,948,248
Foreign currency translation adjustment (250,602 ) (180,867 ) 43,466 (96,230 )
-------------- --------------- --------------- ------------------
Comprehensive (loss) income ($19,006,571 ) ($22,077,253 ) $2,094,459 $14,852,018
============== =============== =============== ==================
F-5
The accompanying notes are an intergral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 31, 2001 and 2000, Two Months Ended
December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
-------------- -------------- -------------- --------------
Cash flows from operating activities:
Net income (loss) ($18,755,969 ) ($21,896,386 ) $2,050,993 $14,948,248
-------------- -------------- -------------- --------------
Adjustments to reconcile net Income (loss) to
net cash provided by(used in)operating activities:
Depreciation and amortization 7,417,543 6,648,139 655,041 3,048,332
Provision for allowances on accounts
receivable (80,000 ) 861,000 12,000 516,000
Restructuring and unusual charges 34,993,435 38,806,712
Changes in assets and liabilities:
Accounts receivable 22,937,736 1,761,114 4,724,919 (31,227,328 )
Income tax refund receivable 607,165 (7,417,258 )
Deferred tax (6,819,295 ) (1,449,518 )
Prepaid expenses and other
current assets 192,627 (1,148,515 ) (77,902 ) (1,979,496 )
Accounts payable and accrued expenses (6,999,251 ) 8,052,333 (3,551,439 ) 5,180,268
Accrued payroll (2,553,922 ) 952,494 (3,903,028 ) 4,037,617
Payroll and withheld taxes (936,044 ) 42,563 265,715 (626,395 )
Income taxes payable (93,720 ) 1,501,695 (1,524,677 ) 2,258,862
-------------- -------------- -------------- --------------
Total adjustments 48,666,274 48,610,759 (3,399,371 ) (18,792,140 )
-------------- -------------- -------------- --------------
Net cash provided by (used in) operating
activities $29,910,305 $26,714,373 ($1,348,378 ) ($3,843,892 )
-------------- -------------- -------------- --------------
F-6
The accompanying notes are an intergral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS -
CONTINUED Years Ended December 31, 2001 and 2000, Two Months
Ended December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
-------------- -------------- -------------- -------------
Cash flows from investing activities:
Property and equipment acquired ($1,799,552 ) ($1,721,434 ) ($ 333,902 ) ($3,829,995)
Decrease (increase) in deposits 47,821 (17,634 ) (4,393 ) (55,609)
Cash paid for acquisitions,
net of cash acquired (13,222,932 ) (25,692,538 ) (2,371,937 ) (54,098,883)
-------------- -------------- -------------- --------------
Net cash used in investing activities (14,974,663 ) (27,431,606 ) (2,710,232 ) (57,984,487)
-------------- -------------- -------------- --------------
Cash flows from financing activities:
Borrowings (repayments) of note payable (15,800,000 ) 6,500,000 40,800,000
Sale of stock for employee stock purchase plan 234,095
Exercise of stock options 42,950 478,025
-------------- -------------- -------------- --------------
Net cash provided by (used in) financing
activities (15,565,905 ) 42,950 6,500,000 41,278,025
-------------- -------------- -------------- --------------
Effect of exchange rate changes on cash
and cash equivalents (250,652 ) (180,867 ) 43,466 (96,230)
-------------- -------------- -------------- --------------
Net increase (decrease) in cash
and cash equivalents (880,915 ) (855,150 ) 2,484,856 (20,646,584)
Cash and cash equivalents at beginning of year 3,170,658 4,025,808 1,540,952 22,187,536
-------------- -------------- -------------- --------------
Cash and cash equivalents at end of year $2,289,743 $3,170,658 $4,025,808 $1,540,952
============== ============== ============== ==============
Supplemental cash flow information:
Cash paid for:
Interest expense $2,645,404 $4,215,266 $ 613,492 $ 786,064
Income taxes 793,591 4,831,496 3,005,006 7,374,875
Acquisitions:
Fair value of assets acquired, including
contingent consideration payments 13,222,932 40,506,867 2,371,937 64,365,991
Liabilities assumed 14,814,329 10,267,108
-------------- -------------- -------------- --------------
Cash paid, net of cash acquired $13,222,932 $25,692,538 $2,371,937 $54,098,883
============== ============== ============== ==============
F-7
The accompanying notes are an intergral part of these financial statements
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
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 technology and
engineering services. RCM's offices are located in major metropolitan
centers throughout North America.
The consolidated financial statements are comprised of the accounts of the
Company and its subsidiaries. All significant intercompany accounts and
transactions have been eliminated in consolidation. The preparation of the
financial statements in conformity with generally accepted accounting
principles requires management to make estimates and assumptions that
affect the amounts reported in the consolidated financial statements and
accompanying notes. Actual results could differ from these estimates.
Change in Reporting Year
In January 2000, the Company changed its fiscal year end from October 31 to
December 31. As a result of this change, the two months ended December 31,
1999 are presented as a transitional period.
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 $3,146,000 or $.29 on a diluted earnings per share
basis, for the year ended December 31, 2001 and approximately $2,747,000,
or $.26 on a diluted earnings per share basis, for the year ended December
31, 2000.
Property and Equipment
Depreciation of equipment is provided for in amounts sufficient to relate
the cost of depreciable assets to operations over their estimated useful
lives on the straight-line basis. Estimated useful lives range from five to
ten years. Leasehold improvements are amortized over the lives of the
respective leases or the service lives of the improvements, whichever is
shorter.
Software
In accordance with Statement of Position ("SOP") 98-1, "Accounting for
Costs of Computer Software Developed or Obtained for Internal Use," certain
costs related to the development or purchase of internal-use software are
capitalized and amortized over the estimated useful life of the software.
During the years ended December 31, 2001 and 2000, the Company capitalized
approximately $176,000 and $506,000, respectively, of software costs in
conformity with SOP 98-1.
Income Taxes
The Company and its wholly owned subsidiaries file a consolidated federal
income tax return. The Company follows the liability method of accounting
for income taxes. Under this method, deferred income tax assets and
liabilities are determined based on differences between the financial
statement and income tax bases of assets and liabilities using enacted tax
rates in effect for the year in which the differences are expected to
reverse. Valuation allowances are established, when necessary, to reduce
deferred tax assets to the amount expected to be realized. Income tax
expense is the tax payable for the period and the change during the period
in deferred tax assets and liabilities.
F-8
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition
Revenue is recognized concurrently with the performance of services.
Unbilled receivables represent employee hours worked according to
contractual billing rates.
Cash Equivalents
For purposes of presenting the consolidated statement of cash flows, the
Company considers all highly liquid debt instruments purchased with
maturity of three months or less to be cash equivalents.
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 December 31, 2001 and 2000 was
$62,619,000 and $88,655,000, respectively, and is being amortized on a
straight-line method over twenty years effective January 1, 2000. The
amortization period prior to January 1, 2000 was 40 years. Amortization
expense for the years ended December 31, 2001, 2000 and October 31, 1999
was $6,293,000, $5,494,000 and $2,156,000, respectively. Amortization
expense for the two months ended December 31, 1999 was $468,000.
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. The Company performs an impairment review on a quarterly
basis in accordance with the requirements of SFAS No. 121. During the
fourth quarter of calendar 2001 and the third quarter of calendar 2000, the
reviews indicated that there was an impairment of value, which resulted in
a $35.0 million and $35.3 million charge to expense for the year ended
December 31, 2001 and 2000, respectively, in order to properly reflect the
appropriate carrying value of goodwill. There were no impairment
write-downs during the year ended October 31, 1999 or during the two months
ended December 31, 1999.
Fair Value of Financial Instruments
The carrying value of significant financial instruments approximates fair
value because of the nature and characteristics of its financial
instruments. The Company's financial instruments are accounts receivable,
accounts payable, note payable and investments held in the deferred
compensation plan. The Company does not have any off-balance sheet
financial instruments or derivatives.
Foreign Currency
For foreign subsidiaries using the local currency as their functional
currency, assets and liabilities are translated at exchange rates in effect
at the balance sheet date and income and expenses are translated at average
exchange rates. The effects of these translation adjustments are reported
in other comprehensive income. Exchange gains and losses arising from
transactions denominated in a currency other than the functional currency
of the entity involved are included in income.
F-9
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Per Share Data
Basic net income per share is calculated using the weighted-average number
of common shares outstanding during the period. Diluted net income per
share is calculated using the weighted-average number of common shares plus
dilutive potential common shares outstanding during the period. Potential
common shares consist of stock options that are computed using the treasury
stock method. Dilutive securities have not been included in the weighted
average shares used for the calculation of earnings per share in periods of
net loss because the effect of such securities would be anti-dilutive.
Because of the Company's capital structure, all reported earnings pertain
to common shareholders and no other assumed adjustments are necessary.
The number of common shares used to calculate basic and diluted earnings
per share was determined as follows:
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December December October
2001 31, 2000 31, 1999 31, 1999
--------------- ------------- ------------- ------------
Basic average shares outstanding 10,519,701 10,499,305 10,496,225 10,484,764
Dilutive effect of stock options 455,222 457,382
--------------- ------------- ------------- ------------
Dilutive shares 10,519,701 10,499,305 10,951,447 10,942,146
=============== ============= ============= ============
Options to purchase 184,347 shares of common stock at prices ranging from
$4.75 to $15.31 per share were outstanding during the year ended December
31, 2001, but were not included in the computation of diluted EPS because
of net loss incurred in 2001.
Options to purchase 691,974 shares of common stock at prices ranging from
$10.63 to $20.13 per share were outstanding during the year ended December
31, 2000, but were not included in the computation of diluted EPS because
of net loss incurred in 2000.
Options to purchase 271,650 shares of common stock at prices ranging from
$14.13 to $20.13 per share were outstanding during the two months ended
December 31, 1999, but were not included in the computation of diluted EPS
because their exercise prices were greater than the average market price of
the common shares.
Options to purchase 214,650 shares of common stock at prices ranging from
$14.13 to $20.13 per share were outstanding during the year ended October
31, 1999, but were not included in the computation of diluted EPS because
their exercise prices were greater than the average market price of the
common shares.
Stock-Based Compensation
The Company has adopted the disclosure-only provisions of Statement of
Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" (SFAS 123"), which establishes accounting and reporting
standards for stock-based employee compensation plans. As permitted by the
standard, the Company has elected not to adopt the fair value based method
of accounting for stock-based employee compensation and will continue to
account for such arrangements under Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees" ("APB 25") and apply SFAS
123 on a disclosure basis only. Accordingly, adoption of the standard has
not affected the Company's results of operations or financial position (see
Note 7).
F-10
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Standards
On July 20, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) 141, Business
Combinations, and SFAS 142, Goodwill and Intangible Assets. SFAS 141 is
effective for all business combinations completed after June 30, 2001. SFAS
142 is effective for fiscal years beginning after December 15, 2001;
however, certain provisions of this Statement apply to goodwill and other
intangible assets acquired between July 1, 2001 and the effective date of
SFAS 142. Major provisions of these Statements and their effective dates
for the Company are as follows: (1) all business combinations initiated
after June 30, 2001 must use the purchase method of accounting. The pooling
of interest method of accounting is prohibited except for transactions
initiated before July 1, 2001, (2) intangible assets acquired in a business
combination must be recorded separately from goodwill if they arise from
contractual or other legal rights or are separable from the acquired entity
and can be sold, transferred, licensed, rented or exchanged, either
individually or as part of a related contract, asset or liability, (3)
goodwill, as well as intangible assets with indefinite lives, acquired
after June 30, 2001, will not be amortized. Effective January 1, 2002, all
previously recognized goodwill and intangible assets with indefinite lives
will no longer be subject to amortization, (4) effective January 1, 2002,
goodwill and intangible assets with indefinite lives will be tested for
impairment annually and whenever there is an impairment indicator, (5) all
acquired goodwill must be assigned to reporting units for purposes of
impairment testing and segment reporting.
Effective January 1, 2002, annual and quarterly goodwill amortization of
approximately $3.7 million and $900,000, respectively, will no longer
be recognized. By December 31, 2002 the Company will have completed a
transitional fair value based impairment test of goodwill as of January 1,
2002. Impairment losses, if any, resulting from the transitional testing
will be recognized in the quarter ended March 31, 2002, as a cumulative
effect of a change in accounting principle.
In August 2001, the FASB issued SFAS 144, Accounting for the Impairment or
Disposal of Long-Lived Assets. SFAS No. 144 retains the existing
requirements to recognize and measure the impairment of long-lived assets
to be held and used or to be disposed of by sale. However, SFAS 144 makes
changes to the scope and certain measurement requirements of existing
accounting guidance. SFAS 144 also changes the requirements relating to
reporting the effects of a disposal or discontinuation of a segment of a
business. SFAS 144 is effective for financial statements issued for fiscal
years beginning after December 15, 2001 and interim periods within those
fiscal years. The adoption of this statement is not expected to have a
significant impact on the financial condition or results of operations of
the Company.
2. UNUSUAL ITEMS
During the years ended December 31, 2001 and 2000, the Company recorded the
following unusual items:
In Millions 2001 2000
--------- ---------
Impairment of goodwill $35.0 $35.3
Restructuring charge 1.4
Other nonrecurring charges 2.1
--------- ---------
$35.0 $38.8
========= =========
F-11
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
2. UNUSUAL ITEMS (CONTINUED)
The income before income taxes, net income and earnings per share on a
diluted basis, for the year ended December 31, 2001 without the unusual
items and its related tax effect would have been $10.0 million, $4.0
million and $.37 per share, respectively. The weighted average shares
outstanding for this computation include common stock equivalents.
The income before income taxes, net income and earnings per share on a
diluted basis, for the year ended December 31, 2000 without the unusual
items and their related tax effect would have been $13.3 million, $6.7
million and $.63 per share, respectively. The weighted average shares
outstanding for this computation include common stock equivalents.
Impairment of Goodwill
The Company performs an impairment review on a quarterly basis in
accordance with the requirements of SFAS No. 121. During the fourth
quarter of calendar 2001 and the third quarter of calendar 2000, the
reviews indicated that there was an impairment of value, which resulted
in a $35.0 million and $35.3 million charge to expense for the year
ended December 31, 2001 and 2000, respectively, in order to properly
reflect the appropriate carrying value of goodwill.
Restructuring Charge
The restructuring charge of $1.4 million for the year ended December 31,
2000 consists of expenses associated with the consolidation of certain
offices, principally lease obligations for vacated offices as well as a
write down of leasehold improvements and office equipment for closed
offices to its net realizable values.
Other Non-Recurring Charges
The non-recurring charge of $2.1 million for the year ended December 31,
2000 consists of expenses associated with integration of employee
benefit plans and vacation plans, which were assumed in connection with
the Company's previously completed acquisitions.
3. ACQUISITIONS
During the three year and 2 month period ended December 31, 2001, the
Company acquired 17 businesses in the staffing and consulting services
industry. These acquisitions have been accounted for as purchases and,
accordingly, the results of operations of the acquired companies have been
included in the consolidated results of operations of the Company from the
respective acquisition dates.
In connection with certain acquisitions, the Company is obligated to pay
contingent consideration to the selling shareholders upon the acquired
businesses achieving certain earnings targets over periods ranging from 2-3
years. In general, the contingent consideration amounts fall into two
tiers: (a) tier 1 ("Deferred Consideration") - amounts are due, provided
that these acquisitions achieve a base level of earnings which has been
determined at the time of acquisition, and (b) tier 2 ("Earnouts") -
amounts are not fixed and are based on the growth in excess of the base
level earnings. As of December 31, 2001, the Company estimates that the sum
of the Deferred Consideration and earnouts to be as follows:
Year Ending Amount
---------------- ---------------
2002 $ 5,500,000
2003 2,000,000
---------------
$7,500,000
===============
F-12
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
3. ACQUISITIONS (CONTINUED)
The Deferred Consideration and Earnouts, when paid, will be recorded as
additional purchase consideration and added to intangible assets on the
consolidated balance sheet. The Company's acquisition activities are as
follows:
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
---------------- ---------------- --------------- --------------
Number of acquisitions 3 14
Consideration paid:
Cash at closing $10,375,000 $46,028,000
Deferred consideration payments $13,200,000 $13,800,000 $34,095,000
The following unaudited results of operations have been prepared assuming
the acquisitions had occurred as of the beginning of the periods presented.
Those results are not necessarily indicative of results of future
operations nor of results that would have occurred had the acquisitions
been consummated as of the beginning of the periods presented.
Year Ended Year Ended
December 31, December 31,
2001 2000
---------------- -----------------
Revenues $224,894,000 $300,501,000
Operating income before unusual items 12,284,000 18,554,000
Unusual items ( 34,993,000) ( 38,807,000)
Net loss ($18,756,000) ($21,101,000)
Loss per share, basic and diluted ($1.78) ($2.01)
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
December 31,
--------------------------------
2001 2000
------------- ------------
Equipment and furniture $3,370,458 $3,525,992
Computer equipment and software 7,197,481 6,626,559
Leasehold improvements 563,811 85,929
------------- ------------
11,131,750 10,238,480
Less: accumulated depreciation and amortization 4,282,985 4,079,857
------------- ------------
$6,848,765 $6,158,623
============= ============
F-13
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
5. GOODWILL AND OTHER INTANGIBLES
Goodwill and other intangibles consist of the following:
December 31,
---------------------------------
2001 2000
------------- --------------
Goodwill $72,977,525 $96,070,746
Other intangibles 310,800 462,900
------------- --------------
73,288,325 96,533,646
Less: accumulated amortization 10,668,925 7,878,186
------------- --------------
$62,619,400 $88,655,460
============= ==============
6. NOTE PAYABLE
The Company and its subsidiaries entered into an agreement with Citizens
Bank, N.A. (successor to 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 October 10, 2001. 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. Management of the Company has commenced negotiations for
renewal or replacement of the Revolving Credit Facility. The weighted
average interest rates for the years ended December 31, 2001 and 2000 were
6.49% and 8.33%, respectively. The amounts outstanding under the Revolving
Credit Facility at December 31, 2001 and 2000 were $31.5 million and $47.3
million, respectively.
7. SHAREHOLDERS' EQUITY
Common Shares Reserved
Shares of unissued common stock were reserved for the following purposes:
December 31,
----------------------------
2001 2000
------------ ------------
Exercise of options outstanding 2,415,780 2,039,539
Future grants of options 799,665 1,175,906
------------ ------------
Total 3,215,445 3,215,445
============ ============
F-14
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
7. SHAREHOLDERS' EQUITY (CONTINUED)
Incentive Stock Option Plans
On April 27, 2000, the shareholders approved the adoption of the RCM
Technologies, Inc. 2000 Employee Stock Incentive Plan. At December 31,
2001, there were 695,501 shares of Common Stock reserved under the plan for
issuance not later than January 6, 2010 to officers and key employees of
the Company and its subsidiaries.
On April 21, 1999, the shareholders approved the adoption of the Amended
and Restated RCM Technologies, Inc. 1996 Executive Stock Plan (the
"Restated Plan"). At December 31, 2001, there were 57,109 shares of Common
Stock reserved under the plan for issuance not later than January 1, 2006
to officers and key employees of the Company and its subsidiaries.
On April 23, 1998, the shareholders approved amendments to the RCM
Technologies, Inc. 1992 Incentive Stock Option Plan ("1992 Plan") and the
1994 Non-Employee Director Stock Option Plan (the "Director Option Plan").
At December 31, 2001, there were 37,055 shares of Common Stock reserved
under the 1992 Plan for issuance not later than February 13, 2002 to
officers, directors and key employees of the Company and its subsidiaries.
Options under the 1992 Plan are intended to be incentive stock options
pursuant to Section 422A of the Internal Revenue Code. The option terms
cannot exceed ten years and the exercise price cannot be less than 100% of
the fair market value of the shares at the time of grant.
On May 19, 1994, the shareholders approved the Nonemployee Director Option
Plan as a means of recruiting and retaining nonemployee directors of the
Company. At December 31, 2001, there were 10,000 shares of Common Stock
reserved under the plan for issuance not later than July 19, 2004. All
director stock options are granted at fair market value at the date of
grant. The exercise of options granted is contingent upon service as a
director for a period of one year. If the optionee ceases to be a director
of the Company, any option granted shall terminate.
The Company has adopted only the disclosure provisions of Financial
Accounting Standard No. 123, "Accounting for Stock-Based Compensation"
(SFAS 123). It applies APB Opinion No. 25 and related interpretations in
accounting for its plans and does not recognize compensation expense for
its stock-based compensation plans. Had compensation cost been determined
based on the fair value of the options at the grant date consistent with
SFAS 123, the Company's net earnings and earnings per share would have been
reduced to the pro forma amounts indicated below:
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
---------------- ---------------------------------- --------------
Net (loss) earnings:
As reported ($18,755,969) ($21,896,386) $2,050,993 $14,948,248
Pro forma ($21,768,692) ($22,600,103) $2,050,993 $11,869,395
Diluted (loss) earnings per share:
As reported ($1.78) ($2.09) $.19 $1.37
Pro forma ($2.07) ($2.15) $.19 $1.08
F-15
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
7. SHAREHOLDERS' EQUITY (CONTINUED)
Incentive Stock Option Plans (Continued)
These proforma amounts may not be representative of future disclosures
because they do not take into effect proforma compensation expense related
to grants before November 1, 1995. The fair value of these options is
estimated on the date of grant using the Black-Scholes option-pricing model
with the following weighted-average assumptions for grants in fiscal years
2001, 2000 and 1999, respectively: expected volatility of 70%; risk-free
interest rates of 5.91%, 5.91% and 5.10%; and expected lives of 5 years.
The weighted-average fair value of options granted during fiscal years
2001, 2000 and 1999 was $4.66, $4.22 and $8.51, respectively.
Transactions related to all stock options are as follows:
Year Weighted- Year Weighted- Year Weighted-
Ended Average Ended Average Ended Average
December 31, Exercise December 31, Exercise October 31, Exercise
2001 Price 2000 Price 1999 Price
--------------- ------------- --------------- ------------ ------------- --------------
Outstanding options
at beginning of year 2,039,539 $8.85 1,359,170 $10.23 1,021,420 $8.86
Granted 593,999 3.08 791,974 7.03 437,500 13.90
Forfeited (217,758 ) 7.59 (108,179 ) 12.54 (51,050 ) 11.41
Exercised (3,426 ) 12.54 (48,700 ) 9.82
--------------- --------------- -------------
Outstanding options
at end of year 2,415,780 $7.53 2,039,539 $8.85 1,359,170 $10.23
=============== =============== =============
Exercisable options
at end of year 1,580,565 1,367,795 1,159,170
=============== =============== =============
Option grant price
per share $3.00 $3.00 $5.16
to $15.31 to $20.13 to $20.13
The following table summarizes information about stock options outstanding
at December 31, 2001:
--------------- -----------------------------------------------------------------------------------
Weighted-Average
Range of Number of Remaining Weighted-Average
Exercise Outstanding Contractual Life Exercise Price
Prices Options
--------------- --------------------------------------------------------- -------------------------
$ 3.00 - $ 3.25 705,299 9.2 years $ 3.08
$ 4.75 - $ 7.13 756,200 6.2 years $ 6.32
$ 7.30 - $10.63 402,340 6.0 years $10.04
$11.25 - $15.31 551,941 7.3 years $12.94
F-16
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
7. SHAREHOLDERS' EQUITY (CONTINUED)
Employee Stock Purchase Plan
The Company implemented an Employee Stock Purchase Plan (the "Purchase
Plan") with shareholder approval, effective January 1, 2001. Under the
Purchase Plan, employees meeting certain specific employment qualifications
are eligible to participate and can purchase shares of Common Stock
semi-annually through payroll deductions at the lower of 85% of the fair
market value of the stock at the commencement or end of the offering
period. The purchase plan permits eligible employees to purchase common
stock through payroll deductions for up to 10% of qualified compensation.
During the year ended December 31, 2001, there were 72,110 shares issued
under the Purchase Plan for net proceeds of $234,095. As of December 31,
2001, 427,890 shares were available for issuance under the Purchase Plan.
8. RETIREMENT PLANS
Profit Sharing Plan
The Company maintains a 401(k) profit sharing plan for the benefit of
eligible employees. The 401(k) plan includes a cash or deferred arrangement
pursuant to Section 401(k) of the Internal Revenue Code sponsored by the
Company to provide eligible employees an opportunity to defer compensation
and have such deferred amounts contributed to the 401(k) plan on a pre-tax
basis, subject to certain limitations. The Company may, at the discretion
of the Board of Directors, make contributions of cash to match deferrals of
compensation by participants. Contributions charged to operations by the
Company for years ended December 31, 2001, 2000 and October 31, 1999 were
$457,000, $694,000 and $329,000, respectively. Contributions charged to
operations for the two months ended December 31, 1999 were $72,000.
Nonqualified Defined Compensation Plan
The Company implemented with shareholder approval a nonqualified deferred
compensation plan, effective January 1, 2001 for officers and certain other
management employees. The plan allows for compensation deferrals for its
participants and a discretionary company contribution, subject to approval
of the Board of Directors. As of December 31, 2001, the fair value of the
assets held in trust under the deferred compensation plan was $338,000.
F-17
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
9. COMMITMENTS
Termination Benefits Agreement
The Company is party to a Termination Benefits Agreement with Mr. Kopyt,
amended and restated as of March 18, 1997 (the "Benefits Agreement").
Pursuant to the Benefits Agreement, following a Change in Control (as
defined therein) the remaining term of Mr. Kopyt's employment is extended
for five years (the "Extended Term"). If Mr. Kopyt's employment is
terminated thereafter by the Company other than for cause, or by Mr. Kopyt
for good reason (including, among other things, a material change in Mr.
Kopyt's salary, title, reporting responsibilities or a change in office
location which requires Mr. Kopyt to relocate), then the following
provisions take effect: the Company is obligated to pay Mr. Kopyt a lump
sum equal to his salary and bonus for the remainder of the Extended Term;
the exercise price of the options to purchase 500,000 shares granted to Mr.
Kopyt under the 1996 Executive Stock Plan will be reduced to 50% of the
average market price of the Common Stock for the 60 days prior to the date
of termination if the resulting exercise price is less than the original
exercise price of $7.125 per share; and the Company shall be obligated to
pay to Mr. Kopyt the amount of any excise tax associated with the benefits
provided to Mr. Kopyt under the Benefits Agreement. If such a termination
had taken place as of December 31, 2001, Mr. Kopyt would have been entitled
to cash payments of approximately $3.2 million (representing salary and
excise tax payments).
Operating Leases
The Company leases office facilities and various equipment under
noncancellable leases expiring at various dates through June 2012. Certain
leases are subject to escalation clauses based upon changes in various
factors. The minimum future annual operating lease commitments for leases
with noncancellable terms in excess of one year, exclusive of escalation,
are as follows:
Year ending December 31, Amount
----------------------------- ---------------
2002 $2,783,000
2003 2,083,000
2004 1,790,000
2005 1,184,000
2006 1,078,000
Thereafter 4,664,000
---------------
---------------
Total $13,582,000
===============
Rent expense for the years ended December 31, 2001, 2000 and October 31,
1999 was $2,633,000, $3,175,000 and $2,440,000, respectively. Rent expense
for the two months ended December 31, 1999 was $488,000.
10. RELATED PARTY TRANSACTIONS
A director of the Company is a shareholder in a law firm that rendered
various legal services to the Company. Fees paid to the law firm have not
been significant.
F-18
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
11. INCOME TAXES
The components of income tax expense (credit) are as follows:
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
----------------- ----------------- --------------- ----------------
Current
Federal ($1,846,000) $920,089 $7,098,737
State and local $597,837 (325,393) 341,300 2,535,000
----------------- ----------------- --------------- ----------------
597,837 (2,171,393) 1,261,389 9,633,737
----------------- ----------------- --------------- ----------------
Deferred
Federal (6,456,915) (1,297,000)
State and local (362,380) (152,518)
----------------- ----------------- --------------- ----------------
(6,819,295) (1,449,518)
----------------- ----------------- --------------- ----------------
Total ($6,221,458) ($3,620,911) $1,261,389 $9,633,737
================= ================= =============== ================
The income tax provisions reconciled to the tax computed at the statutory
Federal rate was:
2001 2000 1999
---------------- ----------------- ---------------
Tax at statutory rate (credit) (34.0)% (34.0)% 34.0%
State income taxes, net of Federal
Income tax benefit (1.7) 6.7
Foreign income tax effect 8.7 1.9 3.4
Non-deductible unusual charges 4.0 20.3
Other, net (1.9) (2.4) (4.9)
---------------- ----------------- ---------------
Total income tax expense (24.9)% (14.2)% 39.2%
================ ================= ===============
At December 31, 2001 and 2000, deferred tax assets consist of the
following:
2001 2000
---------------- -----------------
Net operating loss carryforward $8,268,813
Unusual charges $2,199,884
Allowance for doubtful accounts 695,000 712,500
---------------- -----------------
8,963,813 2,912,384
Less: valuation allowance (695,000) (1,462,686)
-----------------
---------------- -----------------
$8,268,813 $1,449,518
================ =================
At December 31, 2001, the Company had a net operating loss carryforward
("NOL") for federal income tax purposes of approximately $29.0 million. The
Company can utilize the NOL to offset future consolidated federal taxable
income. The NOL, if unused, would expire in the year 2021.
F-19
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
12. INTEREST EXPENSE, NET OF INTEREST INCOME
Interest expense, net of interest income consisted of the following:
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
----------------- ----------------- ---------------- ---------------
Interest expense ($2,586,473) ($3,992,911) ($574,320 ) ($1,197,236)
Interest income 297,377 315,334 23,586 277,028
----------------- ----------------- ---------------- ---------------
($2,289,096) ($3,677,577) ($550,734) ($920,208)
================= ================= ================ ===============
13. SEGMENT INFORMATION
The Company 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 accounting policies of each segment are the
same as those described in the summary of significant accounting policies
(see Note 1).
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):
Information Professional Commercial
Fiscal 2001 Technology Engineering Services Corporate Total
---------------- --------------- ---------------- --------------- ----------------
Revenue $157,952 $43,855 $23,087 $224,894
Operating expenses (1) 144,339 38,384 22,469 205,192
---------------- --------------- ---------------- --------------- ----------------
EBITDA (1) (2) 13,613 5,471 618 19,702
Unusual charges 30,044 4,949 34,993
Depreciation 794 276 55 1,125
Amortization 5,587 672 34 6,293
---------------- --------------- ---------------- --------------- ----------------
Operating income (loss) (1) ($22,812) ($426) $529 ($22,709)
================ =============== ================ =============== ================
Total assets $85,306 $15,999 $5,489 $24,362 $131,156
Capital expenditures $426 $173 $1,201 $1,800
F-20
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
13. SEGMENT INFORMATION (CONTINUED)
Information Professional Commercial
Fiscal 2000 Technology Engineering Services Corporate Total
---------------- --------------- ---------------- --------------- ----------------
Revenue $228,025 $40,993 $26,983 $296,001
Operating expenses (1) 207,894 38,559 25,908 272,361
---------------- --------------- ---------------- --------------- ----------------
EBITDA (1) (2) 20,131 2,434 1,075 23,640
Unusual charges 36,913 1,894 38,807
Depreciation 848 277 29 1,154
Amortization 4,821 630 43 5,494
---------------- --------------- ---------------- --------------- ----------------
Operating income (loss)(1) ($ 22,451) ($ 367) $1,003 ($ 21,815)
================ =============== ================ =============== ================
Total assets $131,414 $17,591 $6,433 $18,831 $174,269
Capital expenditures $827 $205 $56 $633 $1,721
Two Months Ended Information Professional Commercial
December 1999 Technology Engineering Services Corporate Total
---------------- --------------- ---------------- --------------- ----------------
Revenue $39,231 $8,286 $3,880 $51,397
Operating expenses 35,301 7,843 3,738 46,882
---------------- --------------- ---------------- --------------- ----------------
EBITDA (2) 3,930 443 142 4,515
Depreciation 137 48 2 187
Amortization 388 77 3 468
---------------- --------------- ---------------- --------------- ----------------
Operating income $3,405 $ 318 $ 137 $3,860
================ =============== ================ =============== ================
Total assets $148,811 $17,349 $6,338 $11,453 $183,951
Capital expenditures $334 $334
F-21
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
13. SEGMENT INFORMATION (CONTINUED)
Information Professional Commercial
Fiscal 1999 Technology Engineering Services Corporate Total
---------------- --------------- --------------- --------------- ---------------
Revenue $223,654 $62,887 $26,845 $313,386
Operating expenses 199,664 59,190 25,982 284,836
---------------- --------------- --------------- --------------- ---------------
EBITDA (2) 23,990 3,697 863 28,550
Depreciation 576 269 18 863
Amortization 1,873 295 17 2,185
---------------- --------------- --------------- --------------- ---------------
Operating income $21,541 $3,133 $ 828 $25,502
================ =============== =============== =============== ===============
Total assets $156,468 $17,893 $4,767 $4,920 $184,048
Capital expenditures $978 $77 $1 $2,774 $3,830
(1) Operating expenses, EBITDA and operating income are exclusive of
unusual items during 2001 and 2000 in the amount of $35.0 million and
$38.8 million, respectively (see note 2).
(2) EBITDA consists of earnings before interest income, interest expense,
other non-operating income and expense, income taxes, depreciation and
amortization and unusual charges. 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.
The following reconciles consolidated operating income to the Company's
pretax profit (in thousands):
Two Months
Year Ended Year Ended Ended December Year Ended
December 31, December 31, 31, 1999 October 31,
2001 2000 1999
---------------- ---------------- ---------------- ---------------
Consolidated operating income (loss) ($22,709) ($21,815) $3,860 $25,502
Interest (expense), net of interest income (2,268) (3,702) (548) (920)
---------------- --------------------------------- ---------------
Consolidated pretax profit (loss) ($24,977) ($25,517) $3,312 $24,582
================ ================ ================ ===============
The Company derives a substantial majority of its revenue from companies
headquartered in the United States. In fiscal 1999, 2000 and 2001, no
single customer exceeded 6% of the Company's revenue. Revenues from
Canadian operations for the years ended December 31, 2001 and, 2000 were
$24.2 million and $16.4 million, respectively. Revenues from Canadian
operations for the two months ended December 31, 1999 were $3.4 million.
Revenues from Canadian operations for the year ended October 31, 1999 were
$14.8 million.
F-22
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
December 31, 2001, 2000, 1999 and October 31, 1999
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Year Ended December 31, 2001
Diluted
Net Income
Gross Net (Loss)
Sales Profit Income (Loss) Per Share (a)
------------------- ----------------- ------------------- ----------------
1st Quarter $64,653,787 $18,071,917 $1,150,944 $.11
2nd Quarter 58,365,909 16,478,103 1,352,116 .13
3rd Quarter 53,051,269 14,648,594 758,796 .07
4th Quarter 48,822,835 13,596,995 (22,017,825 ) (2.09)
------------------- ----------------- ------------------- ----------------
Total $224,893,800 $62,795,609 ($18,755,969 ) ($1.78)
=================== ================= =================== ================
Year Ended December 31, 2000
Diluted
Net Income
Gross Net (Loss)
Sales Profit Income (Loss) Per Share (a)
------------------- ----------------- ------------------- ----------------
1st Quarter $74,945,490 $19,039,291 $1,057,890 $.10
2nd Quarter 75,989,896 19,603,598 1,340,515 .13
3rd Quarter 73,656,343 20,223,806 (26,417,054 ) (2.52)
4th Quarter 71,409,547 19,618,921 2,122,263 .20
------------------- ----------------- ------------------- ----------------
Total $296,001,276 $78,485,616 ($21,896,386 ) ($2.09)
=================== ================= =================== ================
(a)Each quarterly amount is based on separate calculations of weighted
average shares outstanding.
15. CONTINGENCIES
The Company has received claims and notices of possible claims from various
persons from whom the Company acquired stock or assets in four separate
acquisitions that occurred during 1998 and 1999. Such claims and possible
claims are not related. These claims and possible claims relate to
allegations of wrongful termination and failure of the Company to pay
deferred consideration under the relevant acquisition agreements. In the
opinion of management, the Company has meritorious defenses to such claims
and does not believe that the resolution of such claims should have a
material adverse effect on the Company, its financial position, its results
of operations or its cash flows.
In 1998, two former officers filed suit against the Company alleging
wrongful termination of their employment, wrongful failure to make
severance payments and wrongful conduct by the Company in connection with
the grant and non-vestiture of Stock Options to the plaintiffs. The
complaint also alleged that the Company wrongfully limited the number of
shares of Company stock that could be sold by the plaintiffs under a
Registration Rights Agreement and made various other claims. The
plaintiffs' complaint sought damages of approximately $480,000 and further
sought additional unliquidated damages. The claims relating to wrongful
termination of employment and wrongful conduct by the Company in connection
with the grant of Stock Options to the plaintiffs have been resolved in
binding arbitration. With respect to the Company's alleged wrongful
limiting of the number of shares the plaintiffs could sell and one
plaintiff's claim of entitlement to severance pay of $240,000, the Company
is awaiting completion of discovery and the fixing of a trial date. The
Company is also awaiting the court's ruling on its motion for summary
judgment in its favor with respect to the plaintiffs' claims concerning the
non-vestiture of their stock options. Substantial damages are being sought
on the share-selling limitation and stock option claims; however, the
alleged damages are subject to significant reduction for having been
avoidable losses. Management believes the suit is without merit and will
continue to defend the claims vigorously.
F-23
Independent Auditors' Report
Board of Directors
RCM Technologies, Inc. and Subsidiaries
We have audited the accompanying consolidated balance sheets of RCM
Technologies, Inc. (a Nevada corporation) and Subsidiaries as of December 31,
2001 and 2000 and the related consolidated statements of operations, changes in
shareholders' equity, comprehensive income (loss) and cash flows for years ended
December 31, 2001 and 2000, the two months ended December 31, 1999, and for the
year ended October 31, 1999. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on the consolidated financial statements based on our audits.
We conducted our audits in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and perform
the audit to obtain reasonable assurance about whether the consolidated
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well
as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
RCM Technologies, Inc. and Subsidiaries as of December 31, 2001 and 2000 and the
consolidated results of their operations and their consolidated cash flows for
years ended December 31, 2001 and 2000, for the two months ended December 31,
1999, and the year ended October 31, 1999, in conformity with accounting
principles generally accepted in the United States.
We have also audited Schedules I and II of RCM Technologies, Inc. and
Subsidiaries as of years ended December 31, 2001 and 2000, as of and for the two
months ended December 31, 1999, and the year ended October 31, 1999. In our
opinion, these schedules present fairly, in all material respects, the
information required to be set forth therein.
/s/ Grant Thornton LLP
Grant Thornton LLP
Philadelphia, Pennsylvania
February 8, 2002
F-24
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
December 31, 2001 and 2000
ASSETS
2001 2000
--------------- ----------------
Current assets
Prepaid expenses and other assets $2,970 $62,440
--------------- ----------------
Other assets
Deposits 5,695
Long-term receivables from affiliates 83,337,402 102,046,691
--------------- ----------------
83,337,402 102,052,386
--------------- ----------------
Total assets $83,340,372 $102,114,826
=============== ================
LIABILITIES AND SHAREHOLDERS' EQUITY
2001 2000
--------------- ----------------
Current liabilities
Accounts payable and accrued expenses $50,672
$52,500
--------------- ----------------
Shareholders' equity
Common stock 528,588 524,982
Foreign currency translation adjustment (484,283) (233,631)
Additional paid in capital 93,746,569 93,516,080
Retained earnings (accumulated deficit) (10,501,074) 8,254,895
--------------- ----------------
Total shareholders' equity 83,289,800 102,062,326
--------------- ----------------
Total liabilities and shareholders' equity $83,340,372 $102,114,826
=============== ================
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc.
and subsidiaries are an integral part of these statements.
F-25
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF OPERATIONS
Years Ended December 31, 2001 and 2000, Two Months Ended December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
--------------- ---------------- --------------- ---------------
Operating expenses
Administrative $807,699 $ 534,662 $ 9,044 $ 244,660
--------------- ---------------- --------------- ---------------
Operating loss (807,699) (534,662) (9,044) (244,660)
Management fee income 807,699 534,662 9,044 244,660
--------------- ---------------- --------------- ---------------
Income before income in subsidiaries
Equity in (shares in) earnings (loss) in
subsidiaries (18,755,969) (21,896,386) 2,050,993 14,948,248
--------------- ---------------- --------------- ---------------
Net (loss) income ($18,755,969) ($21,896,386) $2,050,993 $14,948,248
=============== ================ =============== ===============
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc.
and subsidiaries are an integral part of these statements.
F-26
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENT OF CASH FLOWS
Years Ended December 31, 2001 and 2000, Two Months Ended December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
---------------- --------------- --------------- -------------
Cash flows from operating activities:
Net income (loss) ($18,755,969) ($21,896,386) $2,050,993 $14,948,248
---------------- --------------- --------------- -------------
Adjustments to reconcile net income (loss) to net cash provided by operating
activities:
Share in deficiency (equity in) in assets
of subsidiaries 18,755,969 21,896,386 (2,050,993) (14,948,248)
Changes in operating assets and liabilities:
Prepaid expenses and other assets 59,470 (56,971) 3,710 686
Accounts payable and accrued expenses (1,828) (61,568) 50,072 46,234
---------------- --------------- --------------- -------------
18,813,611 21,777,847 (1,997,211) (14,901,328)
---------------- --------------- --------------- -------------
Net cash provided by (used in)
operating activities 57,642 (118,539) 53,782 46,920
---------------- --------------- --------------- -------------
Cash flows from investing activities:
Decrease in deposits 5,695
Decrease (increase) in long-term
receivables from subsidiaries (46,780) 247,605 (89,079) (430,103)
---------------- --------------- --------------- -------------
Net cash provided by (used in) investing
Activities (41,085) 247,605 (89,079) (430,103)
---------------- --------------- --------------- -------------
Cash flows from financing activities:
Employee stock purchase plan 234,095
Exercise of stock options 42,951 478,025
---------------- --------------- --------------- -------------
Net cash provided by financing activities 234,095 42,951 478,025
---------------- --------------- --------------- -------------
Effect of exchange rate changes on cash and
cash equivalents (250,652) (180,867) 43,466 (96,230)
---------------- --------------- --------------- -------------
Net increase (decrease) in cash and equivalents (8,850) 8,169 (1,388)
Cash and equivalents at beginning of year 8,850 681 2,069
---------------- --------------- --------------- -------------
Cash and equivalents at end of year $ $ $8,850 $ 681
================ =============== =============== =============
The "Notes to Consolidated Financial Statements" of RCM Technologies, Inc.
and subsidiaries are an integral part of these statements.
F-27
SCHEDULE II
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND
RESERVES Years Ended December 31, 2001 and 2000, Two Months
Ended December 31, 1999
and Year Ended October 31, 1999
Column A Column B Column C Column D Column E
- -------------------------------------------- ------------- ------------------------------ ------------- -------------
Additions
------------------------------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End of
Description of Period Expenses Accounts Deduction Period
- -------------------------------------------- ------------- ------------- ------------- ------------- -------------
Year Ended December 31, 2001
Allowance for doubtful
accounts on trade
receivables $1,875,000 $989,000 $1,069,000 $1,795,000
Year Ended December 31, 2000
Allowance for doubtful
accounts on trade
receivables $1,014,000 $1,101,000 $240,000 $1,875,000
Two Months Ended December 31, 1999
Allowance for doubtful
accounts on trade
receivables $1,002,000 $53,000 $41,000 $1,014,000
Year Ended October 31, 1999
Allowance for doubtful
accounts on trade
receivables $486,000 $986,000 $470,000 $1,002,000
F-28
EXHIBIT INDEX
(10)(j) Amended Loan and Security Agreement dated October 10, 2001 between
RCM Technologies, Inc. and all of its Subsidiaries and
Mellon Bank, N.A. as Agent.
(11) Computation of Earnings Per Share.
(21) Subsidiaries.
(23) Consent of Grant Thornton, LLP.
EXHIBIT 11
COMPUTATION OF EARNINGS (LOSS) PER COMMON
SHARE Years Ended December 31, 2001 and 2000, Two Months
Ended December 31, 1999
and Year Ended October 31, 1999
Two Months
Year Ended Year Ended Ended Year Ended
December 31, December 31, December 31, October 31,
2001 2000 1999 1999
--------------- -------------- -------------- ------------
Diluted earnings
Net income (loss) applicable to
common stock ($18,755,969 ) ($21,896,386 ) $2,050,993 $14,948,248
=============== ============== ============== ============
Shares
Weighted average number of common
shares outstanding 10,519,701 10,499,305 10,496,225 10,484,764
Common stock equivalents 455,222 457,382
--------------- -------------- -------------- ------------
Total 10,519,701 10,499,305 10,951,447 10,942,146
=============== ============== ============== ============
Diluted earnings (loss) per common share ($1.78 ) ($2.09 ) $.19 $1.37
=============== ============== ============== ============
Basic
Net income (loss) applicable to common
stock ($18,755,969 ) ($21,896,386 ) $2,050,993 $14,948,248
=============== ============== ============== ============
Shares
Weighted average number of common
shares outstanding 10,519,701 10,499,305 10,496,225 10,484,764
=============== ============== ============== ============
Basic earnings (loss) per common share ($1.78 ) ($2.09 ) $.20 $1.43
=============== ============== ============== ============
EXHIBIT 21
SUBSIDIARIES
Business Support Group of Michigan, Inc.
Cataract, Inc.
Programming Alternatives of Minnesota, Inc.
RCMT Delaware, Inc.
RCM Technologies (USA), Inc.
Software Analysis & Management, Inc.
EXHIBIT 23
Consent of Independent Certified Public Accountants
Board of Directors
RCM Technologies, Inc.
We have issued our report dated February 8, 2002 accompanying the consolidated
financial statements and schedules included in the Annual Report of RCM
Technologes, Inc. and Subsidiaries on Form 10-K for the year ended December 31,
2001. We hereby consent to the incorporation by reference of said report in the
Registration Statements of RCM Technologies, Inc. on Forms S-8 (File No.
33-12405, effective March 24, 1987, File No. 33-12406, effective March 24, 1987,
File No. 33-61306, effective April 21, 1993, File No. 33-80590, effective June
22, 1994, File No. 333-52206, effective December 19, 2000 and File No.
333-52480, effective December 21, 2000.)
/s/ Grant Thornton LLP
Grant Thornton LLP
Philadelphia, Pennsylvania
February 8, 2002
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