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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 27, 2008
OR
(cid:3) (cid:3) (cid:3) (cid:3) 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
(State or Other Jurisdiction of
Incorporation or Organization)
2500 McClellan Avenue, Suite 350,
Pennsauken, New Jersey
(Address of Principal Executive Offices)
95-1480559
(I.R.S. Employer Identification No.)
08109-4613
(Zip Code)
Registrant’s telephone number, including area code: (856) 356-4500
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, par value $0.05 per share
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. YES (cid:3) NO
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. YES (cid:3) NO
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 NO (cid:3)
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.
Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer or a smaller
reporting company. (See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the
Exchange Act). (Check one):
Large Accelerated Filer (cid:3)
Accelerated Filer (cid:3)
Non-Accelerated Filer (cid:3)
(Do not check if a smaller reporting
company)
Smaller Reporting Company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES (cid:3) NO
The aggregate market value of the voting stock held by non-affiliates of the registrant was approximately $52,668,000 based upon the
closing price of $4.31 per share of the registrant’s common stock on June 27, 2008 on The NASDAQ Global Market. 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 March 23, 2009: 12,813,522.
Documents Incorporated by Reference
Portions of the definitive proxy statement for the registrant’s 2009 Annual Meeting of Stockholders (the “2009 Proxy Statement”) are
incorporated by reference into Items 10, 11, 12, 13 and 14 in Part III of this Annual Report on Form 10-K. If the 2009 Proxy Statement is not
filed by April 26, 2009, an amendment to this annual report on Form 10-K setting forth this information will be duly filed with the Securities
and Exchange Commission.
Table of Contents
PART I
Item
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PART II
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PART III
RCM TECHNOLOGIES, INC.
FORM 10-K
TABLE OF CONTENTS
1. Business
1A. Risk Factors
1B. Unresolved Staff Comments
2. Properties
3. Legal Proceedings
4. Submission of Matters to a Vote of Security Holders
5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
6. Selected Financial Data
7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
7A. Quantitative and Qualitative Disclosures about Market Risk
8. Financial Statements and Supplementary Data
9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
9A(T). Controls and Procedures
9B. Other Information
Item
Item
Item
Item
Item
10. Directors, Executive Officers and Corporate Governance
11. Executive Compensation
12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
13. Certain Relationships and Related Transactions, and Director Independence
14. Principal Accountant Fees and Services
PART IV
Item
Signatures
15. Exhibits and Financial Statement Schedules
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Private Securities Litigation Reform Act Safe Harbor Statement
PART I
Certain statements included herein and in other reports and public filings made by RCM Technologies, Inc. (“RCM” or the “Company”) are
forward-looking within the meaning of the Private Securities Litigation Reform Act of 1995. These forward-looking statements include,
without limitation, statements regarding the adoption by businesses of new technology solutions; the use by businesses of outsourced solutions,
such as those offered by the Company in connection with such adoption; and the outcome of litigation (at both the trial and appellate levels)
involving the Company. Readers are cautioned that such forward-looking statements, as well as others made by the Company, which may be
identified by words such as “may,” “will,” “expect,” “anticipate,” “continue,” “estimate,” “project,” “intend,” “believe,” and similar
expressions, are only predictions and are subject to risks and uncertainties that could cause the Company’s actual results and financial position
to differ materially from such statements. Such risks and uncertainties include, without limitation: (i) unemployment and general economic
conditions affecting the provision of information technology and engineering services and solutions and the 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) adverse effects on the market price of the Company’s common stock due to the potential resale into the market of significant
amounts of common stock; (vii) the adverse effect a potential 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 that 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) uncertainties
in 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; (xvii) the costs of conducting and the outcome of litigation involving the Company, (xviii) obligations relating
to indemnities and similar agreements entered into in connection with the Company’s business activities, and (xix) 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 trends or circumstances after the date they are made or to reflect
the occurrence of unanticipated events.
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ITEM 1. BUSINESS
General
RCM Technologies is a premier provider of business and technology solutions designed to enhance and maximize the operational performance
of its customers through the adaptation and deployment of advanced information technology and engineering services. RCM has been an
innovative leader in the design, development, and delivery of these services to commercial and government sectors for more than 35 years.
Over the years, the Company has developed and assembled an attractive, diverse and extensive portfolio of capabilities, service offerings and
delivery options, established a proven record of performance and credibility, and built an efficient pricing structure. This combination offers
clients a compelling value proposition with the potential to substantially accelerate the successful attainment of their business objectives.
RCM consists of three operating segments: Information Technology, Engineering and Commercial Services. The Company’s Information
Technology, or IT, segment provides enterprise business solutions, application services, infrastructure solutions, competitive advantage &
productivity solutions, life sciences solutions and other selected vertical market specific offerings. RCM’s Engineering segment provides
engineering and design, engineering analysis, technical writing and technical support services. The Company’s Commercial Services segment
provides health care professionals as well as clerical and light industrial temporary personnel.
The Company services some of the largest national and international companies in North America as well as a lengthy roster of Fortune 1000
and mid-sized businesses in such industries as Aerospace/Defense, Energy, Financial Services, Life Sciences, Manufacturing & Distribution,
the Public Sector and Technology. RCM believes it offers a range of solutions that 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 35 offices in selected regions throughout North America.
The Company is a Nevada corporation organized in 1971. The address of its principal executive office is 2500 McClellan Avenue, Suite 350,
Pennsauken, NJ 08109-4613.
During the year ended December 27, 2008, approximately 49.4% of RCM’s total revenues were derived from IT services, 28.3% from
Engineering services, and the remaining 22.3% from Commercial services.
Demand for the Company’s services can be significantly impacted by changes in the general level of economic activity and particularly
technology spending. During periods of reduced economic activity, such as the environment in the United States and the world in general since
approximately mid-2007 and continuing into 2009, the Company may also be subject to increased competition and pricing pressure in its
markets. Extended periods of weakness in the economy can have a material adverse impact on the Company’s business and results of
operations.
Industry Overview
Businesses today face intense competition, the challenge of constant technological change and the ongoing need for business process
optimization. To address these issues and to compete more effectively, companies are continually evaluating the need for implementing
innovative solutions to upgrade their systems, applications, and processes. As a result, the ability of an organization to integrate and align
advanced technologies with new business objectives is critical.
Although most companies recognize the importance of optimizing their systems, applications and processes to compete in today’s challenging
environment, the process of designing, developing and implementing business and technology solutions is becoming increasingly complex. The
Company believes that many businesses are focused on return on investment analysis in prioritizing their initiatives. Consequently, over the
past few years, companies have elected to defer, redefine or cancel investments in new systems, software, and solutions and have focused on
making more effective use of previous technological investments.
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The current economic environment challenges many companies to 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 technology developments, which often rapidly 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 its target market for IT services is among middle-market companies, which typically lack the time and technical
resources to satisfy all of their IT needs internally. These companies commonly require sophisticated, experienced IT assistance to achieve their
business objectives and 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, which do target these companies,
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 and
can adversely influence the quality and compatibility of IT solutions. RCM is structured to provide middle-market companies a single source
for their IT needs.
The Company’s Engineering group continues to focus on areas of growth within the energy and aerospace industries. In recent years, many
businesses have been adversely impacted by higher oil prices, and for that and various other reasons, there has been growing sentiment around
the world for the development of alternative sources of energy, including a renewed interest in nuclear power. Over the same period, there has
been a significant increase in spending in the United States in the aerospace and defense industries due largely to a strengthening of the military
and homeland security in response to geo-political unrest and the threat of terrorism. The combination of higher energy prices and increased
military spending has created numerous business opportunities for service providers, especially those engaged in engineering operations in
North America and abroad.
In the healthcare services industry, a shortage of nurses and other medical personnel in the United States has led to increases in business
activity for health care service companies, including the Company’s Specialty Healthcare Group. Due in part to an aging population and
improved medical technology, the demand for selected health care professionals is expected to continue over the next several years.
Meanwhile, the general economy of the United States over the past several years has negatively affected temporary staffing businesses which
are providers of light industrial and clerical help. Generally, demand for lower-skilled workers is weakened in a general economy that is in a
downward cycle.
Business Strategy
RCM is dedicated to providing solutions to meet its clients’ business needs by delivering information technology and engineering services. The
Company’s objective is to be a recognized leader of specialized 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:
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Growth Strategy
Promote Full Life Cycle Solution Capability
The Company promotes a full life cycle solution capability to its customers. The goal of the full life cycle solution strategy is to fully address a
client’s project implementation cycle at each stage of its development and deployment. 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 build projects and solutions offerings selectively, utilizing 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 is intended to afford the Company the opportunity to strengthen long-term client relationships that will further
contribute to a more predictable revenue stream.
In addition to a full life cycle solution offering, the Company continues to focus on transitioning into higher value oriented services in an effort
to increase its margins on its various service lines (relative to lower value services) and generate revenue that is more sustainable. The
Company believes this transition is accomplished by pursuing additional vertical market specific solutions in conjunction or combination with
longer-term based solutions, through expansion of its client relationships and by pursuing strategic alliances and partnerships.
Achieve Internal Growth
The Company continues to promote its internal growth strategies. Its growth strategy is designed to better serve the Company’s customers,
generate higher revenues, and achieve greater operating efficiencies. National and regional sales management programs were designed and
implemented to segregate clients by vertical market and national accounts to advance our value added services focus. This process is improving
account coordination so clients can benefit from deeper industry knowledge as well as maximizing our major account opportunities.
RCM provides a company orientation program in which sales managers and professionals receive relevant information about company
operations.
RCM has adopted an industry-centric approach to sales and marketing. This initiative contemplates 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 vertical
markets in which RCM has assembled the greatest work experience. RCM’s consultants continue to acquire 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 this strategy will lead to greater account penetration and enhanced client relationships.
Operational strategies contributing to RCM’s internal productivity include the delineation of certain new solutions practice areas in markets
where its clients had historically known the Company as a contract service provider. The formation of these practice areas will facilitate the
flow of project opportunities and the delivery of project-based solutions.
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Continue Selective Strategic Acquisitions
The industry in which the Company operates continues to be highly fragmented, and the Company plans to continue to selectively assess
opportunities to make strategic acquisitions as such opportunities are presented to the Company. The Company’s past acquisition strategy was
designed to broaden the scope of services and technical competencies and grow its full life cycle solution capabilities, and the Company would
continue to consider such goals in any future acquisitions. In considering acquisitions, the Company focuses principally on companies with
(i) technologies or market segments 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
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. This industry-centric strategy is designed to allow RCM to expand further its
relationships with clients in RCM’s targeted sectors.
To develop close customer relationships, the Company’s practice managers regularly meet with both existing and prospective clients to help
design solutions 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 can result in greater customer satisfaction. Additionally, the Company believes that by collaborating with its customers in designing
business solutions, it can generate 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 selective
training to maintain and upgrade skills and (v) aligning the needs of its customers with appropriately skilled personnel. The Company believes
it has been successful in retaining these personnel due in part to its use of practice managers 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 continues to improve 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 realize
savings and synergies and to control and monitor its operations efficiently, as well as to quickly integrate new acquisitions. It also allows local
branches to focus more on growing their local operations.
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To accomplish this, the Company’s financial reporting and accounting systems are centralized in the Company’s operational headquarters in
Parsippany, NJ. During 2004, the Company upgraded the back office operations to include increased functionality as well as business
continuity planning. The systems have been configured to allow the performance of all back office functions, including payroll, project
management, project cost accounting, billing, human resource administration and financial reporting and consolidation. The Company believes
that this configuration provides a robust and highly scalable platform from which to manage daily operations, and has the capacity to
accommodate increased usage.
Information Technology
The Company’s IT segment is comprised of two business groups — the IT Consulting Business Group and the IT Solutions Business Group.
The IT Consulting Business Group consists of three business units in North America — the Eastern Region, the Central Region and the
Western Region. The Solutions Business Group consists of three business units — IT Enterprise Management, Enterprise Business Solutions
and Life Sciences.
The RCM Enterprise Business Solutions Group’s core business mission is to continue its strategic transformation designed to focus the
Company on developing proprietary customized solutions and intellectual property by bundling software, systems, tools and services into
integrated business and technology solutions.
RCM’s sector knowledge coupled with technical and business process experience enable the Company to provide strategic planning and
direction, rigorous project execution, and management and support services for an entire project life cycle. RCM has successfully completed
multimillion-dollar projects in a variety of industry verticals using time-tested methodologies that manage strict budgets, timelines and quality
metrics.
Among those IT services provided by RCM to its clients are:
• Enterprise Business Solutions
• Application Services
• Infrastructure Solutions
• Competitive Advantage & Productivity Solutions
• Life Sciences Solutions
The Company believes that its ability to deliver information technology solutions across a wide range of technical platforms provides an
important competitive advantage. RCM 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 technology solutions best suited to their business needs.
The Company provides its IT services through a number of flexible 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 27, 2008, the Company had assigned approximately 780 information technology employees and consultants to its customers.
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Engineering
The Company’s Engineering segment consists of three business units — Engineering Services and Projects, Power Systems Services USA and
Power Systems Services Canada. The Engineering Services and Projects unit includes Aerospace, Manufacturing and Industrial Engineering
divisions. The Power Systems units focus primarily on the nuclear power, fossil fuel and electric utility industries.
RCM provides a full range of Engineering services including Engineering & Design, Engineering Analysis, Engineer-Procure-Construct,
Configuration Management, Hardware/Software Validation & Verification, Quality Assurance, Technical Writing & Publications,
Manufacturing Process Planning & Improvement, Reliability Centered Maintenance (RCM), Component & Equipment Testing and Risk
Management Engineering. Engineering services are provided at the site of the client or, less frequently, at the Company’s own facilities.
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 greater share of professional services and project management requirements of the utilities industry both in 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 competitive 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 27, 2008, the Company had assigned approximately 450 engineering and technical employees and consultants to its
customers.
Commercial
The Company’s Commercial Services segment consists of the Specialty Health Care and General Support Services groups.
The Company’s Specialty Health Care Group specializes in long-term and short-term staffing as well as executive search and placement for the
following fields: rehabilitation (physical therapists, occupational therapists and speech language pathologists), nursing, managed care, allied
health care, health care management and medical office support. The specialty health care group provides services to hospitals, long-term care
facilities, 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. Typical engagements either range from three to six months or are
on a day-to-day shift basis.
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,
receiving, and general warehouse. Contract and temporary assignments range in length from less than one day to several weeks or months.
As of December 27, 2008, the Company had assigned approximately 410 specialty health care and 490 general support services personnel to its
customers.
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Branch Offices
The Company’s organization consists of 35 branch offices located in the United States, Puerto Rico and Canada. The locations and services of
each of the branch offices are set forth in the table below.
LOCATION
USA
California
Connecticut
Florida
Maryland
Michigan
Minnesota
Missouri
New Jersey
New York
Ohio
Pennsylvania
Rhode Island
Texas
Wisconsin
PUERTO RICO
CANADA
NUMBER OF
OFFICES
SERVICES
PROVIDED(1)
9
2
1
1
4
1
1
3
2
1
1
1
2
2
31
1
3
IT, C
E
C
IT
IT, E
IT
IT
IT, E
IT, E, C
IT
C
E
IT
IT, E
IT
IT, E
(1) Services provided are abbreviated as follows:
IT - Information Technology
E - Engineering
C - Commercial
Branch offices are primarily located in markets that the Company believes have strong growth prospects for IT 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.
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The Company is domiciled in the United States and its segments operate in the United States and Canada. Revenues for the year ended
December 27, 2008 and Goodwill and Intangible Assets by geographic area as of December 27, 2008 are as follows (in thousands):
United States
Canada
Revenues
Goodwill
Intangible
Assets
$
$
188,672 $
20,605
209,277
$
6,538 $
—
6,538
$
276
—
276
The Company believes that substantial portions 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 enhances operating performance and contributes to employee and customer satisfaction.
From its headquarters 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 principal sales offices typically have one general manager, one sales manager, three to six sales people, several technical delivery or
practice managers and several recruiters. The general managers report to regional vice presidents who are responsible for ensuring that
performance goals are achieved. The Company’s regional vice presidents 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 or 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 regularly 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, QAD, Mercury, IBM, Harland Financial 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.
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The Company’s larger representative customers include 3M, ADP, BancTec, Bristol Myers Squibb, Bruce Power, Entergy, FlightSafety
International, Lilly del Caribe, Microsoft, MSC Industrial Supply, New York City Department of Education, Ontario Power Group, Schering
Plough, United Technologies, U.S. Department of the Treasury, Wyeth 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 customers’ local or regional level
and from time to time, when appropriate, at the corporate level for national accounts.
During 2008, United Technologies accounted for 11.1% of the Company’s revenues. No other customer accounted for 10% or more of the
Company’s revenues. The Company’s five, ten and twenty largest customers accounted for approximately 27.1%, 33.5% and 44.0%,
respectively, of the Company’s revenues for 2008.
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, trade shows, job fairs, schools, newspaper and trade
journal advertising, Internet recruiting services and the Company’s website.
The Company believes that a significant element of the Company’s success in retaining qualified consultants and contract personnel is the
Company’s use of consultant relationship managers and technical practice managers. Consultant relationship managers 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 provides technical training and skills
development through vendor-sponsored courses, computer-based training tools and on the job mentoring programs.
Information Systems
The Company is continuing to invest in its current ERP installation. During 2004, the Company upgraded the hardware, operating system, and
ERP software to accommodate its growing needs. The ERP system is hosted on Windows 2003 enterprise server operating system and on multi
redundant Dell PowerEdge servers. The branch offices of the Company are networked to the corporate offices via private circuits, which enable
the ERP application to be accessed securely at all operational locations. The ERP 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.
The Company also has Autotime, an automated time and attendance system, which augments the ERP application by catering to the needs of
its diverse business offerings and distributed workforce. The system is housed on a three-tiered architecture on DELL PowerEdge 1800 servers
and is currently deployed in the Canadian division.
The Company has migrated its Recruiting (e.g. Candidate) and Sales (e.g. Requirement) Tracking to JobDiva, an application service provider
(ASP) solution. The integrated solution allows RCM to track all client requirements on an enterprise level. The solution further permits RCM
to search multiple sources (e.g. job boards) to identify and match suitable candidates for an opportunity or need. This solution allows RCM to
build and maintain a proprietary database of prequalified candidates, thereby enhancing our ability to respond to client demands. Furthermore,
the solution increases visibility internally to sales personnel and the management team to manage client priorities no longer on a localized but a
national basis. Customized reporting and query capabilities allow RCM management to monitor personnel performance and client
responsiveness. All data and information is accessible via the web.
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RCM has engaged in three major strategic initiatives to improve upon its ability to secure data, deliver services and improve on its
communication infrastructure.
RCM deployed a new mail architecture based on the Microsoft Exchange 2007 platform. The system is comprised of redundant mail routing
servers and clustered mailbox servers attached to a Storage Area Network (SAN) This new messaging platform has the current capacity of six
Terabytes (TB), with the capability of scaling to 18 Terabytes (TB). In addition to mail storage being sized for VOIP integration, web access to
the mail server is only allowed via secure HTTPs protocol.
RCM has upgraded its perimeter network and WAN architecture to a secure centralized model on Private Network Transport (PNT) AT&T
circuits, utilizing Multiple Packet Label Switching (MPLS) transport protocol. The hub datacenter at its operational headquarters has been
outfitted with redundant fiber circuits from AT&T and Optimum Lightpath utilizing Border gateway Protocol (BGP) for automatic failover. In
addition, redundant firewalls, routers and switching architecture should protect against hardware failure.
The move to service oriented architecture facilitated the implementation of the Cisco Voice over IP (VOIP) solution which is currently
deployed throughout RCM’s offices. This enterprise solution, based on Cisco Call Manager, Unity voicemail, Mobility Manager, Meeting
Place, Fax Server and Video Presence will, when completed, unify all RCM offices in the US and Canada. Summary of benefits include four
digit extension calls between RCM offices, email and voicemail unification, soft and mobile phone integration, video and web conferencing,
central and email enabled faxing.
The above initiatives have contributed to improved communication within RCM and also to its clients.
Other Information
Safeguards - Business, Disaster and Contingency Planning
RCM has implemented a number of safeguards to protect the Company from various system-related risks including a warm data center disaster
recovery site, redundant telecommunications and server systems architecture, multi-tiered server and desktop backup infrastructure, and data
center physical and environmental controls. In addition, RCM has developed disaster recovery / business continuity procedures for all offices.
Given the significant amount of data generated in the Company’s key processes including recruiting, sales, payroll and customer
invoicing, RCM has established redundant procedures, functioning on a daily basis, within the Company’s primary data center. This
redundancy should mitigate the risks related to hardware, application and data loss by utilizing the concept of live differential backups of
servers and desktops to Storage Area (SAN) devices on its backup LAN, culminating in offsite tape storage at an independent facility. Besides
the local tape backup rotation of branch office systems, data is also replicated to SAN devices in Parsippany to achieve business continuity.
Controls within the data center environment ensure that all systems are proactively monitored and data is properly archived.
Additionally, RCM has contracted and brokered strategic relationships with third-party vendors to meet its recovery objectives in the event of a
system disruption. For example, comprehensive service level agreements provided by AT&T and Cisco for RCM’s data circuits and network
devices, guarantee minimal outages as well as network redundancy and scalability. The Disaster Recovery site, located at the corporate office
in Pennsauken, NJ, provides WAN, ERP and messaging services should the primary data center facility at Parsippany, NJ, become inoperable.
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Safeguards - Business, Disaster and Contingency Planning (Continued)
The Company’s ability to protect its data assets against damage from fire, power loss, telecommunications failures, and facility violations is
critical. The Company uses Postini mail management service to filter all emails destined for the RCMT domain before being delivered to the
corporate mail servers. Websense, web filtering has also been deployed to safeguard the enterprise from malicious internet content. The
deployment of virus, spam, and patch management controls extends from the perimeter network to all desktops and is centrally monitored and
managed. In addition to the virus and malware controls, an Intrusion Protection System (IPS) monitors and alerts on changes in network traffic
patterns as well as known hostile signatures.
The Company maintains a disaster recovery plan that outlines the recovery organization structure, roles and procedures, including site
addendum disaster plans for all of its key operating offices. Corporate IT personnel regulate the maintenance and integrity of backed-up data
throughout the Company.
Competition
The market for IT and engineering services is highly competitive and is subject to rapid change. 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 engineering services market include: strong relationships with
existing clients, a long-term track record with over 1,000 clients, a broad range of services, technical expertise, knowledge and experience in
multiple industry sectors, quality and flexibility 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, and its strong corporate-level support and resources.
Seasonality
The Company’s operating results can be affected by the seasonal fluctuations in corporate IT and engineering expenditures. Generally,
expenditures are lowest during the first quarter of the year when clients are finalizing their IT and engineering budgets. In addition, quarterly
results may fluctuate depending on, among other things, the number of billing days in a quarter and the seasonality of clients’ businesses. The
business is also affected by the timing of holidays and seasonal vacation patterns, generally resulting in lower revenues and gross profit in the
fourth quarter of each year. Extreme weather conditions may also affect demand in the first and fourth quarters of the year as certain clients’
facilities are located in geographic areas subject to closure or reduced hours due to inclement weather. In addition, the Company generally
experiences an increase in its cost of sales and a corresponding decrease in gross profit and gross margin percentage in the first and second
fiscal quarters of each year as a result of resetting certain state and federal employment tax rates and related salary limitations.
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Employees
As of December 27, 2008, the Company employed an administrative staff of approximately 250 people, including certified IT specialists and
licensed engineers who, from time to time, participate in IT and engineering design projects undertaken by the Company. As of December 27,
2008, there were approximately 780 information technology and 450 engineering and technical employees and consultants assigned by the
Company to work on client projects for various periods. As of December 27, 2008, there were approximately 410 specialty health care and 490
general support services employees and consultants. None of the Company’s employees is represented by a collective bargaining agreement.
The Company considers its relationship with its employees to be good.
Access to Company Information
RCM electronically files its annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to
those reports with the Securities and Exchange Commission (“SEC”). The public may read and copy any of the reports that are filed with the
SEC at the SEC’s Public Reference Room at 100 F Street, NE, Washington, DC 20549. The public may obtain information on the operation of
the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains an Internet site (http://www.sec.gov) that contains
reports, proxies, information statements, and other information regarding issuers that file electronically.
RCM makes available on its website or by responding free of charge to requests addressed to the Company’s Corporate Secretary, its annual
reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and all amendments to those reports filed by the Company
with the SEC pursuant to Sections 13(a) and 15(d) of the Securities Exchange Act of 1934, as amended. These reports are available as soon as
reasonably practicable after such material is electronically filed with or furnished to the Securities and Exchange Commission. The Company’s
website is http://www.rcmt.com. The information contained on the Company’s website, or on other websites linked to the Company’s website,
is not part of this document. Reference herein to the Company’s website is an inactive text reference only.
RCM has adopted a Code of Conduct applicable to all of its directors, officers and employees. In addition, the Company has adopted a Code of
Ethics, within the meaning of applicable SEC rules, applicable to its Chief Executive Officer, Chief Financial Officer and Controller. Both the
Code of Conduct and Code of Ethics are available, free of charge, by sending a written request to the Company’s Corporate Secretary. If the
Company makes any amendments to either of these Codes (other than technical, administrative, or other non-substantive amendments), or
waive (explicitly or implicitly) any provision of the Code of Ethics to the benefit of our Chief Executive Officer, Chief Financial Officer or
Controller, it intends to disclose the nature of the amendment or waiver, its effective date and to whom it applies in the investor relations
portion of the website, or in a report on Form 8-K filed with the SEC.
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ITEM 1A. RISK FACTORS
The Company’s business involves a number of risks, some of which are beyond its control. The risk and uncertainties described below are not
the only ones the Company faces. Management believes that the most significant of these risks and uncertainties are as follows:
Economic Trends
The recent global economic crisis has caused, among other things, a general tightening in the credit markets, lower levels of liquidity, increases
in the rates of default and bankruptcy, and extreme volatility in credit, equity and fixed income markets. Any or all of these developments could
negatively affect our business, operating results or financial condition in a number of ways. For example, current or potential customers may be
unable to fund capital spending programs, new product launches or other similar activities on which they might otherwise use us, and therefore
delay, decrease or cancel purchases or our services or not pay us or to delay paying us for previously purchased services. In addition, financial
institution failures may cause us to incur increased expenses or make it more difficult either to utilize our existing debt capacity or otherwise
obtain financing for our operations, investing activities (including the financing of any future acquisitions), or financing activities.
Government Regulations
Staffing firms and employment service providers are generally subject to one or more of the following types of government regulation:
(1) regulation of the employer/employee relationship between a firm and its employees, including tax withholding or reporting, social security
or retirement, benefits, workplace compliance, wage and hour, anti-discrimination, immigration and workers’ compensation; (2) registration,
licensing, record keeping and reporting requirements; and (3) federal contractor compliance. Failure to comply with these regulations could
result in the Company incurring penalties and other liabilities, monetary and otherwise.
Highly Competitive Business
The staffing services and outsourcing markets are highly competitive and have limited barriers to entry. RCM competes in global, national,
regional, and local markets with numerous temporary staffing and permanent placement companies. Price competition in the staffing industry is
significant and pricing pressures from competitors and customers are increasing. In addition, there is increasing pressure on companies to
outsource certain areas of their business to low cost offshore outsourcing firms. RCM expects that the level of competition will remain high in
the future, which could limit RCM’s ability to maintain or increase its market share or profitability.
Events Affecting our Significant Customers
As disclosed in Item 1, “Business,” our five, ten and twenty largest customers accounted for approximately 27.1%, 33.5% and 44.0%,
respectively, of our revenues for 2008. Some of these customers may be affected by the current state of the economy or developments in the
credit markets. For example, United Technologies, which accounted for 11.1% of the Company’s revenues in 2008, announced on March 10,
2009 that it had reduced its 2009 profit forecast 13 % and will eliminate 11,600 jobs, or 5% of its global work force. In addition, our customers
may engage in mergers or similar transactions; for example, Wyeth recently announced that it expects to be acquired by Pfizer, and Schering
Plough, recently announced that it expects to be acquired by Merck. Should any of our significant customers experience a downturn in its
business that weakens its financial condition or merge with another company or otherwise cease independent operation, it is possible that the
business that the customer does with us would be reduced or eliminated, which could adversely affect our financial results.
Additionally, the Company estimates to its best ability that the automobile and financial services industries each represented approximately
3.7% or 7.5% combined of the Company’s total revenues in 2008. The automobile and financial services industries are two industries that have
been severely impacted by recent national and global economic malaise.
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Dependence Upon Personnel
The Company’s operations depend on the continued efforts of its officers and other executive management. The loss of key officers and
members of executive management may cause a significant disruption to the Company’s business. RCM also depends on the performance and
productivity of its local managers and field personnel. The Company’s ability to attract and retain new business is significantly affected by
local relationships and the quality of service rendered. The loss of key managers and field personnel may also jeopardize existing client
relationships with businesses that continue to use our services based upon past relationships with local managers and field personnel.
Revolving Credit Facility and Liquidity
If we are unable to borrow under our Revolving Credit Facility, it may adversely affect our liquidity, results of operations and financial
condition. Our liquidity depends on our ability to generate sufficient cash flows from our operations and, from time to time, borrowings under
our Revolving Credit Facility with our agent lender Citizens Bank of Pennsylvania. The Company believes that Citizens Bank is liquid and is
not aware of any current risk that they will become illiquid. At December 27, 2008, we had outstanding borrowings under the Revolving
Credit Facility of $4.9 million, and letters of credit outstanding for $1.6 million.
The Revolving Credit Facility contains various financial and non-financial covenants. At December 27, 2008, we were in compliance with the
covenants and other provisions of the Credit Facility. Any failure to be in compliance could have a material adverse effect on our liquidity,
results of operations and financial condition.
Goodwill and Intangible Impairments May Have an Adverse Effect on our Financial Statements
As of December 27, 2008, we had $6.5 million of goodwill and $0.3 million intangible assets on our balance sheet, which represents 8.6% of
our total assets. Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired in business
combinations. SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) requires the Company to perform a goodwill and
intangible asset impairment test on at least an annual basis. Application of the goodwill and intangible asset impairment test requires significant
judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for
the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these
estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill and intangible asset
impairment for each reporting unit. The Company conducts its annual goodwill and intangible asset impairment test as of the last day of the
Company’s fiscal November each year, or more frequently if indicators of impairment exist. We periodically analyze whether any such
indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such
indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows,
a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower than expected growth rates,
among others. The Company compares the fair value of each of its reporting units to their respective carrying values, including related
goodwill and intangible assets. Future changes in our industries could impact the results of future annual impairment tests. There can be no
assurance that future tests of goodwill and intangible asset impairment will not result in impairment charges. If we are required to write down
goodwill or intangible assets, the related charge could materially reduce reported net income or result in a net loss for the period in which the
write down occurs.
Workers’ Compensation and Employee Medical Insurance
The Company self-insures a portion of the exposure for losses related to workers’ compensation and employees’ medical insurance. The
Company has established reserves for workers’ compensation and employee medical insurance claims based on historical loss statistics and
periodic independent actuarial valuations. Significant differences in actual experience or significant changes in assumptions may materially
affect the Company’s future financial results.
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Improper Activities of Our Temporary Professionals Could Result in Damage to Our Business Reputation, Discontinuation of Our
Client Relationships and Exposure to Liability
The Company may be subject to claims by our clients related to errors and omissions, misuse of proprietary information, discrimination and
harassment, theft and other criminal activity, malpractice, and other claims stemming from the improper activities or alleged activities of our
temporary professionals. There can be no assurance that our current liability insurance coverage will be adequate or will continue to be
available in sufficient amounts to cover damages or other costs associated with such claims.
Claims raised by clients stemming from the improper actions of our temporary professionals, even if without merit, could cause us to incur
significant expense associated with the costs or damages related to such claims. Furthermore, such claims by clients could damage our business
reputation and result in the discontinuation of client relationships.
Our Acquisitions May Not Succeed
The Company reviews prospective acquisitions as an element of its growth strategy. The failure of any acquisition to meet the Company’s
expectations, whether due to a failure to successfully integrate any future acquisition or otherwise, may result in damage to the Company’s
financial performance and/or divert management’s attention from its core operations or could negatively affect the Company’s ability to meet
the needs of its customers promptly.
Foreign Currency Fluctuations and Changes in Exchange Rates
The Company is exposed to risks associated with foreign currency fluctuations and changes in exchange rates. RCM’s exposure to foreign
currency fluctuations relates to operations in Canada, principally conducted through its Canadian subsidiary. Exchange rate fluctuations affect
the U.S. dollar value of reported earnings derived from the Canadian operations as well as the carrying value of our investment in the net assets
related to these operations. The Company does not engage in hedging activities with respect to foreign operations.
Trademarks
Management believes the RCM Technologies, Inc. name is extremely valuable and important to its business. The Company endeavors to
protect its intellectual property rights and maintain certain trademarks, trade names, service marks and other intellectual property rights,
including The Source of Smart Solutions®. The Company is not currently aware of any infringing uses or other conditions that would be
reasonably likely to materially and adversely affect our use of our proprietary rights.
Data Center Capacity and Telecommunication Links
Uninterruptible Power Supply (UPS), card key access, fire suppression, and environmental control systems protect RCM’s datacenter. All
systems are monitored on a 24/7 basis with alerting capabilities via voice or email. The telecommunications architecture at RCM utilizes
managed private circuits from AT&T, which encompasses provisioning redundancy and diversity.
RCM’s ability to protect its data center against damage from fire, power loss, telecommunications failure and other disasters is critical to
business operations. In order to provide many of its services, RCM must be able to store, retrieve, process and manage large databases and
periodically expand and upgrade its capabilities. Any damage to the Company’s data centers or any failure of the Company’s
telecommunication links that interrupts its operations or results in an inadvertent loss of data could adversely affect RCM’s ability to meet its
customers’ needs and their confidence in utilizing RCM for future services.
RCM’s ability to protect its data, provide services and safeguard its installations, as it relates to the IT infrastructure, is in part dependent on
several outside vendors with whom the Company maintains service level agreements.
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Accrued Bonuses
The Company pays bonuses to certain executive management, field management and corporate employees based on, or after giving
consideration to, a variety of financial performance measures. Executive management, field management, and certain corporate employees’
bonuses are accrued throughout the year for payment during the first quarter of the following year, based in part upon actual annual results as
compared to annual budgets. Variances in actual results versus budgeted amounts can have a significant impact on the calculations and
therefore the estimates of the required accruals. Accordingly, the actual earned bonuses may be materially different from the estimates used to
determine the quarterly accruals.
Litigation
The Company is currently, and may in the future become, involved in legal proceedings and claims arising from time to time in the course of
its business, including the litigation described in Note 15 (Contingencies) to the consolidated financial statements. An adverse outcome to the
referenced litigation or other cases arising in the future could have an adverse impact on the consolidated financial position and consolidated
results of operations of the Company.
ITEM 1B. UNRESOLVED STAFF COMMENTS
Not applicable.
ITEM 2. PROPERTIES
The Company provides specialty professional consulting services, principally performed at various client locations, through 35 administrative
and sales offices located in the United States, Puerto Rico, and Canada. The majority of the Company’s offices typically consist of 1,000 to
6,000 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 10,200 square feet and are leased at a rate of $13.89 per square foot per annum for a term ending on January 31, 2011.
The Company’s operational office is located at 20 Waterview Boulevard, 4
approximately 28,000 square feet and are leased at a rate of $29.00 per square foot per annum for a term ending on June 30, 2012.
Floor, Parsippany, NJ 07054-1271. These premises consist of
th
ITEM 3. LEGAL PROCEEDINGS
See discussion of Legal Proceedings in Note 15 (Contingencies) to the consolidated financial statements included in Item 8 of this Report.
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 27, 2008.
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PART II
ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY , RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Shares of the Company’s common stock are traded on The NASDAQ Global 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 27, 2008 as reported by The NASDAQ Global
Market:
Fiscal 2007
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal 2008
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Holders
Common Stock
High
Low
$
$
$
$
7.90 $
8.80
10.30
8.36 $
6.51 $
4.81
4.57
2.24 $
5.75
5.86
6.47
4.93
3.82
3.75
2.00
0.77
As of February 12, 2009, the approximate number of holders of record of the Company’s Common Stock was 513. Based upon the requests for
proxy information in connection with the Company’s 2008 Annual Meeting of Stockholders, the Company believes the number of beneficial
owners of its Common Stock is approximately 2,512.
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.
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COMPARISON OF FIVE-YEAR CUMULATIVE TOTAL RETURNS
The graph below is presented in accordance with SEC requirements. You should not draw any conclusions from the data in the graph, because
past results do not necessarily predict future stock price performance. The graph does not represent our forecast of future stock price
performance.
The following graph compares the cumulative 5-year total return provided shareholders on RCM Technologies, Inc.’s common stock relative to
the cumulative total returns of the NASDAQ Composite index, and a customized peer group of four companies that includes: Butler
International, Kelly Services Inc, MPS Group Inc and Spherion Corp. Management believes this peer group conducts its business operations in
the same industry group as RCM Technologies, Inc. An investment of $100 (with reinvestment of all dividends) is assumed to have been made
in our common stock, in the peer group, and the index on December 31, 2003 and its relative performance is tracked through December 31,
2008.
Total Return Analysis
RCM Technologies, Inc.
NASDAQ Composite
Peer Group
12/03
12/04
12/05
12/06
12/07
12/08
$
$
$
100.00 $
100.00 $
100.00 $
68.25 $
110.08 $
113.31 $
19
69.19 $
112.88 $
117.74 $
81.26 $
126.51 $
117.17 $
79.77 $
138.13 $
89.17 $
15.06
80.47
55.39
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ITEM 6. SELECTED 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. (In thousands, except
earnings per share data).
Income Statement
Revenues
Gross profit
(Loss) income before charges listed below
Amortization, net of tax
Goodwill and intangible asset impairment, net of tax
Stock based compensation, net of tax
Net (loss) income
Earnings Per Share (1)
Net (loss) income:
Basic
Diluted
Balance Sheet
Working capital
Total assets
Long term liabilities
Total liabilities
Stockholders’ equity
December 27,
2008
December 29,
2007
Years Ended
December 30,
2006
December 31,
2005
January 1,
2005(2)
$
$
209,277 $
53,975
(1,671 )
(460 )
(37,574 )
(100 )
(39,805 ) $
214,209 $
52,976
7,500
(320 )
—
(411 )
6,769 $
201,920 $
50,508
7,622
(310 )
—
(956 )
6,356 $
180,618 $
42,683
3,593
(57 )
—
—
3,536 $
169,277
40,974
4,412
(41 )
(2,164 )
—
2,207
(3.15 ) $
(3.15 ) $
$
$
December 27,
2008
.57 $
.54 $
.54 $
.53 $
.31 $
.30 $
.19
.19
December 29,
2007
December 30,
2006
December 31,
2005
January 1,
2005(2)
$
$
42,687 $
78,841
—
23,490
55,351 $
43,541 $
109,714
—
17,666
92,048 $
38,844 $
100,040
—
16,647
83,393 $
33,032 $
106,773
—
31,084
75,689 $
29,545
99,388
—
29,443
69,945
(1) Shares used in computing earnings per share:
Basic
Diluted
12,647,127
12,647,127
11,970,042
12,484,639
11,773,601
12,034,665
11,456,757
11,731,591
11,325,626
11,679,812
(2) Year ended January 1, 2005 had fifty-three weeks and all other years had fifty-two weeks.
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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Overview
RCM participates in a market that is cyclical in nature and extremely sensitive to economic changes. As a result, the impact of economic
changes on revenues and operations can be substantial, resulting in significant volatility in the Company’s financial performance.
After pro forma adjustments to remove the impact of two acquisitions in its Information Technology segment completed in 2008, RCM
experienced a significant decline in its 2008 revenues and gross profit as compared to 2007, particularly in its Information Technology and
Engineering segments. RCM believes the decline in its Information Technology pro forma revenues was principally due to a deterioration of
overall economic conditions in its geographic markets and industry verticals served in 2008. The principal reason for the decline in 2008
Engineering revenues as compared to 2007 was due to the loss of a major customer.
Over the years, RCM has developed and assembled an attractive portfolio of capabilities, established a proven record of performance and
credibility and built an efficient pricing structure. The Company is committed to optimizing its business model as a single-source premier
provider of business and technology solutions with a strong vertical focus offering an integrated suite of services through a global delivery
platform.
The Company believes that most companies recognize the importance of advanced technologies and business processes to compete in today’s
business climate. However, the process of designing, developing and implementing business and technology solutions is becoming increasingly
complex. The Company believes that many businesses today are focused on return on investment analysis in prioritizing their initiatives. This
has an impact on spending by current and prospective clients for many emerging new solutions.
Nonetheless, the Company continues to believe that businesses must implement more advanced IT and engineering solutions to upgrade their
systems, applications and processes so that they can maximize their productivity and optimize their performance in order to maintain a
competitive advantage. Although working under budgetary, personnel and expertise constraints, companies are driven to support increasingly
complex systems, applications, and processes of significant strategic value. This has given rise to a demand for outsourcing. The Company
believes that its current and prospective clients are continuing to evaluate the potential for outsourcing business critical systems, applications,
and processes.
The Company provides project management and consulting services, which are billed based on either agreed-upon fixed fees or hourly rates, or
a combination of both. The billing rates and profit margins for project management and solutions services are higher than those for professional
consulting services. The Company generally endeavors to expand its sales of higher margin solutions and project management services. The
Company also 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 majority of the Company’s services are provided under purchase orders. Contracts are utilized on certain of the more complex assignments
where the engagements are for longer terms or where precise documentation on the nature and scope of the assignment is necessary. Although
contracts normally relate to longer-term and more complex engagements, they 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. The Company, from time to time, enters into contracts requiring
the completion of specific deliverables. Typically these contracts are for less than one year. The Company recognizes revenue on these
deliverables at the time the client accepts and approves the deliverables.
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Costs of services consist primarily of salaries and compensation-related expenses for billable consultants, including payroll taxes, employee
benefits, and insurance. 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 corporate marketing, administrative
and reporting responsibilities and acquisition program. The Company records these expenses when incurred. Depreciation relates primarily to
the fixed assets of the Company. Amortization relates to the allocation of the purchase price of an acquisition, which has been assigned to
covenants not to compete, and customer lists. Acquisitions have been accounted for under Financial Accounting Standards Board (“FASB”)
Statement of Financial Account Standards (“SFAS”) No. 141, “Business Combinations,” and have created goodwill.
Critical Accounting Policies
The Company’s consolidated financial statements were prepared in accordance with generally accepted accounting principles, which require
management to make subjective decisions, assessments and estimates about the effect of matters that are inherently uncertain. As the number of
variables and assumptions affecting the judgment increases, such judgments become even more subjective. While management believes its
assumptions are reasonable and appropriate, actual results may be materially different from estimated. Management has identified certain
critical accounting policies, described below, that require significant judgment to be exercised by management.
Revenue Recognition
The Company derives its revenues from several sources. All of the Company’s segments perform consulting and staffing services. The
Company’s Engineering Services and Information Technology Services segments also perform project services. All of the Company’s
segments derive revenue from permanent placement fees.
Project Services - The Company recognizes revenues in accordance with the Securities and Exchange Commission, Staff Accounting Bulletin
(“SAB”) No. 104, “Revenue Recognition” (“SAB 104”) which clarifies application of U.S. generally accepted accounting principles to revenue
transactions. Project services are generally provided on a cost-plus-fixed-fee or time-and-material basis. Typically, a customer will outsource a
discrete project or activity and the Company assumes responsibility for the performance of such project or activity. The Company recognizes
revenues and associated costs on a gross basis as services are provided to the customer and costs are incurred using its employees. The
Company, from time to time, enters into contracts requiring the completion of specific deliverables. The Company recognizes revenue on these
deliverables at the time the client accepts and approves the deliverables. In instances where project services are provided on a fixed-price basis
and the contract will extend beyond a 12-month period, revenue is recorded in accordance with the terms of each contract. In some instances,
revenue is billed and recorded at the time certain milestones are reached, as defined in the contract. In other instances, revenue is billed and
recorded based upon contractual rates per hour. In addition, some contracts contain “Performance Fees” (bonuses) for completing a contract
under budget. Performance Fees, if any, are recorded when the contract is completed and the revenue is reasonably certain of collection. Some
contracts also limit revenues and billings to maximum amounts. Provision for contract losses, if any, is made in the period such losses are
determined. For contracts where there are multiple deliverables and the work has not been 100% complete on a specific deliverable, the costs
have been deferred. The associated costs are expensed when the related revenue is recognized.
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Consulting and Staffing Services - Revenues derived from consulting and staffing services are recorded on a gross basis as services are
performed and associated costs have been incurred using employees of the Company. In these circumstances, the Company assumes the risk of
acceptability of its employees to its customers. In certain cases, the Company may utilize other companies and their employees to fulfill
customer requirements. In these cases, the Company receives an administrative fee for arranging for, billing for, and collecting the billings
related to these companies. The customer is typically responsible for assessing the work of these companies who have responsibility for
acceptability of their personnel to the customer. Under these circumstances, the Company’s reported revenues are net of associated costs
(effectively the administrative fee).
Permanent Placement Services - The Company earns permanent placement fees from providing permanent placement services. Fees for
placements are recognized at the time the candidate commences employment. The Company guarantees its permanent placements on a prorated
basis for 90 days. In the event a candidate is not retained for the 90-day period, the Company will provide a suitable replacement candidate. In
the event a replacement candidate cannot be located, the Company will provide a prorated refund to the client. An allowance for refunds, based
upon the Company’s historical experience, is recorded in the financial statements. Revenues are recorded on a gross basis as a component of
revenue.
Accounts Receivable
The Company’s accounts receivable are primarily due from trade customers. Credit is extended based on evaluation of customers’ financial
condition and, generally, collateral is not required. Accounts receivable payment terms vary and are stated in the financial statements at
amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment terms are considered
past due. The Company determines its allowance by considering a number of factors, including the length of time trade accounts receivable are
past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the Company, and the condition of the
general economy and the industry as a whole. The Company writes off accounts receivable when they become uncollectible, and payments
subsequently received on such receivables are credited to the allowance for doubtful accounts.
The Company’s accounts receivable allowance for doubtful accounts decreased by approximately $0.6 million to $0.9 million as of
December 27, 2008 from $1.6 million as of December 29, 2007. The primary reason for this decrease was that the Company believes its
accounts receivable balance before allowance for doubtful accounts as of December 27, 2008 was more certain than the accounts receivable
balance before allowance for doubtful accounts as of December 29, 2007. The Company experienced write-offs of accounts receivable in 2008,
excluding the write-off of the note receivable of $6.1 million described below, of $2.2 million as compared to $0.7 million in 2007. Due to the
increased write-offs of accounts receivable in 2008, a lower allowance for doubtful accounts was required so consequently $0.6 million of
those write-offs were charged to accounts receivable allowance for doubtful accounts. Bad debt expense, excluding the write-off of the note
receivable of $6.1 million described below, was $1.6 million in 2008 as compared to $0.6 million in 2007.
On February 26, 2008, the Company accepted a promissory note from a customer for $7.5 million in payment of a like amount of accounts
receivable from that customer. The customer paid $1.4 million through April 30, 2008 at which point management of the Company concluded
that the customer was going to default on its May 1, 2008 installment payment. The Company has since determined that the note receivable is
not collectible. Therefore, the Company wrote off this note receivable in the amount of $6.1 million.
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Goodwill
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired in business combinations.
SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) requires the Company to perform a goodwill and intangible asset
impairment test on at least an annual basis. Application of the goodwill and intangible asset impairment test requires significant judgments
including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of growth for the
businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes in these
estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill and intangible asset
impairment for each reporting unit. The Company conducts its annual goodwill and intangible asset impairment test as of the last day of the
Company’s fiscal November each year, or more frequently if indicators of impairment exist. We periodically analyze whether any such
indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such
indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows,
a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, among
others. The Company compares the fair value of each of its reporting units to their respective carrying values, including related goodwill and
intangible assets.
During 2008, the Company incurred goodwill and intangible asset impairment expense of $43.3 million. The reduction in the value of goodwill
and intangible assets is primarily attributed to reduced expectations for future cash flows in the impacted reporting units. The reduced expected
cash flows resulted in a lower discounted cash flow calculation as compared to prior year’s goodwill and intangible asset impairment tests. The
Company reduced expectations for future cash flows due primarily to a weakened general economy and uncertainty as to the demand for our
reporting unit services. Goodwill at December 27, 2008 and December 29, 2007 was $6.5 million and $39.6 million, respectively. Intangible
assets at December 27, 2008 and December 29, 2007 was $0.3 million. See Footnote 5 to the Financial Statements for a further explanation.
Future changes in our industries could impact the results of future annual impairment tests. There can be no assurance that future tests of
goodwill and intangible asset impairment will not result in impairment charges.
Long-Lived and Intangible Assets
The Company evaluates long-lived assets and intangible assets with definite lives for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. When it is probable that undiscounted future cash flows will not be
sufficient to recover an asset’s carrying amount, the asset is written down to its fair value. Assets to be disposed of by sale, if any, are reported
at the lower of the carrying amount or fair value less cost to sell.
Accounting for Stock Options
The Company uses stock options to attract, retain, and reward employees for long-term service.
Effective as of January 1, 2006, the Company adopted SFAS 123R “Share Based Payment” (“SFAS 123R”). SFAS 123R requires that the
compensation cost relating to stock-based payment transactions be recognized in financial statements. That cost is measured based on the fair
value of the equity or liability instruments issued. SFAS 123R covers a wide range of stock-based compensation arrangements including stock
options, restricted stock plans, performance-based awards, stock appreciation rights and employee stock purchase plans.
In addition to the accounting standard that sets forth the financial reporting objectives and related accounting principles, SFAS 123R includes
an appendix of implementation guidance that provides expanded guidance on measuring the fair value of stock-based payment awards. In
March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123R. The
Company has applied the provisions of SAB 107 in its adoption of SFAS 123R.
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Since the Company adopted SFAS 123R, effective January 1, 2006, using the modified-prospective transition method, the Company is required
to record compensation expense for all awards granted after the date of adoption and for the unvested portion of previously granted awards that
remain outstanding as of the beginning of the period of adoption. The Company measures stock-based compensation cost using the Black-
Scholes option pricing model.
Accounting for Income Taxes
In establishing the provision for income taxes and deferred income tax assets and liabilities, and valuation allowances against deferred tax
assets, the Company makes judgments and interpretations based on enacted tax laws, published tax guidance, and estimates of future earnings.
As of December 27, 2008, the Company had total net deferred tax assets of $6.6 million, primarily representing deferred benefits from the
impairment of goodwill and intangible assets, operating loss carryforwards and alternative minimum tax carryforwards and the tax effect of an
allowance for doubtful accounts. Realization of deferred tax assets is dependent upon the likelihood that future taxable income will be
sufficient to realize these benefits over time, and the effectiveness of tax planning strategies in the relevant tax jurisdictions. In the event that
actual results differ from these estimates and assessments, valuation allowances may be required.
The Company adopted the provisions of FASB Interpretation No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), on January 1,
2007. The Company recognized no material adjustments in the liability for unrecognized income tax benefits due to the adoption of FIN 48.
The Company conducts its operations in multiple tax jurisdictions in the United States and Canada. With limited exceptions, the Company is no
longer subject to audits by tax authorities for tax years prior to 2005. At December 27, 2008, the Company did not have any uncertain tax
positions.
The Company’s future effective tax rates could be adversely affected by changes in the valuation of its deferred tax assets or liabilities or
changes in tax laws or interpretations thereof. In addition, the Company is subject to the examination of its income tax returns by the Internal
Revenue Service and other tax authorities. The Company regularly assesses the likelihood of adverse outcomes resulting from these
examinations to determine the adequacy of its provision for income taxes.
Accrued Bonuses
The Company pays bonuses to certain executive management, field management and corporate employees based on, or after giving
consideration to, a variety of financial performance measures. Executive management, field management, and certain corporate employees’
bonuses are accrued throughout the year for payment during the first quarter of the following year, based in part upon actual annual results as
compared to annual budgets. In addition, the Company pays discretionary bonuses, which are not related to budget performance, to certain
employees. Variances in actual results versus budgeted amounts can have a significant impact on the calculations and therefore the estimates of
the required accruals. Accordingly, the actual earned bonuses may be materially different from the estimates used to determine the quarterly
accruals. The Company from time to time may also withhold any potential bonuses due to uncollected year-end accounts receivable balances.
Forward-looking Information
The Company’s growth prospects are influenced by broad economic trends. The pace of customer capital spending programs, new product
launches and similar activities have a direct impact on the need for consulting and engineering services as well as temporary and permanent
employees. When the U.S. and Canadian economies decline, the Company’s operating performance could be adversely impacted. The
Company believes that its fiscal discipline, strategic focus on targeted vertical markets and diversification of service offerings provides some
insulation from adverse trends. However, declines in the economy could result in the need for future cost reductions or changes in strategy.
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Additionally, changes in government regulations could result in prohibition or restriction of certain types of employment services or the
imposition of new or additional employee benefits, licensing or tax requirements with respect to the provision of employment services that may
reduce RCM’s future earnings. There can be no assurance that RCM will be able to increase the fees charged to its clients in a timely manner
and in a sufficient amount to cover increased costs as a result of any of the foregoing.
The employment services market is highly competitive with limited barriers to entry. RCM competes in global, national, regional, and local
markets with numerous consulting, engineering and employment companies. Price competition in the industries the Company serves is
significant, and pricing pressures from competitors and customers are increasing. RCM expects that the level of competition will remain high
in the future, which could limit RCM’s ability to maintain or increase its market share or profitability.
Results of Operations (In thousands, except for earnings per share data)
Year Ended
December 27, 2008
Year Ended
December 29, 2007
Year Ended
December 30, 2006
Revenues
Cost of services
Gross profit
$
Amount
209,277
155,302
53,975
% of
Revenue
100.0 $
74.2
25.8
Amount
214,209
161,233
52,976
% of
Revenue
100.0 $
75.3
24.7
Amount
201,920
151,412
50,508
Selling, general and administrative
Bad debt - note receivable
Depreciation and amortization
Impairment of goodwill and
intangible assets
Total operating expense
Operating (loss) income
Other (expense) income
(Loss) income before income taxes
Income taxes (benefit) expense
Net (loss) income
$
46,568
6,090
2,067
43,315
98,040
(44,065 )
(298 )
(44,363 )
(4,558 )
(39,805 )
22.3
2.9
1.0
20.7
46.8
(21.1 )
(0.1 )
(21.2 )
2.2
(19.0 ) $
41,418
1,442
—
42,860
10,116
937
11,053
4,284
6,769
(Loss) earnings per share
Basic:
Diluted:
$
$
(3.15 )
(3.15 )
$
$
.57
.54
19.3
0.7
—
20.0
4.7
0.5
5.2
2.0
3.2
$
$
$
41,244
1,507
—
42,751
7,757
(287 )
7,470
1,114
6,356
.54
.53
% of
Revenue
100.0
75.0
25.0
20.4
0.7
—
21.1
3.8
(0.1 )
3.7
0.6
3.1
The above summary is not a presentation of results of operations under generally accepted accounting principles in the United States of
America and should not be considered in isolation or as an alternative to results of operations as an indication of the Company’s performance.
The Company follows a 52/53 week fiscal reporting calendar ending on the Saturday closest to December 31. All years presented represent 52
weeks. A 53-week year occurs periodically.
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Year Ended December 27, 2008 Compared to Year Ended December 29, 2007
Revenues. Revenues decreased 2.3%, or $4.9 million, for the year ended December 27, 2008 as compared to the prior year (the “comparable
prior year period”). Revenues increased $4.5 million in the Information Technology (“IT”) segment, decreased $11.9 million in the
Engineering segment, and increased $2.5 million in the Commercial segment. Management attributes the overall decrease to a weakening of the
general economy and the loss of an engineering client, which generated revenue of $18.0 million in the 2007 period as compared to $0 in the
2008 period. Revenues that were attributable to all acquisitions which occurred in the IT segment since December 29, 2007 and were not
included in the comparable prior year period were approximately $21.1 million.
Cost of Services. Cost of services decreased 3.7%, or $5.9 million, for the year ended December 27, 2008 as compared to the comparable prior
year period. This decrease was primarily due to the decrease in revenues. Cost of services as a percentage of revenues decreased to 74.2% for
the year ended December 27, 2008 from 75.3% for the comparable prior year period. This decrease was primarily attributable to decreased
revenues in the Engineering segment, which had lower gross margins.
Selling, General and Administrative. Selling, general and administrative (“SGA”) expenses increased 12.4%, or $5.2 million, for the year
ended December 27, 2008 as compared to the comparable prior year period. The increase in SGA expenses was principally due to the
following a) two acquisitions in the Company’s Information Technology segment increased SGA expenses by $4.3 million; and b) the
Company’s bad debt expense, excluding the write-off of the note receivable of $6.1 million described below, increased by $1.0 million. As a
percentage of revenues, SGA expenses were 22.3% for the year ended December 27, 2008 as compared to 19.3% for the comparable prior year
period. This percentage increase was primarily attributable to additional SGA expenses incurred in connection with two acquisitions
subsequent to February 28, 2008 and the increase in bad debt expense combined with decreased revenues overall.
Bad Debt - Accounts Receivable. The Company experienced bad debt charges on accounts receivable, excluding the write-off of the note
receivable of $6.1 million described below, of $1.6 million, as compared to $0.6 million in 2007. The large increase in bad debt charges on
accounts receivable was principally due to several unusually large write-offs from certain clients offset by a reduction of the Company’s
accounts receivable – allowance for doubtful accounts. The Company’s accounts receivable – allowance for doubtful accounts was $0.9
million as of December 27, 2008 as compared to $1.6 million as of December 29, 2007.
Bad Debt - Note Receivable. On February 26, 2008, the Company accepted a promissory note from a customer for $7.5 million in payment of a
like amount of accounts receivable from that customer. The customer paid $1.4 million through April 30, 2008 at which point management of
the Company concluded that the customer was going to default on its May 1, 2008 installment payment. The Company has since determined
that the note receivable is not collectible. Therefore, the Company wrote off this note receivable in the amount of $6.1 million.
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Goodwill and Intangible Asset Impairment Expense. During 2008, the Company experienced goodwill and intangible asset impairment
expense of $43.3 million. Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired
in business combinations. SFAS No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”) requires the Company to perform a goodwill
and intangible asset impairment test on at least an annual basis. Application of the goodwill and intangible asset impairment test requires
significant judgments including estimation of future cash flows, which is dependent on internal forecasts, estimation of the long-term rate of
growth for the businesses, the useful life over which cash flows will occur and determination of our weighted average cost of capital. Changes
in these estimates and assumptions could materially affect the determination of fair value and/or conclusions on goodwill and intangible asset
impairment for each reporting unit. The Company conducts its annual goodwill and intangible asset impairment test as of the last day of the
Company’s fiscal November each year, or more frequently if indicators of impairment exist. We periodically analyze whether any such
indicators of impairment exist. A significant amount of judgment is involved in determining if an indicator of impairment has occurred. Such
indicators may include a sustained, significant decline in our share price and market capitalization, a decline in our expected future cash flows,
a significant adverse change in legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, among
others. The Company compares the fair value of each of its reporting units to their respective carrying values, including related goodwill.
Future changes in our industries could impact the results of future annual impairment tests. Goodwill at December 27, 2008 and December 29,
2007 was $6.5 million and $39.6 million, respectively. Intangible assets at December 27, 2008 and December 29, 2007, was $0.3 million.
There can be no assurance that future tests of goodwill and intangible asset impairment will not result in impairment charges.
Depreciation and Amortization. Depreciation and amortization increased 43.3%, or $0.7 million, for the year ended December 27, 2008 as
compared to the comparable prior year period. This increase was principally attributable to amortization of intangibles incurred from two
acquisitions in the 2008 period.
Other Income (Expense). Other income (expense) consists of interest expense, net of interest income and gains and losses on foreign currency
transactions and, in 2007, the proceeds from a legal settlement. For the year ended December 27, 2008, actual interest expense and unused
credit line fees of $0.3 million were offset by $0.1 million of interest income, which was earned from short-term money market deposits.
Interest expense, net increased $0.2 million for the year ended December 27, 2008 as compared to the comparable prior year period. This
increase was primarily due to increased borrowing levels associated with the funding of two acquisitions in the 2008 period. The Company
realized losses on foreign currency transactions of approximately $0.1 million for the year ended December 27, 2008 as compared to gains on
foreign currency transactions of approximately $0.1 million for the comparable prior year period. This change was attributable to unfavorable
exchange rates realized during the 2008 period. The proceeds from the legal settlement in 2007 were realized when the Company reached a
settlement with one of the law firm defendants resulting in the recovery of $0.8 million (see footnote 15 to the consolidated financial
statements).
Income Tax. The Company experienced an income tax benefit of $4.6 million in 2008 as compared to an income tax expense of $4.3 million in
2007. This change was principally attributable to a decrease in income before taxes, which included a $6.1 million bad debt expense on a note
receivable and a non tax-deductible impairment of goodwill and intangible assets of $43.3 million for the year ended December 27, 2008. The
effective tax rate was a credit of 10.3% for the year ended December 27, 2008 as compared to 38.7% in the comparable prior year period.
Net Loss. During 2008, the Company experienced a net loss of $39.8 million as compared to net income of $6.8 million in 2007. The
difference was primarily attributable to the following factors: decreased revenues of $4.9 million, increased selling, general and administrative
expenses of $5.2 million, bad debt-note receivable of $6.1 million, goodwill and impairment expense of $43.3 million, offset by an income tax
benefit of $5.7 million.
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Segment Discussion (See Footnote 13)
Information Technology
IT revenues of $103.5 million in 2008 increased $4.5 million, or 4.5%, compared to 2007 IT revenues of $99.0 million. The increase in revenue
was attributable to two acquisitions in 2008 offset by the weakness in the economy and reduced demand for the Company’s IT services. The IT
segment EBITDA was $0.9 million for 2008, as compared to $5.9 million for 2007.
Engineering
Engineering revenues of $59.3 million in 2008 decreased $11.9 million, or 16.7%, compared to 2007 Engineering revenues of $71.2 million.
The decrease in revenue was primarily attributable to the loss of an Engineering client that generated revenue of $18.0 million in the 2007
period. The Engineering segment EBITDA was a negative of $2.2 million EBITDA for 2008, as compared to $3.9 million positive EBITDA
for 2007.
Commercial
Commercial revenues of $46.6 million in 2008 increased $2.5 million, or 5.6%, compared to 2007 Commercial Services revenues of $44.1
million. The increase in revenues was principally attributable to increased demand for the Company’s Healthcare staffing services. The
Commercial segment EBITDA was $2.7 million of EBITDA for 2008, as compared to $1.7 million of EBITDA for 2007.
Year Ended December 29, 2007 Compared to Year Ended December 30, 2006
Revenues. Revenues increased 6.1%, or $12.3 million, for the year ended December 29, 2007 as compared to the prior year (the “comparable
prior year period”). Revenues decreased $2.5 million in the IT segment, increased $13.5 million in the Engineering segment, and increased $1.3
million in the Commercial segment. The decrease in IT revenues was attributable to a diminished demand for the Company’s IT services.
Management attributes the overall increase to an improvement of the general economy in the first half of the year combined with successful
marketing and sales efforts.
Cost of Services. Cost of services increased 6.5%, or $9.8 million, for the year ended December 29, 2007 as compared to the comparable prior
year period. This increase was primarily due to the increase in revenues. Cost of services as a percentage of revenues increased to 75.3% for the
year ended December 29, 2007 from 75.0% for the comparable prior year period.
Selling, General and Administrative. Selling, general and administrative (“SGA”) expenses increased 0.4%, or $174,000, for the year ended
December 29, 2007 as compared to the comparable prior year period. As a percentage of revenues, SGA expenses were 19.3% for the year
ended December 29, 2007 as compared to 20.4% for the comparable prior year period. This decrease in percentage was primarily attributable to
the spreading of fixed operating costs over a higher revenue base.
Depreciation and Amortization. Depreciation and amortization were essentially unchanged for the year ended December 29, 2007 as compared
to the comparable prior year period.
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Other Income. Other income consisted of interest income, net of interest expense and gains and losses on foreign currency transactions. For the
year ended December 29, 2007, actual interest income of $0.1 million was offset by $0.1 million of interest expense. The interest income was
principally earned from short-term money market deposits. Interest income, net, increased $0.3 million for the year ended December 29, 2007
as compared to the comparable prior year period. This increase was primarily due to an increase in interest income, and an overall decrease in
interest on the line of credit due to fewer borrowings in the current year, as compared to the comparable prior year period. Gains on foreign
currency transactions increased $0.1 million because of the strengthening of the Canadian Dollar as compared to the U. S. Dollar during the
year ended December 29, 2007. Included in other income was an $0.8 million gain from a legal settlement (see footnote 15 to the financial
statements).
Income Tax. Income tax expense increased 284.6%, or $3.2 million, for the year ended December 29, 2007 as compared to the comparable
prior year period. The increase was primarily attributable to a reversal of $1.3 million of previously accrued income taxes in the year ended
December 30, 2006, which related to the potential repayment of tax benefits associated with previously claimed tax deductions claimed from
goodwill impairments. This matter was settled during the year ended December 30, 2006. As a result, the effective tax rate was 38.8% for the
year ended December 29, 2007 as compared to 14.9% in the year ended December 30, 2006. The effective income tax rate for 2006 without the
$1.3 million reversal would have been 32.3%.
Net Income. Net income totaled $6.8 million, or 3.2% of revenue, in 2007 as compared to $6.4 million, or 3.1% of revenue, in 2006. Included
in 2006 was a reversal of $1.3 million of previously accrued income taxes. If the reversal of the accrued income taxes of $1.3 million had not
occurred in 2006, net income as a percentage of revenues would have been 2.5%.
Segment Discussion (See Footnote 13)
Information Technology
IT revenues of $99.0 million in 2007 represented a decrease of $2.5 million, or 2.5%, compared to 2006. The decrease in revenue was
attributable to a decrease in demand for IT services. EBITDA for the IT segment was $5.9 million, or 51.3% of the overall EBITDA, for 2007
as compared to $6.7 million, or 71.8% of the overall EBITDA, for 2006.
Engineering
Engineering revenues of $71.2 million in 2007 represented an increase of $13.5 million, or 23.5%, compared to 2006. The increase in revenue
was attributable to an increase in demand for the Company’s engineering services. The Engineering segment EBITDA was $3.9 million, or
33.8% of the overall EBITDA, for 2007 as compared to $1.0 million, or 11.2% of the overall EBITDA, for 2006.
Commercial
Commercial revenues of $44.1 million in 2007 represented an increase of $1.2 million, or 2.9%, compared to 2006. The increase in revenue for
the Commercial segment was attributable to improvement in economic activity within this segment. The Commercial segment EBITDA was
$1.7 million, or 14.9% of the overall EBITDA, for 2007 as compared to $1.6 million, or 17.0% of the overall EBITDA, for 2006.
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Liquidity and Capital Resources
The following table summarizes the major captions from the Company’s Consolidated Statements of Cash Flows:
(In thousands)
Operating Activities
Investing Activities
Financing Activities
Operating Activities
Year Ended
December 27, 2008
December 29, 2007
$
$
$
(4,807 ) $
(10,364 ) $
4,344 $
8,605
(851 )
993
Operating activities used $4.8 million of cash for the year ended December 27, 2008 as compared to $8.6 million provided by operating
activities for the comparable 2007 period. The decrease in cash provided by operating activities was primarily attributable to a net loss of
$39.8 million, an increase in accounts receivable, an increase in deferred tax assets, an increase in prepaid expenses and other current assets,
and a decrease in income taxes payable. These changes were offset by an increase in payroll and withheld taxes, accrued compensation,
accounts payable and accrued expenses. The increase in accounts receivable was due primarily to the increase in revenues in the fourth quarter
of 2008 of $53.5 million as compared to revenues in the fourth quarter of 2007 of $48.8 million.
Investing Activities
Investing activities used $10.4 million for the year ended December 27, 2008 as compared to $0.9 million for the comparable prior year period.
The increase in the use of cash for investing activities for 2008 as compared to the comparable 2007 period was primarily attributable to
increases in expenditures for property and equipment and in cash used for acquisitions.
Financing Activities
In 2008, financing activities principally consisted of the proceeds from borrowing from the line of credit to finance the acquisition of NuSoft
Solutions, Inc and MBH Solutions, Inc. (See footnote 5 to the financial statements). In 2007, financing activities principally consisted of the
exercise of stock options and issuance of stock for the employee stock purchase plan with an aggregate exercise price of $993,000.
The Company and its subsidiaries are party to a loan agreement with Citizens Bank of Pennsylvania, which was amended and restated effective
February 20, 2009, which now provides for a $15 million revolving credit facility and includes a sub-limit of $5.0 million for letters of credit
(the “Revolving Credit Facility”). At December 27, 2008 the loan agreement provided for a $25 million Revolving Credit Facility. Borrowings
under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each incremental borrowing.
These alternatives are: (i) LIBOR (London Interbank Offered Rate), plus applicable margin, or (ii) the agent bank’s prime rate. The Company
also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn.
All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge 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 2011.
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The weighted average interest rates under the Revolving Credit Facility for the year ended December 27, 2008 and December 29, 2007 were
3.82% and 8.25%, respectively. The majority of borrowings in 2008 were subject to alternative (i) LIBOR (London Interbank Offered Rate),
plus applicable margin on contracts of 30 days or more. All borrowings in 2007 were short term and borrowed under alternative (ii) the agent
bank’s prime rate. During the year ended December 27, 2008 and December 29, 2007, the Company’s outstanding borrowings ranged from $-
0- to $10.5 million and $-0- million to $1.5 million, respectively. At December 27, 2008 and December 29, 2007, there were $4.9 million and
$0.0 outstanding borrowings under this facility, respectively. At December 27, 2008, there were letters of credit outstanding for $1.6 million.
At December 27, 2008, the Company had availability for additional borrowings under the Revolving Credit Facility of $18.5 million. Upon
execution of the amendment to the Company’s loan agreement on February 20, 2009, availability on a proforma basis as of December 27, 2008
was reduced to $8.5 million.
The Company anticipates that its primary uses of capital in future periods will be for working capital purposes. Funding for any long-term and
short-term capital requirements as well as future acquisitions will be derived from one or more of the Revolving Credit Facility, funds
generated through operations or future financing transactions. The Company is subject to legal proceedings and claims that arise from time to
time in the ordinary course of its business, which may or may not be covered by insurance. Were an unfavorable final outcome to occur, there
exists the possibility of a material adverse impact on our financial position, liquidity, and the results of operations for the period in which the
effect becomes reasonably estimable.
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 currently anticipate entering into any such
commitments during the next 12 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.
At December 27, 2008, the Company had a deferred tax asset totaling $6.6 million, primarily representing deferred benefits from the
impairment of goodwill and intangible assets, operating loss carryforwards and alternative minimum tax carryforwards and the tax effect of an
allowance for doubtful accounts. The Company expects to utilize deferred tax assets associated with net operating loss carryforwards of $2.4
million during the 12 months ending December 26, 2009 by offsetting the related tax benefits of such assets against tax liabilities incurred from
forecasted taxable income.
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Summarized below are the Company’s obligations and commitments to make future payments under lease agreements and debt obligations as
of December 27, 2008 (in thousands):
Long-Term Debt Obligations (1)
Operating Lease Obligations
Total
Total
Less Than
1 Year
1-3 Years
3-5 Years
More Than
5 Years
Payments Due by Period
$
4,900 $
12,686
4,900 $
4,271
— $
7,398
— $
1,017
$
17,586
$
9,171
$
7,398
$
1,017
$
—
—
—
(1)The Revolving Credit Facility is for $15.0 million and includes a sub-limit of $5.0 million for letters of credit. The agreement expires in
August 2011. At December 27, 2008, there were outstanding letters of credit for $1.6 million. As of March 24, 2009, the Company does not
anticipate that interest expense in 2009 will be material.
Material Subsequent Event
As of December 27, 2008, the Company was a plaintiff in a material lawsuit as more fully described in Footnote 15 in the Financial Statements.
On March 16, 2009 the Company entered into a settlement agreement with the defendants in this lawsuit. The Company expects to receive $9.8
million, $5.9 million net of tax effect, on or before March 31, 2009.
Significant employment agreements are as follows:
Employment Agreement
The Company has an employment agreement with its Chief Executive Officer and President, Leon Kopyt, which currently provides for an
annual base salary of $550,000 and other customary benefits. In addition, the agreement provides that Mr. Kopyt’s annual bonus be based on
EBITDA, defined as earnings before interest, taxes, depreciation and amortization. The agreement expires on February 28, 2010. The
agreement is for a rolling term of three years, which automatically extends each year for an additional one-year period on February 28 of each
year. The employment agreement is terminable by the Company upon Mr. Kopyt’s death or disability, or for “good and sufficient cause,” as
defined in the agreement.
Termination Benefits Agreement
The Company is party to a Termination Benefits Agreement with its Chief Executive Officer Leon Kopyt, amended on December 12, 2007 to
comply with the requirements of section 409A of the Internal Revenue Code of 1986 (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; 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 27,
2008, Mr. Kopyt would have been entitled to cash payments of approximately $4.9 million (representing salary and excise tax payments).
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Severance Agreement
The Company is party to a Severance Agreement with Mr. Kopyt, amended on December 12, 2007 to comply with the requirements of section
409A of the Internal Revenue Code of 1986 (the “Severance Agreement”). The agreement provides for certain payments to be made to
Mr. Kopyt and for the continuation of Mr. Kopyt’s employee benefits for a specified time after his service with the Company is terminated
other than “for cause,” as defined in the Severance Agreement. Amounts payable to Mr. Kopyt under the Severance Agreement would be offset
and reduced by any amounts received by Mr. Kopyt after his termination of employment under his employment agreement and the Benefits
Agreement, which are supplemented and not superseded by the Severance Agreement. If Mr. Kopyt had been terminated as of December 27,
2008, then under the terms of the Severance Agreement, and after offsetting any amounts that would have been received under his current
employment and termination benefits agreements, he would have been entitled to cash payments of approximately $3.2 million, inclusive of
employee benefits.
Impact of Inflation
Consulting, staffing, and project services are generally priced based on mark-ups on prevailing rates of pay, and as a result are able to generally
maintain their relationship to direct labor costs. Permanent placement services are priced as a function of salary levels of the job candidates.
The Company’s business is labor intensive; therefore, the Company has a high exposure to increasing healthcare benefit costs. The Company
attempts to compensate for these escalating costs in its business cost models and customer pricing by passing along some of these increased
healthcare benefit costs to its customers and employees, however, the Company has not been able to pass on all increases. The Company is
continuing to review its options to further control these costs, which the Company does not believe are representative of general inflationary
trends. Otherwise, inflation has not been a meaningful factor in the Company’s operations.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the principle that
fair value should be based on the assumptions market participants would use when pricing an asset or liability and establishes a fair value
hierarchy that prioritizes the information used to develop those assumptions. Under SFAS No. 157, fair value measurements would be
separately disclosed by level within the fair value hierarchy. In February 2008, the FASB issued FASB Staff Position No. 157-2, “Effective
Date of FASB Statement No. 157,” to partially defer SFAS No. 157 for nonfinancial assets and nonfinancial liabilities, except those that are
recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS No. 157 was effective for the Company on
December 30, 2007, except for nonfinancial assets and nonfinancial liabilities that are not recognized or disclosed at fair value on a recurring
basis for which our effective date is December 28, 2008. The adoption of this statement did not have a material effect on our consolidated
financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an
amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 expands the use of fair value accounting but does not affect
existing standards, which require assets and liabilities to be carried at fair value. Under SFAS No. 159, a company may elect to use fair value to
measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts payable,
guarantees, issued debt and other eligible financial instruments. SFAS No. 159 is effective for the Company as of December 30, 2007.
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The Company has elected not to apply the fair value option to measure any of the financial assets and liabilities on its balance sheet not already
valued at fair value under other accounting pronouncements. These other financial assets and liabilities are primarily accounts receivable,
accounts payable and debt which are reported at historical value. The fair value of these financial assets and liabilities approximate their fair
value because of their short duration and in the case of the debt because it carries variable interest rates which are reset frequently.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). This statement replaces
SFAS No. 141, “Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed and any
noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions. SFAS
No. 141R requires costs incurred to effect the acquisition to be recognized separately from the acquisition as period costs. SFAS No. 141R also
requires the acquirer to recognize restructuring costs that the acquirer expects to incur, but is not obligated to incur, separately from the
business combination. In addition, SFAS No. 141R requires an acquirer to recognize assets and liabilities assumed arising from contractual
contingencies as of the acquisition date, measured at their acquisition-date fair values. Other key provisions of this statement include the
requirement to recognize the acquisition-date fair values of research and development assets separately from goodwill and the requirement to
recognize changes in the amount of deferred tax benefits that are recognizable due to the business combination in either income from
continuing operations in the period of the combination or directly in contributed capital, depending on the circumstances. With the exception of
certain tax-related aspects described above, SFAS No. 141R applies prospectively to business combinations for which the acquisition date is on
or after December 28, 2008.
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles . This statement identifies the sources
of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that are presented in
conformity with generally accepted accounting principles in the U.S. The Company does not believe the adoption of SFAS 162 will have a
material impact on its results of operations or financial position.
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 and debt
instruments, which primarily consist of its Revolving Credit Facility. 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 27,
2008, 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. Presently the impact of a 10% (approximately 90 basis points) increase in interest rates on its
variable debt (using an incremental borrowing rate) would have a relatively nominal impact on the Company’s results of operations. The
Company does not expect any material loss with respect to its investment portfolio.
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ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statements, together with the report of the Company’s Registered Public Accounting Firm, begins on page F-1.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
None.
ITEM 9A(T). CONTROLS AND PROCEDURES
The Company’s management, under the supervision and with the participation of the Company’s Chief Executive Officer and Chief Financial
Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures (as defined in Rule 13a-15(e) and 15d-15(e) under the
Exchange Act) as of the end of the period covered by this report. Based upon that evaluation, the Chief Executive Officer and Chief Financial
Officer concluded that those disclosure controls and procedures as of the end of the period covered by this report were functioning effectively
to provide reasonable assurance that information required to be disclosed by the Company in the reports that it files or submits under the
Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms and is
accumulated and communicated to the Company’s management, including its principal executive and principal financial officers, or persons
performing similar functions, as appropriate, to allow timely decisions regarding required disclosure.
A controls system, no matter how well designed and operated, cannot provide absolute assurance that the objectives of the controls system are
met, and no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within a company have
been detected.
Management’s Report on Internal Control over Financial Reporting
The report of management on our internal control over financial reporting is set forth in Item 8 of this report and is incorporated herein by
reference.
There have been no changes in the Company’s internal control over financial reporting that occurred during the Company’s most recent fiscal
quarter and that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
ITEM 9B. OTHER INFORMATION
None.
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PART III
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by Item 10 shall be included in the 2009 Proxy Statement.
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 shall be included in the 2009 Proxy Statement.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Except as set forth below, the information required by Item 12 shall be included in the 2009 Proxy Statement.
The table below presents certain information concerning securities issuable in connection with equity compensation plans that have been
approved by the Company’s shareholders and that have not been approved by the Company’s shareholders.
Plan category
Equity compensation plans approved by
security holders
Equity compensation plans not approved
by security holders
Total
Number of securities to be
issued upon exercise of
outstanding options,
warrants and rights
(a)
Weighted-average exercise
price of outstanding
options, warrants and
rights
(b)
Number of securities
remaining available for
issuance under equity
compensation plans,
excluding securities
reflected in column (a)
(c)
1,293,900 $
—
1,293,900
$
4.48
—
4.48
699,294
—
699,294
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTORINDEPENDENCE
The information required by Item 13 shall be included in the 2009 Proxy Statement.
ITEM 14. PRINCIPAL ACCOUNTANT FEES AND SERVICES
The information required by Item 14 shall be included in the 2009 Proxy Statement.
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Table of Contents
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
PART IV
(a) 1. and 2. Financial Statement Schedules — See “Index to Financial Statements and Schedules” on F-1.
3. See Item (b) below.
(b) 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)
Certificate of Amendment of Articles of Incorporation; incorporated by reference to Exhibit A to the Registrant’s Proxy
Statement, dated February 6, 1996, filed with the Securities and Exchange Commission on January 29, 1996.
(3)(c)
Certificate of Amendment of Articles of Incorporation; incorporated by reference to Exhibit B to the Registrant’s Proxy
Statement, dated February 6, 1996, filed with the Securities and Exchange Commission on January 29, 1996.
+ (3)(d) Amended and Restated Bylaws.
(4)(a)
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, filed with the Securities and Exchange Commission on March 20, 1996.
*(10)(a)
RCM Technologies, Inc. 1992 Incentive Stock Option Plan; incorporated by reference to Exhibit A to the Registrant’s Proxy
Statement, dated March 9, 1992, filed with the Securities and Exchange Commission on March 9, 1992.
(10)(b)
RCM Technologies, Inc. 1994 Non-employee Director Stock Option Plan; incorporated by reference to the appendix to the
Registrant’s Proxy Statement, dated March 31, 1994, filed with the Securities and Exchange Commission on March 28, 1994.
*(10)(c)
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, filed with the Securities and Exchange
Commission on January 21, 1997 (the “1996 10-K”).
* (10)(d)
RCM Technologies, Inc. 2000 Employee Stock Incentive Plan, dated January 6, 2000; incorporated by reference to Exhibit A to
the Registrant’s Proxy Statement, dated March 3, 2000, filed with the Securities and Exchange Commission on February 28, 2000.
*(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 (SEC File No. 333-23753), filed
with the Securities and Exchange Commission on March 21, 1997.
*(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)
Amended and Restated Loan and Security Agreement, dated May 31, 2002, between RCM Technologies, Inc. and all of its
Subsidiaries with Citizens Bank of Pennsylvania, as Administrative Agent and Arranger; incorporated by reference to Exhibit 10
to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2002, filed with the Securities and Exchange
Commission on August 5, 2002 (the “Second Quarter 2002 10-Q”).
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Table of Contents
*(10)(h)
Severance Agreement, dated June 10, 2002, between RCM Technologies, Inc. and Leon Kopyt; incorporated by reference to
Exhibit 10a to the Second Quarter 2002 10-Q.
* (10)(i) Exhibit A to Severance Agreement General Release; incorporated by reference to Exhibit 10b to the Second Quarter 2002 10-Q.
(10)(j)
Amendment and Modification to Amended And Restated Loan and Security Agreement, dated December 30, 2002, between RCM
Technologies, Inc. and all of its Subsidiaries and Citizens Bank of Pennsylvania as Administrative Agent and Arranger;
incorporated by reference to Exhibit 10(k) to the Registrant’s Annual Report on Form 10-K for the year ended December 31,
2002, filed with the Securities and Exchange Commission on February 28, 2003, as amended on March 3, 2003 (the “2002 10-
K”).
(10)(k)
Second Amendment and Modification to Amended And Restated Loan and Security Agreement, dated February 26, 2003,
between RCM Technologies, Inc. and all of its Subsidiaries and Citizens Bank of Pennsylvania as Administrative Agent and
Arranger; incorporated by reference to Exhibit 10(l) to 2002 10-K).
(10)(l)
Third Amendment and Modification to Amended And Restated Loan and Security Agreement, dated October 1, 2003, between
RCM Technologies, Inc. and all of its Subsidiaries and Citizens Bank of Pennsylvania as Administrative Agent and Arranger;
incorporated by reference to Exhibit 99.H to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended September 30,
2003, filed with the Securities and Exchange Commission on November 6, 2003.
(10)(m)
Fourth Amendment and Modification to Amended And Restated Loan and Security Agreement, dated July 23, 2004, between
RCM Technologies, Inc. and all of its Subsidiaries and Citizens Bank of Pennsylvania as Administrative Agent and Arranger;
incorporated by reference to Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 3, 2004,
filed with the Securities and Exchange Commission on August 5, 2004.
(10)(n)
Fifth Amendment and Modification to Amended and Restated Loan and Security Agreement dated August 7, 2006, between RCM
Technologies, Inc. and all of its Subsidiaries and Citizens Bank of Pennsylvania as Administrative Agent and Arranger;
incorporated by reference to Exhibit 10(a) to the Registrant’s Quarterly Report on Form 10-Q for the quarter ended July 1, 2006 ,
filed with the Securities and Exchange Commission on August 10, 2006.
*(10)(o)
Amendment No. 1, dated December 12, 2007, to the Amended and Restated Employment Agreement, entered into on
November 30, 1996, between Leon Kopyt and RCM Technologies, Inc.; incorporated by reference to Exhibit 10.1 to the
Registrant’s Current Report on Form 8-K dated December 12, 2007, filed with the Securities and Exchange Commission on
December 12, 2007 (the “December 2007 8-K”).
* (10)(p)
Amendment No. 1, dated December 12, 2007, to the Second Amended and Restated Termination Benefits Agreement, made
March 18, 1997, between Leon Kopyt and RCM Technologies, Inc.; incorporated by reference to Exhibit 10.2 to the
December 2007 8-K.
* (10)(q)
Amendment No. 1, dated December 12, 2007, to the Severance Agreement, entered into on June 12, 2002, between Leon Kopyt
and RCM Technologies, Inc.; incorporated by reference to Exhibit 10.3 to the December 2007 8-K.
*(10)(r) Compensation Arrangements for Named Executive Officers.
(Filed herewith)
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Table of Contents
* (10)(s) Compensation Arrangements for Directors.
(Filed herewith)
* (10)(t)
The RCM Technologies, Inc. 2007 Omnibus Equity Compensation Plan; incorporated by reference to Annex A to the Registrant’s
Proxy Statement, dated April 20, 2007, filed with the Securities and Exchange Commission on April 19, 2007.
* (10)(u)
Separation and Release Agreement, dated August 27, 2008; incorporated by reference to Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K dated August 21, 2008, filed with the Securities and Exchange Commission on August 27, 2008.
(10)(v)
Second Amended and Restated Loan and Security Agreement dated as of February 19, 2009, between RCM Technologies, Inc.
and all of its Subsidiaries, Citizens Bank of Pennsylvania as Administrative Agent and Arranger and the Financial Institutions
Named therein as Lenders; incorporated by reference to Exhibit 99.1 to the Registrant’s Current Report on Form 8-K dated
February 19, 2009, filed with the Securities and Exchange Commission on February 25, 2009.
(11) Computation of Earnings (loss) Share.
(Filed herewith)
(21) Subsidiaries of the Registrant.
(Filed herewith)
(23) Consent of Grant Thornton LLP.
(Filed herewith)
31.1 Certifications of Chief Executive Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
(Filed herewith)
31.2 Certifications of Chief Financial Officer Required by Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended.
(Filed herewith)
32.1
32.2
Certifications of Chief Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This
exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
(Filed herewith)
Certifications of Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended. (This
exhibit shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise
subject to the liability of that section. Further, this exhibit shall not be deemed to be incorporated by reference into any filing
under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended.)
(Filed herewith)
* Constitutes a management contract or compensatory plan or arrangement.
+ Filed herewith.
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Table of Contents
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.
Date: March 3, 2009
Date: March 3, 2009
RCM Technologies, Inc.
By: /s/ Leon Kopyt
Leon Kopyt
Chairman, President, Chief Executive Officer and Director
By: /s/ Kevin D. Miller
Kevin D. Miller
Chief Financial Officer, Treasurer and Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of
the Registrant and in the capacities and on the dates indicated.
Date: March 3, 2009
Date: March 3, 2009
Date: March 3, 2009
Date: March 3, 2009
Date: March 3, 2009
/s/ Leon Kopyt
Leon Kopyt
Chairman, President, Chief Executive Officer (Principal Executive
Officer) and Director
/s/ Kevin D. Miller
Kevin D. Miller
Chief Financial Officer, Treasurer and Secretary (Principal Financial
and Accounting Officer)
/s/ Norman S. Berson
Norman S. Berson
Director
/s/ Robert B. Kerr
Robert B. Kerr
Director
/s/ Lawrence Needleman
Lawrence Needleman
Director
41
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RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
FORM 10-K
INDEX TO FINANCIAL STATEMENTS AND SCHEDULES
Consolidated Balance Sheets, December 27, 2008 and December 29, 2007
Consolidated Statements of Operations, Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
Consolidated Statements of Changes in Stockholders’ Equity and Consolidated Statements of Comprehensive (Loss) Income, Years
Ended December 27, 2008, December 29, 2007 and December 30, 2006
Consolidated Statements of Cash Flows, Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
Notes to Consolidated Financial Statements
Management’s Report on Internal Control Over Financial Reporting
Report of Independent Registered Public Accounting Firm
Schedules I and II
F-1
Page
F-2
F-4
F-6
F-7
F-9
F-34
F-35
F-36
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
December 27, 2008 and December 29, 2007
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
ASSETS
December 27,
2008
December 29,
2007
Current assets
Cash and cash equivalents
Accounts receivable, net of allowance for doubtful accounts of $942 and $1,583 in fiscal 2008 and
2007, respectively
Long term receivable-current portion
Prepaid expenses and other current assets
Deferred tax assets
Total current assets
Property and equipment, at cost
Equipment and leasehold improvements
Less: accumulated depreciation and amortization
Net property and equipment
Other assets
Long term receivable
Deposits
Goodwill
Intangible assets, net of accumulated amortization of $834 and $726 in fiscal 2008 and 2007,
respectively
Total other assets
Total assets
$
815 $
55,770
—
3,012
6,580
66,177
11,278
5,692
5,586
—
264
6,538
276
7,078
11,642
45,468
1,893
1,493
711
61,207
9,407
5,178
4,229
4,216
125
39,588
349
44,278
109,714
The accompanying notes are an integral part of these financial statements.
F-2
$
78,841
$
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS — (CONTINUED)
December 27, 2008 and December 29, 2007
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities
Line of credit
Accounts payable and accrued expenses
Accrued compensation
Payroll and withheld taxes
Income taxes payable
Total current liabilities
December 27,
2008
December 29,
2007
$
4,900 $
8,375
8,610
1,067
538
—
8,005
7,418
1,087
1,156
23,490
17,666
Stockholders’ 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; 12,774,026 and 12,058,689 shares
issued and outstanding at December 27, 2008 and December 29, 2007, respectively
Additional paid-in capital
Accumulated other comprehensive income
Accumulated deficit
639
106,788
720
(52,796 )
55,351
Total liabilities and stockholders’ equity
$
78,841
$
The accompanying notes are an integral part of these financial statements.
F-3
603
102,951
1,484
(12,990 )
92,048
109,714
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Table of Contents
Revenues
Cost of services(1)
Gross profit
Operating costs and expenses
Selling, general and administrative(2)
Bad debt - note receivable
Depreciation
Amortization
Impairment of goodwill and intangible assets
Operating (loss) income
Other (expense) income
Interest (expense) income, net
(Loss) gain on foreign currency transactions
Legal settlement
Other
(Loss) income before income taxes
Income tax (benefit) expense
Net (loss) income
December 27,
2008
December 29,
2007
December 30,
2006
$
209,277 $
214,209 $
201,920
155,302
53,975
161,233
52,976
46,568
6,090
1,300
767
43,315
98,040
(44,065 )
(230 )
(75 )
—
7
(298 )
(44,363 )
(4,558 )
41,418
—
1,122
320
—
42,860
10,116
59
78
800
—
937
11,053
4,284
$
(39,805 ) $
6,769
$
151,412
50,508
41,244
—
1,197
310
—
42,751
7,757
(256 )
(31 )
—
—
(287 )
7,470
1,114
6,356
(1)
(2)
Includes stock based compensation expense of $45, $22 and $46 for the years ended December 27, 2008, December 29, 2007 and
December 30, 2006, respectively.
Includes stock based compensation expense of $55, $389 and $910 for the years ended December 27, 2008, December 29, 2007 and
December 30, 2006, respectively.
The accompanying notes are an integral part of these financial statements.
F-4
Table of Contents
Basic earnings per share
Net income
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (CONTINUED)
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
December 27,
2008
December 29,
2007
December 30,
2006
$
(3.15 ) $
.57
$
.54
Weighted average number of common shares outstanding
12,647,127
11,970,042
11,773,301
Diluted earnings per share
Net income
$
(3.15 ) $
.54
$
.53
Weighted average number of common and common equivalent shares outstanding
12,647,127
12,484,639
12,034,665
The accompanying notes are an integral part of these financial statements.
F-5
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Common Stock
Shares
Amount
Additional
Paid-in
Capital
Accumulated
Other
Comprehensive Accumulated
Income
Deficit
Total
Balance, December 31, 2005
11,728,261 $
586 $
100,235 $
982 $
(26,115 ) $
75,688
Issuance of stock under employee stock
purchase plan
Exercise of stock options
Translation adjustment
Stock based compensation expense
Net income
33,770
60,095
—
—
—
2
3
—
—
—
142
226
—
956
—
—
—
20
—
—
—
—
—
—
6,356
144
229
20
956
6,356
Balance, December 30, 2006
11,822,126
591
101,559
1,002
(19,759 )
83,393
Issuance of stock under employee stock
purchase plan
Exercise of stock options
Translation adjustment
Stock based compensation expense
Net income
28,563
208,000
—
—
—
1
11
—
—
—
143
838
—
411
—
—
—
482
—
—
—
—
—
—
6,769
144
849
482
411
6,769
Balance, December 29, 2007
12,058,689
603
102,951
1,484
(12,990 )
92,048
Issuance of stock under employee stock
purchase plan
Translation adjustment
Stock based compensation expense
Acquired companies
Net loss
15,337
—
—
700,000
—
1
—
—
35
—
55
—
100
3,682
—
—
(764 )
—
—
—
—
—
—
—
(39,805 )
56
(764 )
100
3,717
(39,805 )
Balance, December 27, 2008
12,774,026
$
639
$
106,788
$
720
$
(52,796 ) $
55,351
CONSOLIDATED STATEMENTS OF COMPREHENSIVE (LOSS) INCOME
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
Net (loss) income
Foreign currency translation adjustment
Comprehensive (loss) income
December 27,
2008
December 29,
2007
December 30,
2006
$
$
(39,805 ) $
(764 )
(40,569 ) $
6,769 $
482
7,251
$
6,356
20
6,376
The accompanying notes are an integral part of these financial statements.
F-6
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net (loss) income to net cash (used in) provided by
operating activities:
Depreciation and amortization
Impairment of goodwill and intangible assets
Gain on disposal of assets
Provision for allowance on accounts receivable
Stock based compensation expense
Provision for losses on notes receivable
Deferred taxes
Changes in assets and liabilities, net of acquisitions:
Accounts and note receivable
Restricted cash
Prepaid expenses and other current assets
Accounts payable and accrued expenses
Accrued compensation
Payroll and withheld taxes
Income taxes payable
Total adjustments
December 27,
2008
December 29,
2007
December 30,
2006
$
(39,805 ) $
6,769 $
6,356
2,056
43,315
(7 )
(641 )
100
6,090
(5,869 )
(10,275 )
—
(1,582 )
906
1,330
38
(463 )
34,998
1,449
—
—
(89 )
411
—
2,474
(3,030 )
—
244
118
(780 )
(87 )
1,126
1,836
1,508
—
—
(120 )
956
—
827
(3,144 )
8,572
1,132
(7,665 )
1,086
277
(4,181 )
(752 )
Net cash (used in) provided by operating activities
$
(4,807 ) $
8,605
$
5,604
The accompanying notes are an integral part of these financial statements.
F-7
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (CONTINUED)
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Cash flows from investing activities:
Property and equipment acquired
Proceeds from equipment disposal
(Increase) decrease in deposits
Cash paid for acquisitions, net of cash acquired
Net cash used in investing activities
Cash flows from financing activities:
Net borrowings (repayments) of line of credit
Issuance of stock for employee stock purchase plan
Exercise of stock options
Net cash provided by (used in) financing activities
Effect of exchange rate changes on cash and cash equivalents
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental cash flow information:
Cash paid for:
Interest
Income taxes
December 27,
2008
December 29,
2007
December 30,
2006
$
(2,667 ) $
25
(138 )
(7,584 )
(625 ) $
—
33
(259 )
(10,364 )
(851 )
4,900
55
—
4,955
(611 )
(10,827 )
11,642
—
144
849
993
446
9,193
2,449
$
815
$
11,642
$
(1,569 )
—
9
(1,840 )
(3,400 )
(3,900 )
144
229
(3,527 )
11
(1,312 )
3,761
2,449
$
$
192 $
2,483 $
162 $
737 $
723
4,060
The accompanying notes are an integral part of these financial statements.
F-8
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Description of Business and Basis of Presentation
RCM Technologies, Inc. is a premier provider of business and technology solutions designed to enhance and maximize the operational
performance of its customers through the adaptation and deployment of advanced information technology and engineering services.
Additionally, the Company provides specialty staffing services through its Commercial Services group. 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
accounting principles generally accepted in the United States 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.
Fiscal Periods
The reporting period for the Company is the Saturday closest to the last day in December. Fiscal years 2008, 2007 and 2006 represent the
52 weeks ended December 27, 2008, December 29, 2007 and December 30, 2006, respectively.
Cash and Cash Equivalents
The Company considers its holdings of highly liquid money-market instruments to be cash equivalents if the securities mature within 90
days from the date of acquisition. These investments are carried at cost, which approximates fair value.
The Company’s cash balances and short-term investments are maintained in accounts held by major banks and financial institutions. At
times, these balances may exceed insured amounts. At December 27, 2008 and December 29, 2007, $0.7 million and $3.9 million,
respectively, of cash and cash equivalents were held in Canadian banks.
Fair Value of Financial Instruments
The Company’s carrying value of financial instruments, consisting primarily of accounts receivable, approximates fair value. The
Company does not have any off-balance sheet financial instruments. The Company does not have derivative products in place to manage
risks related to foreign currency fluctuations for its foreign operations or for interest rate changes.
Allowance for Doubtful Accounts
The Company’s accounts receivable are primarily due from trade customers. Credit is extended based on evaluation of customers’
financial condition and, generally, collateral is not required. Accounts receivable payment terms vary and are stated in the financial
statements at amounts due from customers net of an allowance for doubtful accounts. Accounts outstanding longer than the payment
terms are considered past due. The Company determines its allowance by considering a number of factors, including the length of time
trade accounts receivable are past due, the Company’s previous loss history, the customer’s current ability to pay its obligation to the
Company, and the condition of the general economy and the industry as a whole. The Company writes off accounts receivable when they
become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts.
F-9
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Property and Equipment
Property and equipment are stated at cost and are depreciated on the straight-line method at rates calculated to provide for retirement of
assets at the end of their estimated useful lives. The Company’s ERP software system, installed in 1999 and upgraded in 2004, is being
depreciated over fifteen years. The Company’s VOIP telephone system, the installation of which was substantially complete at the end of
2008, is being depreciated over seven years. All other hardware and software as well as furniture and office equipment is depreciated over
five years. Leasehold improvements are depreciated over the shorter of the estimated life of the asset or the lease term.
Goodwill
Goodwill represents the premium paid over the fair value of the net tangible and intangible assets we have acquired in business
combinations. Statement of Financial Accounting Standards (“SFAS”) No. 142 “Goodwill and Other Intangible Assets” (“SFAS 142”)
requires the Company to perform a goodwill and intangible asset impairment test on at least an annual basis. Application of the goodwill
and intangible asset impairment test requires significant judgments including estimation of future cash flows, which is dependent on
internal forecasts, estimation of the long-term rate of growth for the businesses, the useful life over which cash flows will occur and
determination of our weighted average cost of capital. Changes in these estimates and assumptions could materially affect the
determination of fair value and/or conclusions on goodwill and intangible asset impairment for each reporting unit. The Company
conducts its annual goodwill and intangible asset impairment test as of the last day of the Company’s fiscal November each year, or more
frequently if indicators of impairment exist. We periodically analyze whether any such indicators of impairment exist. A significant
amount of judgment is involved in determining if an indicator of impairment has occurred. Such indicators may include a sustained,
significant decline in our share price and market capitalization, a decline in our expected future cash flows, a significant adverse change in
legal factors or in the business climate, unanticipated competition and/or slower expected growth rates, among others. The Company
compares the fair value of each of its reporting units to their respective carrying values, including related goodwill. Future changes in the
industry could impact the results of future annual impairment tests.
Long-Lived Assets
The Company accounts for long-lived assets in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-
Lived Assets . Management periodically reviews the carrying amounts of long-lived assets to determine whether current events or
circumstances warrant adjustment to such carrying amounts. Any impairment is measured by the amount that the carrying value of such
assets exceeds their fair value, primarily based on estimated discounted cash flows. Considerable management judgment is necessary to
estimate the fair value of assets. Assets to be disposed of are carried at the lower of their financial statement carrying amount or fair value,
less cost to sell.
Software
In accordance with the American Institute of Certified Public Accountants’ Statement of Position (“SOP”) 98-1, “Accounting for Costs of
Computer Software Developed or Obtained for Internal Use” (“SOP 98-1”), 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 27,
2008, December 29, 2007 and December 30, 2006, the Company capitalized approximately $219, $135 and $563, respectively, of
software costs in accordance with SOP 98-1. At December 27, 2008 the net balance after depreciation for all software costs capitalized in
accordance with SOP 98-1 was $0.5 million.
F-10
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Income Taxes
The Company accounts for income taxes in accordance with SFAS No. 109 “Accounting for Income Taxes” (“SFAS 109”), which
requires an asset and liability approach of accounting for income taxes. SFAS 109 requires assessment of the likelihood of realizing
benefits associated with deferred tax assets for purposes of determining whether a valuation allowance is needed for such deferred tax
assets. The Company and its wholly owned U.S. subsidiaries file a consolidated federal income tax return.
Effective January 1, 2007, the Company adopted the provisions of FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (“FIN 48”), an interpretation of FASB Statement No. 109 (“SFAS 109”). FIN 48 prescribes a model for the recognition and
measurement of a tax position taken or expected to be taken in a tax return, and provides guidance on derecognition, classification,
interest and penalties, disclosure and transition. Implementation of FIN 48 did not result in a cumulative effect adjustment to retained
earnings. At December 27, 2008 the Company did not have any significant unrecognized tax benefits.
Revenue Recognition
The Company derives its revenues from several sources. All of the Company’s segments perform staffing services. The Company’s
Engineering services and IT services segments also perform project services. All of the Company’s segments derive revenue from
permanent placement fees.
Project Services - The Company recognizes revenues in accordance with the Securities and Exchange Commission, Staff Accounting
Bulletin (SAB) No. 104, “Revenue Recognition” (“SAB 104”). SAB 104 clarifies application of U.S. generally accepted accounting
principles to revenue transactions. Project services are generally provided on a cost-plus-fixed-fee or time-and-material basis. Typically, a
customer will outsource a discrete project or activity and the Company assumes responsibility for the performance of such project or
activity. The Company recognizes revenues and associated costs on a gross basis as services are provided to the customer and costs are
incurred using its employees. The Company, from time to time, enters into contracts requiring the completion of specific deliverables.
The Company recognizes revenue on these deliverables at the time the client accepts and approves the deliverables. In instances where
project services are provided on a fixed-price basis and the contract will extend beyond a 12-month period, revenue is recorded in
accordance with the terms of each contract. In some instances, revenue is billed and recorded at the time certain milestones are reached, as
defined in the contract. In other instances, revenue is billed and recorded based upon contractual rates per hour. In addition, some
contracts contain “Performance Fees” (bonuses) for completing a contract under budget. Performance Fees, if any, are recorded when the
contract is completed and the revenue is reasonably certain of collection. Some contracts also limit revenues and billings to maximum
amounts. Provision for contract losses, if any, is made in the period such losses are determined. Expenses related to contracts that extend
beyond a 12-month period are charged to cost of services as incurred.
Consulting/Staffing Services - Revenues derived from staffing services are recorded on a gross basis as services are performed and
associated costs have been incurred using employees of the Company. In these circumstances, the Company assumes the risk of
acceptability of its employees to its customers. In certain cases, the Company may utilize other companies and their employees to fulfill
customer requirements. In these cases, the Company receives an administrative fee for arranging for, billing for, and collecting the
billings related to these companies. The customer is typically responsible for assessing the work of these companies who have
responsibility for acceptability of their personnel to the customer. Under these circumstances, the Company’s reported revenues are net of
associated costs (effectively the administrative fee).
F-11
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Revenue Recognition (Continued)
Permanent Placement Services - The Company earns permanent placement fees from providing permanent placement services. Fees for
placements are recognized at the time the candidate commences employment. The Company guarantees its permanent placements on a
prorated basis for 90 days. In the event a candidate is not retained for the 90-day period, the Company will provide a suitable replacement
candidate. In the event a replacement candidate cannot be located, the Company will provide a refund to the client. An allowance for
refunds, based upon the Company’s historical experience, is recorded in the financial statements. Revenues are recorded on a gross basis
as a component of revenue.
Unbilled Accounts Receivable
At December 27, 2008 and December 29, 2007 there were $11.0 million and $8.4 million, respectively, of unbilled receivables included
in accounts receivable.
Concentration
During 2008, one customer accounted for 11.1% of the Company’s revenues and 17.5% of the Company’s accounts receivable. No other
customer accounted for 10% or more of the Company’s revenues. The Company’s five, ten and twenty largest customers accounted for
approximately 27.1%, 33.5% and 44.0%, respectively, of the Company’s revenues for 2008.
During 2007, one customer accounted for 10.8% of the Company’s revenues and 16.4% of the Company’s accounts and notes receivable.
No other customer accounted for 10% or more of the Company’s revenues. The Company’s five, ten and twenty largest customers
accounted for approximately 29.9%, 38.3% and 48.1%, respectively, of the Company’s revenues for 2007.
During 2006, one customer accounted for 11.4% of the Company’s revenues and 17.5% of the Company’s accounts receivable. No other
customer accounted for 10% or more of the Company’s revenues. The Company’s five, ten and twenty largest customers accounted for
approximately 25.2%, 34.6% and 43.4%, respectively, of the Company’s revenues for 2006.
Foreign Currency Translation
The functional currency of the Company’s Canadian subsidiary is the subsidiary’s local currency. Assets and liabilities are translated at
period-end exchange rates. Income and expense items are translated at weighted average rates of exchange prevailing during the year.
Any translation adjustments are included in the accumulated other comprehensive income account in stockholders’ equity. Transactions
executed in different currencies resulting in exchange adjustments are translated at spot rates and resulting foreign exchange transaction
gains and losses are included in the results of operations.
Comprehensive Income
Comprehensive income consists of net income and foreign currency translation adjustments.
F-12
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
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. 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 for 2008, 2007 and 2006 was determined as follows:
Basic average shares outstanding
Dilutive effect of stock options
Dilutive shares
Year Ended
December 27,
2008
12,647,127
—
Year Ended
December 29,
2007
11,970,042
514,597
Year Ended
December 30,
2006
11,773,301
261,364
12,647,127
12,484,639
12,034,665
Options to purchase 1,293,900 shares of common stock at prices ranging from $3.00 to $9.81 per share were outstanding as of
December 27, 2008. There were 1,069,900 options not included in the calculation of common stock equivalents because the exercise price
of the options exceeded the average market price for the year ended December 27, 2008. Additionally, 224,000 options that were at less
than the average market price were not included in the calculation of common stock equivalents because the options were anti-dilutive as
the Company is in a net loss position.
Options to purchase 1,462,000 shares of common stock at prices ranging from $3.00 to $9.81 per share were outstanding as of
December 29, 2007. There were 35,000 options not included in the calculation of common stock equivalents because the exercise price of
the options exceeded the average market price for the year ended December 29, 2007.
Options to purchase 1,768,000 shares of common stock at prices ranging from $3.00 to $7.04 per share were outstanding as of
December 30, 2006. There were 109,000 options not included in the calculation of common stock equivalents because the exercise price
of the options exceeded the average market price for the year ended December 30, 2006.
Stock - Based Compensation
At December 27, 2008, the Company had five stock-based employee compensation plans. The Company measures the fair value of stock
options, if and when granted, based upon the closing market price of the Company’s common stock on the date of grant. All grants
typically vest over a three-year period and expire within 10 years of issuance. Stock options that vest in accordance with service
conditions amortize over their applicable vesting period using the straight-line method.
F-13
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock - Based Compensation (Continued)
Effective January 1, 2006, the Company adopted the fair value recognition provisions of SFAS No. 123 (revised 2004), Share-Based
Payment (“SFAS 123R”) using the modified-prospective transition method. Under that transition method, compensation cost recognized
in 2006, 2007 and 2008 included: (a) compensation cost for all stock-based payments granted prior to, but not yet vested as of January 1,
2006, based on the grant date fair value estimated in accordance with the original provisions of SFAS 123, adjusted for estimated
forfeitures, and (b) compensation cost for all stock-based payments granted subsequent to January 1, 2006, based on the grant date fair
value estimated in accordance with the provisions of SFAS 123R, adjusted for estimated forfeitures. The straight-line recognition method
is used to recognize compensation expense associated with stock-based payments that are subject to graded vesting based on service
conditions.
Stock-based compensation expense of $0.1 million, or $0.01 per diluted share, and of $0.4 million, or $0.03 per diluted share, was
recognized for the year ended December 27, 2008 and December 29, 2007, respectively.
The pro-forma compensation cost using the fair value-based method under SFAS No. 123R includes valuations related to stock options
granted since January 1, 1995 using the Black-Scholes Option Pricing Model. The weighted average fair value of options granted using
the Black-Scholes Option Pricing Model during 2008, 2007 and 2006 has been estimated using the following assumptions:
Weighted average risk-free interest rate
Expected term of option
Expected stock price volatility
Expected dividend yield
Annual forfeiture rate
Weighted-average per share value granted
Year Ended
December 27,
2008
Year Ended
December 29,
2007
Year Ended
December 30,
2006
3.04 %
5 years
61 %
N/A
16.1 %
2.57 $
4.91 %
5 years
58 %
N/A
29.8 %
4.96 $
4.90 %
5 years
56 %
N/A
22.30 %
2.44
$
Expected volatility is based on the historical volatility of the price of the Company’s common stock since December 29, 2002. The
Company uses historical information to estimate expected life and forfeitures within the valuation model. The expected term of awards
represents the period of time that options granted are expected to be outstanding. The risk-free rate for periods within the expected life of
the option is based on the U.S. Treasury yield curve in effect at the time of grant. Compensation cost is recognized using a straight-line
method over the vesting or service period and is net of estimated forfeitures. The fair value of each option grant is estimated on the date of
grant using the Black-Scholes options-pricing model.
There were options to purchase 56,950 and 40,000 shares of common stock granted during the years 2008 and 2007, respectively. The
stock-based compensation expense attributable to the 56,950 and 40,000 options was $48 and $15 for fiscal years 2008 and 2007,
respectively.
As of December 27, 2008, the Company had approximately $116 of total unrecognized compensation cost related to non-vested awards
granted under our various stock-based plans, which is expected to be recognized over a weighted-average period of one year. These
amounts do not include the cost of any additional options that may be granted in future periods nor any changes in the Company’s
forfeiture rate.
F-14
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
Stock - Based Compensation (Continued)
The Company received cash from options exercised during the fiscal years 2008 and 2007 of $0 and $849, respectively. The impact of
these cash receipts is included in financing activities in the accompanying consolidated statements of cash flows.
Advertising Costs
Advertising costs are expensed as incurred. Total advertising expense was $1,110, $1,039 and $1,080 for the fiscal years 2008, 2007 and
2006, respectively.
Use of Estimates and Uncertainties
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities, revenues and expenses and
disclosure of contingent assets and liabilities. Actual results could differ from those estimates.
The Company uses estimates to calculate an allowance for doubtful accounts on its accounts receivables. These estimates can be
significant to the operating results and financial position of the Company.
The Company has risk participation arrangements with respect to workers compensation and health care insurance. The amounts included
in the Company’s costs related to this risk participation are estimated and can vary based on changes in assumptions, the Company’s
claims experience or the providers included in the associated insurance programs.
The Company can be affected by a variety of factors including uncertainty relating to the performance of the U.S. economy, competition,
demand for the Company’s services, adverse litigation and claims and the hiring, training and retention of key employees.
New Accounting Standards
In September 2006, the FASB issued SFAS No. 157, “Fair Value Measurements” (“SFAS No. 157”). SFAS No. 157 clarifies the
principle that fair value should be based on the assumptions market participants would use when pricing an asset or liability and
establishes a fair value hierarchy that prioritizes the information used to develop those assumptions. Under SFAS No. 157, fair value
measurements would be separately disclosed by level within the fair value hierarchy. In February 2008, the FASB issued FASB Staff
Position No. 157-2, “Effective Date of FASB Statement No. 157,” to partially defer SFAS No. 157 for nonfinancial assets and
nonfinancial liabilities, except those that are recognized or disclosed at fair value in the financial statements on a recurring basis. SFAS
No. 157 was effective for the Company on December 30, 2007, except for nonfinancial assets and nonfinancial liabilities that are not
recognized or disclosed at fair value on a recurring basis for which our effective date is December 28, 2008. The adoption of this
statement did not have a material effect on our consolidated financial position or results of operations.
In February 2007, the FASB issued SFAS No. 159, “The Fair Value Option for Financial Assets and Financial Liabilities-Including an
amendment of FASB Statement No. 115” (“SFAS No. 159”). SFAS No. 159 expands the use of fair value accounting but does not affect
existing standards, which require assets and liabilities to be carried at fair value. Under SFAS No. 159, a company may elect to use fair
value to measure accounts and loans receivable, available-for-sale and held-to-maturity securities, equity method investments, accounts
payable, guarantees, issued debt and other eligible financial instruments. SFAS No. 159 is effective for the Company as of December 30,
2007.
F-15
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED)
New Accounting Standards (Continued)
The Company has elected not to apply the fair value option to measure any of the financial assets and liabilities on its balance sheet not
already valued at fair value under other accounting pronouncements. These other financial assets and liabilities are primarily accounts
receivable, accounts payable and debt which are reported at historical value. The fair value of these financial assets and liabilities
approximate their fair value because of their short duration and in the case of the debt because it carries variable interest rates which are
reset frequently.
In December 2007, the FASB issued SFAS No. 141 (revised 2007), “Business Combinations” (“SFAS No. 141R”). This statement
replaces SFAS No. 141, “Business Combinations,” and requires an acquirer to recognize the assets acquired, the liabilities assumed and
any noncontrolling interest in the acquiree at the acquisition date, measured at their fair values as of that date, with limited exceptions.
SFAS No. 141R requires costs incurred to effect the acquisition to be recognized separately from the acquisition as period costs. SFAS
No. 141R also requires the acquirer to recognize restructuring costs that the acquirer expects to incur, but is not obligated to incur,
separately from the business combination. In addition, SFAS No. 141R requires an acquirer to recognize assets and liabilities assumed
arising from contractual contingencies as of the acquisition date, measured at their acquisition-date fair values. Other key provisions of
this statement include the requirement to recognize the acquisition-date fair values of research and development assets separately from
goodwill and the requirement to recognize changes in the amount of deferred tax benefits that are recognizable due to the business
combination in either income from continuing operations in the period of the combination or directly in contributed capital, depending on
the circumstances. With the exception of certain tax-related aspects described above, SFAS No. 141R applies prospectively to business
combinations for which the acquisition date is on or after December 28, 2008.
In May 2008, the FASB issued SFAS 162, The Hierarchy of Generally Accepted Accounting Principles . This statement identifies the
sources of accounting principles and the framework for selecting the principles to be used in the preparation of financial statements that
are presented in conformity with generally accepted accounting principles in the U.S. The Company does not believe the adoption of
SFAS 162 will have a material impact on its results of operations or financial position.
2. NOTE RECEIVABLE
On February 26, 2008, the Company accepted a promissory note from a customer for $7.5 million in payment of a like amount of
accounts receivable from that customer. The customer paid $1.2 million through April 30, 2008 at which point management of the
Company concluded that the customer was going to default on its May 1, 2008 installment payment. The Company has since determined
that the note receivable is not collectible. Therefore, the Company wrote off this note receivable in the amount of $6.1 million.
3. ACQUISITIONS
On March 19, 2008 the Company purchased the operating assets of NuSoft Solutions, Inc. (“NuSoft”), a Michigan corporation. NuSoft is
a specialty provider of information technology services. The acquisition of NuSoft was completed in order to expand the Company’s IT
solutions services within the Information Technology business segment. The acquisition was effective as of March 1, 2008. The
acquisition has been accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 141 “Business
Combinations.” Accordingly, the results of operations of the acquired company have been included in the consolidated results of
operations of the Company from the effective date and are included in the IT segment.
F-16
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
3. ACQUISITIONS (CONTINUED)
The purchase consideration at closing consisted of $4.5 million in cash and 700,000 shares of RCM’s common stock, par value $0.05 (the
“Common Stock”), valued at $3.7 million and potential earn-out payments up to $4.4 million of deferred consideration contingent upon
NuSoft achieving certain base levels of operating income for each of the three 12-month periods following the purchase. Additional earn-
out payments may be made at the end of each of the three 12-month periods following the purchase, to the extent that operating income
exceeds these base levels. The acquisition has been accounted for under the purchase method of accounting. The source of cash utilized in
the NuSoft acquisition was from the Company’s revolving credit facility. The purchase price allocation of $8.2 million is as follows:
Customer Relationships
Covenants-Not-To-Compete
Goodwill
Equipment
$
2,260
424
5,125
446
The deferred consideration and earnouts, if paid, will be recorded as additional purchase consideration. Earnouts cannot be estimated with
any certainty.
On April 28, 2008 the Company purchased the operating assets of MBH Solutions, Inc. (“MBH”), a New York corporation. MBH is a
specialty provider of information technology services. The acquisition of MBH was completed in order to expand the Company’s IT
solutions services within the Information Technology business segment. The acquisition was effective as of April 1, 2008 and has been
accounted for in accordance with Statement of Financial Accounting Standards (SFAS) No. 141 “Business Combinations.” Accordingly,
the results of operations of the acquired company have been included in the consolidated results of operations of the Company from the
effective date and are included in the IT segment.
The MBH purchase consideration at closing consisted of $1.8 million in cash and assumption of $1.3 million in certain liabilities and
potential earn-out payments up to $1.5 million of deferred consideration contingent upon MBH achieving certain base levels of operating
income for each of the three 12-month periods following the purchase. Additional earn-out payments may be made at the end of each of
the three 12-month periods following the purchase, to the extent that operating income exceeds these base levels.
The acquisition has been accounted for under the purchase method of accounting. The source of cash utilized in the MBH acquisition was
from the Company’s revolving credit facility. The purchase price allocation of $3.1 million has been allocated as follows:
Customer Relationships
Covenants-Not-To-Compete
Goodwill
Equipment
$ 835
41
2,174
36
In connection with certain acquisitions, the Company is obligated to pay contingent consideration to the sellers upon the acquired
business achieving certain earnings targets over periods ranging from two to three years following the acquisition. In general, the
contingent consideration amounts fall into two categories: (a) Deferred Consideration - fixed amounts due if the acquisition achieves a
base level of earnings which has been determined at the time of acquisition and (b) Earnouts — amounts payable that are not fixed and
are based on the growth in excess of the base level earnings. The Company’s outstanding Deferred Consideration obligations, which
relate to various acquisitions, could result in the following maximum payments:
F-17
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
3. ACQUISITIONS (CONTINUED)
Year Ending
January 2, 2010
January 1, 2011
December 31, 2011
Amount
2,400
2,300
1,300
6,000
$
$
The above table represents the maximum Deferred Consideration payments. However, the Company’s management believes that the
actual amount paid in the year ending January 2, 2010 will be $100. The Company cannot estimate the Deferred Consideration payments
for the years ended January 1, 2011 and December 31, 2011 with any certainty.
The Deferred Consideration and Earnouts, when paid, will be recorded as additional purchase consideration and added to goodwill on the
consolidated balance sheet. Earnouts, if any, cannot be estimated with any certainty.
The following (unaudited) results of operations have been prepared assuming the two previously described acquisitions had occurred as of
the beginning of the periods presented. Those results are not necessarily indicative of results of future operations or of results that would
have occurred had the acquisitions occurred as of the beginning of the periods presented.
Fifty-Two Weeks Ended
Amounts
Revenues
Operating (loss) income
Net (loss) income
(Loss) earnings per share
December 27,
2008
(Unaudited)
$
$
215,010 $
(624 )
(534 )
(.04 ) $
December 29,
2007
(Unaudited)
243,327
11,330
7,233
.58
4. PROPERTY AND EQUIPMENT
Property and equipment are comprised of the following:
Equipment and furniture
Computers and systems
Leasehold improvements
Less: accumulated depreciation and amortization
December 27,
2008
December 29,
2007
$
$
2,893 $
7,232
1,153
11,278
5,692
5,586
$
1,102
7,315
990
9,407
5,178
4,229
The Company writes off fully depreciated assets each year. In fiscal 2008, 2007 and 2006, the write-offs were $1,205, $1,407 and $1,243,
respectively.
F-18
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
5. GOODWILL AND INTANGIBLE ASSETS
As of November 29, 2008, we conducted our annual assessment of goodwill for impairment. To assess goodwill for impairment, we first
compare the fair value of our reporting units with their net book value. We estimate the fair value of the reporting units using discounted
expected future cash flows, supported by the results of various market approach valuation models. If the fair value of the reporting units
exceeds their net book value, goodwill is not impaired, and no further testing is necessary. If the net book value of our reporting units
exceeds their fair value, we perform a second test to measure the amount of impairment loss, if any. To measure the amount of any
impairment loss, we determine the implied fair value of goodwill in the same manner as if our reporting units were being acquired in a
business combination. Specifically, we allocate the fair value of the reporting units to all of the assets and liabilities of that unit, including
any unrecognized intangible assets, in a hypothetical calculation that would yield the implied fair value of goodwill. If the implied fair
value of goodwill is less than the goodwill recorded on our balance sheet, we record an impairment charge for the difference.
As of November 29, 2008, we experienced a sustained, significant decline in our stock price. The Company believes the reduced market
capitalization reflects the financial market’s reduced expectations of the Company’s performance, due in large part to overall deteriorating
economic conditions that may have a materially negative impact on the Company’s future performance.
We also updated our forecasted cash flows of the reporting units during the fourth quarter. This update considered current economic
conditions and trends; estimated future operating results, our views of growth rates, anticipated future economic and regulatory
conditions.
Based on the results of our annual assessment of goodwill and intangible assets for impairment, the net book value of two of our
segments, the Information Technology Group and the Engineering Group, exceeded their fair value. The fair value of our Commercial
Group exceeded the carrying value by $8.5 million, or 84.7%.
Therefore, we performed the second step of the impairment test to the reporting units in our Information Technology and Engineering
Groups to determine the implied fair value of goodwill. Specifically, we hypothetically allocated the fair value of the impaired reporting
units as determined in the first step to our recognized and unrecognized net assets, including allocations to intangible assets such as
customer relationships and non-competition agreements. The resulting implied goodwill was $6.5 million; accordingly, we reduced the
goodwill recorded prior to this assessment by $40.5 million to write our goodwill down to the implied goodwill fair value as of
November 29, 2008. The resulting implied intangible assets was $0.3 million; accordingly, we reduced the intangible assets recorded
prior to this assessment by $2.9 million to write our intangible assets down to the implied intangible fair value as of November 29, 2008.
We performed extensive valuation analyses, utilizing both income and market approaches, in our goodwill assessment process. The
following describes the valuation methodologies used to derive the fair value of the reporting units.
• Income Approach: To determine fair value, we discounted the expected cash flows of the reporting units. The discount rate
used represents the estimated weighted average cost of capital, which reflects the overall level of inherent risk involved in our
reporting units and the rate of return an outside investor would expect to earn. To estimate cash flows beyond the final year of
our model, we used a terminal value approach. Under this approach, we used estimated operating income before interest, taxes,
depreciation and amortization in the final year of our model, adjusted to estimate a normalized cash flow, applied a perpetuity
growth assumption and discounted by a perpetuity discount factor to determine the terminal value. We incorporated the present
value of the resulting terminal value into our estimate of fair value.
F-19
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
5. GOODWILL AND INTANGIBLES (CONTINUED)
• Market-Based Approach: To corroborate the results of the income approach described above, we estimated the fair value of
our reporting units using several market-based approaches, including the value that we derive based on our consolidated stock
price as described above. We also used the guideline company method which focuses on comparing our risk profile and growth
prospects to select reasonably similar/guideline publicly traded companies.
The determination of the fair value of the reporting units requires us to make significant estimates and assumptions that affect the
reporting unit’s expected future cash flows. These estimates and assumptions primarily include, but are not limited to, the discount rate,
terminal growth rates, operating income before depreciation and amortization and capital expenditures forecasts. Due to the inherent
uncertainty involved in making these estimates, actual results could differ from those estimates. In addition, changes in underlying
assumptions would have a significant impact on either the fair value of the reporting units or the goodwill impairment charge.
The allocation of the fair value of the reporting units to individual assets and liabilities within reporting units also requires us to make
significant estimates and assumptions. The allocation requires several analyses to determine fair value of assets and liabilities including,
among others, customer relationships, non-competition agreements and current replacement costs for certain property, plant and
equipment.
Goodwill at December 27, 2008 and December 29, 2007 was $6.5 million and $39.6 million, respectively. Intangible assets at
December 27, 2008 and December 29, 2007, was $0.3 million. There can be no assurance that future tests of goodwill and intangible asset
impairment will not result in impairment charges.
The results of the 2007 and 2006 impairment testing indicated no impairment of goodwill.
The changes in the carrying amount of goodwill for the years ended December 27, 2008 and December 29, 2007 are as follows:
Balance as of December 30, 2006
Goodwill acquired during 2007
Balance as of December 29, 2007
Goodwill acquired during 2008
Information
Technology
Engineering
Commercial
Total
$
29,643 $
7,882 $
1,804 $
39,329
—
29,643
7,300
259
8,141
100
—
1,804
—
—
259
39,588
7,400
(40,450 )
6,538
Goodwill impairment during 2008
(32,209 )
(8,241 )
Balance as of December 27, 2008
$
4,734
$
—
$
1,804
$
F-20
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
5. GOODWILL AND INTANGIBLES (CONTINUED)
The changes in the carrying amount of intangible assets for the years ended December 27, 2008 and December 29, 2007 are as follows:
Balance as of December 30, 2006
Intangibles acquired during 2007
Amortization of intangibles during 2007
Balance as of December 29, 2007
Intangibles acquired during 2008
Amortization of intangibles during 2008
Intangibles impairment during 2008
Information
Technology
Engineering
Commercial
Total
$
522 $
147 $
— $
—
(286 )
236
3,560
(733 )
(2,866 )
—
(34 )
113
—
(34 )
—
—
—
—
—
—
—
669
—
(320 )
349
3,560
(767 )
(2,866 )
276
Balance as of December 27, 2008
$
197
$
79
$
—
$
6. LINE OF CREDIT
The Company and its subsidiaries are party to a loan agreement with Citizens Bank of Pennsylvania, which was amended and restated
effective February 20, 2009, which now provides for a $15 million revolving credit facility and includes a sub-limit of $5.0 million for
letters of credit (the “Revolving Credit Facility”). At December 27, 2008 the loan agreement provided for a $25 million Revolving Credit
Facility. Borrowings under the Revolving Credit Facility bear interest at one of two alternative rates, as selected by the Company at each
incremental borrowing. These alternatives are: (i) LIBOR (London Interbank Offered Rate), plus applicable margin, or (ii) the agent
bank’s prime rate. The Company also pays unused line fees based on the amount of the Revolving Credit Facility that is not drawn.
All borrowings under the Revolving Credit Facility are collateralized by all of the assets of the Company and its subsidiaries and a pledge
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 2011.
The weighted average interest rates under the Revolving Credit Facility for the year ended December 27, 2008 and December 29, 2007
were 3.82% and 8.25%, respectively. The majority of borrowings in 2008 were subject to alternative (i) LIBOR (London Interbank
Offered Rate), plus applicable margin on contracts of 30 days or more. All borrowings in 2007 were short term and borrowed under
alternative (ii) the agent bank’s prime rate. During the year ended December 27, 2008 and December 29, 2007, the Company’s
outstanding borrowings ranged from $-0- to $10.5 million and $-0- million to $1.5 million, respectively. At December 27, 2008 and
December 29, 2007, there were borrowings of $4.9 million and $0.0 outstanding under this facility, respectively. At December 27, 2008,
there were letters of credit outstanding for $1.6 million. At December 27, 2008, the Company had availability for additional borrowings
under the Revolving Credit Facility of $18.5 million. Upon execution of the amendment to the Company’s loan agreement on
February 20, 2009, availability was reduced to $8.5 million on a proforma basis.
F-21
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
7. STOCK BASED COMPENSATION
Common Stock Reserved
Unissued shares of common stock were reserved for the following purposes:
Exercise of options outstanding
Future grants of options
Total
Incentive Stock Option Plans
1992 Incentive Stock Option Plan (the 1992 Plan)
December 27,
2008
December 29,
2007
1,293,900
699,294
1,462,000
728,694
1,993,194
2,190,694
The 1992 Plan, approved by the Company’s stockholders in April 1992 and amended in April 1998, provided for issuance of up to
500,000 shares of common stock per individual to officers, directors, and key employees of the Company and its subsidiaries through
February 13, 2002, at which time the 1992 Plan expired. The options issued were intended to be incentive stock options pursuant to
Section 422A of the Internal Revenue Code. The option terms were not permitted to exceed ten years and the exercise price was not
permitted to be less than 100% of the fair market value of the shares at the time of grant. The Compensation Committee of the Board of
Directors determined the vesting period at the time of grant for each of these options. As of December 27, 2008, options to purchase
60,455 shares of common stock were outstanding.
1994 Non-employee Directors Stock Option Plan (the 1994 Plan)
The 1994 Plan, approved by the Company’s stockholders in May 1994 and amended in April 1998, provided for issuance of up to
110,000 shares of common stock to non-employee directors of the Company through February 19, 2004, at which time the 1994 Plan
expired. Options granted under the 1994 Plan were granted at fair market value at the date of grant, and the exercise of options is
contingent upon service as a director for a period of one year. Options granted under the 1994 Plan terminate when an optionee ceases to
be a Director of the Company. As of December 27, 2008, options to purchase 50,000 shares of common stock were outstanding.
1996 Executive Stock Option Plan (the 1996 Plan)
The 1996 Plan, approved by the Company’s stockholders in August 1996 and amended in April 1999, provides for issuance of up to
1,250,000 shares of common stock to officers and key employees of the Company and its subsidiaries through January 1, 2006, at which
time the 1996 Plan expired. Options are generally granted at fair market value at the date of grant. The Compensation Committee of the
Board of Directors determines the vesting period at the time of grant. As of December 27, 2008, options to purchase 679,545 shares of
common stock were outstanding.
F-22
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
7. STOCK BASED COMPENSATION (CONTINUED)
Incentive Stock Option Plans (Continued)
2000 Employee Stock Incentive Plan (the 2000 Plan)
The 2000 Plan, approved by the Company’s stockholders in April 2001, provides for issuance of up to 1,500,000 shares of the Company’s
common stock to officers and key employees of the Company and its subsidiaries or to consultants and advisors utilized by the Company.
The Compensation Committee of the Board of Directors may award incentive stock options or non-qualified stock options, as well as
stock appreciation rights, and determines the vesting period at the time of grant. As of December 27, 2008, options to purchase 28,694
shares of common stock were available for future grants, and options to purchase 474,500 shares of common stock were outstanding.
2007 Omnibus Equity Compensation Plan (the 2007 Plan)
The 2007 Plan, approved by the Company’s stockholders in June 2007, provides for the issuance of up to 700,000 shares of the
Company’s common stock to officers, non-employee directors, employees of the Company and its subsidiaries or to consultants and
advisors utilized by the Company. No more than 350,000 shares of common stock in the aggregate may be issued pursuant to grants of
stock awards, stock units, performance shares and other stock-based awards. No more than 300,000 shares of common stock with respect
to awards may be granted to any individual during any fiscal year. The Compensation Committee of the Board of Directors determines
the vesting period at the time of grant. As of December 27, 2008, options to purchase 670,600 shares of common stock were available for
future grants, and options to purchase 29,400 shares of common stock were outstanding.
Transactions related to all stock options are as follows:
Outstanding options at
beginning of year
Granted
Cancelled
Exercised
Outstanding options at end of
year
Exercisable options at end of
year
Option grant price per share
Year
Ended
December 27,
2008
Weighted-
Average
Exercise
Price
Year
Ended
December 29,
2007
Weighted-
Average
Exercise
Price
Year
Ended
December 30,
2006
Weighted-
Average
Exercise
Price
1,462,000 $
56,950
(225,050 )
—
1,293,900
$
1,214,500
$3.00 to $9.81
$
4.48
4.93
4.60
—
4.48
4.30
1,768,000 $
40,000
(138,000 )
(208,000 )
1,462,000
$
904,000
$3.00 to $9.81
$
F-23
4.34
9.29
4.70
4.08
4.48
4.10
1,935,483 $
12,000
(119,388 )
(60,095 )
1,768,000
$
1,005,000
$3.00 to $7.04
$
4.34
6.12
4.68
3.82
4.34
4.00
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
7. STOCK BASED COMPENSATION (CONTINUED)
The following table summarizes information about stock options outstanding at December 27, 2008:
Range of
Exercise
Prices
$3.00 - $4.40
$4.70 - $6.91
$9.16 - $9.81
$3.00 - $9.81
Employee Stock Purchase Plan
Outstanding
Vested
Outstanding
Vested
Outstanding
Vested
Number of
Outstanding Options
818,500
440,400
35,000
1,293,900
818,500
391,000
5,000
1,214,500
Weighted-Average
Remaining
Contractual Life
Weighted-Average
Exercise Price
4.91
4.80
8.55
4.97
4.91 $
4.32 $
8.54 $
4.73 $
3.95 $
5.06 $
9.62 $
4.48 $
3.95
4.98
9.16
4.30
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 27, 2008, there were 15,337 shares issued under
the Purchase Plan for net proceeds of $56. As of December 27, 2008, there were 141,792 shares 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 at the discretion of the Board of Directors may make contributions of cash to match deferrals of compensation
by participants. Contributions charged to operations by the Company for years ended December 27, 2008, December 29, 2007 and
December 30, 2006 were $330, $287 and $251, respectively.
9. COMMITMENTS
Employment Agreement
The Company has an employment agreement with its Chief Executive Officer and President, Leon Kopyt (“Mr. Kopyt”), which currently
provides for an annual base salary of $550 and other customary benefits. In addition, the agreement provides that Mr. Kopyt’s annual
bonus is based on EBITDA, defined as earnings before interest, taxes, depreciation, and amortization. As of December 27, 2008, the
agreement expires on February 28, 2009. The agreement is for a rolling term of three years, which automatically extends each year for an
additional one-year period on February 28 of each year. The employment agreement is terminable by the Company upon Mr. Kopyt’s
death or disability, or for “good and sufficient cause,” as defined in the agreement.
F-24
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
9. COMMITMENTS (CONTINUED)
Termination Benefits Agreement
The Company is party to a Termination Benefits Agreement with Mr. Kopyt, amended on December 12, 2007 to comply with the
requirements of section 409A of the Internal Revenue Code of 1986 (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; 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 27, 2008, Mr. Kopyt would have been entitled to cash payments of approximately $4.9 million (representing
salary and excise tax payments).
Severance Agreement
The Company is party to a Severance Agreement with Mr. Kopyt, amended on December 12, 2007 to comply with the requirements of
section 409A of the Internal Revenue Code of 1986 (the “Severance Agreement”). The agreement provides for certain payments to be
made to Mr. Kopyt and for the continuation of Mr. Kopyt’s employee benefits for a specified time after his service with the Company is
terminated other than “for cause,” as defined in the Severance Agreement. Amounts payable to Mr. Kopyt under the Severance
Agreement would be offset and reduced by any amounts received by Mr. Kopyt after his termination of employment under his current
employment and termination benefits agreements, which are supplemented and not superseded by the Severance Agreement. If Mr. Kopyt
had been terminated as of December 27, 2008, then under the terms of the Severance Agreement, and after offsetting any amounts that
would have been received under his current employment and termination benefits agreements, he would have been entitled to cash
payments of approximately $3.2 million, inclusive of employee benefits.
Operating Leases
The Company leases office facilities and various equipment under non-cancelable leases expiring at various dates through
September 2015. Certain leases are subject to escalation clauses based upon changes in various factors. The minimum future annual
operating lease commitments for leases with non-cancelable terms in excess of one year, exclusive of operating escalation charges, are as
follows (in thousands):
Year ending December 31,
2009
2010
2011
2012
2013
Thereafter
Total
Amount
(In thousands)
4,310
3,322
2,890
1,846
777
240
13,385
$
$
Rent expense for the fiscal years ended December 27, 2008, December 29, 2007 and December 30, 2006 was $3,564, $3,012 and $3,079,
respectively.
F-25
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
9. COMMITMENTS (CONTINUED)
Operating Leases (Continued)
The Company subleases space to other tenants at various office locations under cancelable lease agreements. During fiscal 2008, 2007
and 2006 revenues of approximately $384, $417 and $114, respectively, were recognized under these leasing arrangements.
10. RELATED PARTY TRANSACTIONS
A director of the Company is a shareholder in a law firm that has rendered various legal services to the Company. Fees paid to the law
firm have not been significant.
11. INCOME TAXES
The components of income tax (benefit) expense are as follows:
Current
Federal
State and local
Foreign
Deferred
Federal
State
Total
Year Ended
December 27,
2008
Year Ended
December 29,
2007
Year Ended
December 30,
2006
$
— $
189
1,122
1,311
(4,549 )
(1,320 )
(5,869 )
162 $
756
864
1,782
2,518
(16 )
2,502
—
259
27
286
704
124
828
$
(4,558 ) $
4,284
$
1,114
The income tax provisions reconciled to the tax computed at the statutory Federal rate was:
Tax at statutory rate (credit)
State income taxes, net of Federal income tax benefit
Stock compensation expense
Foreign income tax effect
Non-deductible impairment of goodwill and intangible assets
Deductible amortization
Federal tax audit adjustment
Non-deductible charges
Other, net
Total income tax expense
F-26
December 27,
2008
December 29,
2007
December 30,
2006
34.0 %
1.7
(0.1 )
(0.5 )
(23.1 )
—
—
(0.2 )
(1.5 )
10.3 %
34.0 %
4.4
1.3
.5
—
(2.3 )
—
0.9
—
38.8 %
34.0 %
6.2
4.3
1.3
—
(3.3 )
(27.4 )
1.3
(1.5 )
14.9 %
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
11. INCOME TAXES (CONTINUED)
At December 27, 2008 and December 29, 2007, deferred tax assets and liabilities consist of the following:
Deferred tax assets:
Loss carryforwards
Allowance for doubtful accounts
Alternative minimum tax credits
Tax amortization, net
Reserves and accruals
Litigation reserve
Other
Valuation allowance
Net
Deferred tax liabilities:
Prepaid expense deferral
Net deferred tax assets
December 27,
2008
December 29,
2007
$
$
2,387 $
432
178
4,376
156
0
43
(358 )
7,214
(634 )
(634 )
6,580
$
135
633
162
—
146
106
—
—
1,182
(471 )
(471 )
711
The deferred tax asset relating to the net operating loss carryforward represents the tax effect of a federal net operating loss carryforward
of approximately $6.1 million expiring by the year 2028 and state net operating losses of $0.4 million from various states that expire at
various times through 2028.
The Company recorded a valuation reserve in the amount of $0.4 million. This valuation reserve related to state net operating losses. Of
the remaining deferred tax asset, management has determined that it is more likely than not that it will realize the net deferred tax asset
based upon the nature and timing of the items listed above. In order to fully realize the net deferred tax asset, the Company will need to
generate future taxable income. Management has projected that the Company will generate sufficient taxable income to utilize the net
deferred tax asset; however, there can be no assurance that such levels of taxable income will be generated.
The Company did not have any liabilities for uncertain tax positions or any known unrecognized tax benefits at December 31, 2008 and
2007. The Company’s policy is to record interest and penalty in interest expense.
The Company and its subsidiaries file a consolidated U.S. Federal income tax return and file in various states. The Company and its
subsidiaries are no longer subject to income tax examinations by taxing authorities for years prior to 2005.
12. INTEREST (EXPENSE) INCOME, NET
Interest (expense) income, net consisted of the following:
Interest expense
Unused line fee
Interest income
December 27,
2008
(305 ) $
(17 )
92
(230 ) $
$
$
Years Ended
December 29,
2007
(36 ) $
(31 )
126
59
$
F-27
December 30,
2006
(505 )
(34 )
283
(256 )
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
13. SEGMENT INFORMATION
The Company follows SFAS 131, “Disclosures about Segments of an Enterprise and Related Information” (“SFAS 131”), which provides
guidance for companies to report information about operating segments, geographic areas, and major customers. 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
Technology
Engineering
Commercial
Corporate
Total
$
103,446 $
59,251 $
46,580 $
— $
209,277
Fiscal 2008
Revenue
Operating expenses (1) (2)
EBITDA (3)
Depreciation
Amortization of intangibles
Impairment of goodwill and intangible assets
102,565
881
645
733
35,075
61,486
(2,235 )
478
34
8,240
Operating (loss) income
(35,572 )
(10,987 )
Interest expense, net of interest income
Loss on foreign currency transactions
Other
114
—
(7 )
65
75
—
Income (benefit) expense
(4,162 )
(1,393 )
43,909
2,671
177
—
—
2,494
51
—
—
998
—
—
—
—
—
—
—
—
—
—
207,960
1,317
1,300
767
43,315
(44,065 )
230
75
(7 )
(4,558 )
Net (loss) income
Total assets
Capital expenditures
$
$
$
(31,517 ) $
(9,734 ) $
1,445
$
—
$
(39,805 )
22,419 $
27,941 $
14,059 $
14,422 $
78,841
122 $
367 $
168 $
2,010 $
2,667
F-28
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
13. SEGMENT INFORMATION (CONTINUED)
Fiscal 2007
Revenue
Operating expenses (1) (2)
EBITDA (3)
Depreciation
Amortization of intangibles
Operating income
Interest income, net of interest expense
Gain on foreign currency transactions
Legal settlement
Income taxes
Net income
Total assets
Capital expenditures
Information
Technology
Engineering
Commercial
Corporate
Total
$
98,951 $
71,156 $
44,102 $
— $
214,209
93,019
5,932
503
286
5,143
(30 )
—
—
67,245
3,911
462
34
3,415
(20 )
(78 )
—
2,005
1,362
42,387
1,715
157
—
1,558
(9 )
—
—
607
—
—
—
—
—
—
—
(800 )
310
3,168
$
2,151
$
960
$
490
$
202,651
11,558
1,122
320
10,116
(59 )
(78 )
(800 )
4,284
6,769
50,832 $
28,431 $
14,060 $
16,391 $
109,714
372 $
124 $
32 $
97 $
625
F-29
$
$
$
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
13. SEGMENT INFORMATION (CONTINUED)
Fiscal 2006
Revenue
Operating expenses (1)(2)
EBITDA (3)
Depreciation
Amortization of intangibles
Operating income
Interest expense, net of interest income
Loss on foreign currency transactions
Income taxes
Net income
Total assets
Capital expenditures
$
$
$
Information
Technology
Engineering
Commercial
Corporate
Total
$
101,449 $
57,607 $
42,864 $
— $
201,920
94,799
6,650
533
286
5,831
129
—
850
56,569
1,038
495
24
519
73
31
62
41,288
1,576
169
—
1,407
54
—
202
—
—
—
—
—
—
—
—
4,852
$
353
$
1,151
$
—
$
192,656
9,264
1,197
310
7,757
256
31
1,114
6,356
53,431 $
24,272 $
12,137 $
10,200 $
100,040
282 $
1,009 $
63 $
215 $
1,569
(1) Operating expenses exclude depreciation and amortization.
(2) Operating expenses include $100, $411 and $956 of stock based compensation expense for the years ended December 27, 2008,
December 29, 2007 and December 30, 2006, respectively.
(3) EBITDA means earnings before interest, taxes, depreciation and amortization. We believe that EBITDA, as presented,
represents a useful measure of assessing the performance of our operating activities, as it reflects our earnings trends without the
impact of certain non-cash and unusual charges or income. EBITDA is also used by our creditors in assessing debt covenant
compliance. We understand that, although security analysts frequently use EBITDA in the evaluation of companies, it is not
necessarily comparable to EBITDA of other companies due to potential inconsistencies in the method of calculation. EBITDA is
not intended as an alternative to cash flow provided by operating activities as a measure of liquidity, nor as an alternative to net
income as an indicator of our operating performance, nor as an alternative to any other measure of performance in conformity
with generally accepted accounting principles in the United States of America.
F-30
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
13. SEGMENT INFORMATION (CONTINUED)
The following reconciles consolidated operating income to the Company’s pretax income:
Consolidated operating (loss) income
Interest (expense) income, net
Gain (loss) on foreign currency transactions
Other
Legal settlement
Consolidated pretax net (loss) income
December 27,
2008
December 29,
2007
December 30,
2006
$
$
(44,065 ) $
(230 )
(75 )
7
—
(44,363 ) $
10,116 $
59
78
—
800
11,053
$
7,757
(256 )
(31 )
—
—
7,470
The Company derives a majority of its revenue from companies headquartered in the United States. Revenues reported for each operating
segment are all from external customers.
The Company is domiciled in the United States and its segments operate in the United States and Canada. Revenues and fixed assets by
geographic area for the years ended December 27, 2008, December 29, 2007 and December 30, 2006 are as follows:
Revenues
United States
Canada
Fixed Assets
United States
Canada
December 27,
2008
December 29,
2007
December 30,
2006
$
$
$
$
188,672 $
20,605
209,277
$
198,032 $
16,177
214,209
$
190,644
11,276
201,920
5,496 $
90
5,586
$
4,127 $
102
4,229
$
4,338
54
4,392
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Year Ended December 27, 2008
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter (a)
Total
$
$
Sales
49,114
55,011
51,617
53,535
Gross
Profit
$
12,298
15,150
13,255
13,272
Net
(Loss)
Income
(2,669 ) $
1,440
565
(39,141 )
$
209,277
$
53,975
$
(39,805 ) $
Diluted
Net (Loss) Income
Per Share (a)
(0.22 )
0.11
0.04
(3.06 )
(3.15 )
(a) In the fourth quarter of 2008, the Company recorded a cumulative adjustment to income tax (benefit) expense to properly record
deferred tax liabilities associated with acquisitions in 2008 and prior to 2008 totaling an increase to deferred tax liabilities of $1.3
million and an increase to deferred tax expense of $1.3 million. Of that total, approximately $0.6 million relates to years prior to
2006, and $0.2 million relates to each of the years 2006 and 2007, and $0.3 million relates to the prior interim quarters of 2008.
Management believes that the adjustments related to all prior years and prior interim quarters of 2008 are immaterial to those financial
statements. Additionally, in the fourth quarter of 2008, the Company recorded a goodwill impairment charge totaling $37.6 million,
net of tax.
F-31
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
14. SELECTED QUARTERLY FINANCIAL INFORMATION (UNAUDITED) (CONTINUED)
Year Ended December 29, 2007
1st Quarter
2nd Quarter
3rd Quarter
4th Quarter
Total
$
$
Sales
54,493
56,846
54,079
48,791
Gross
Profit
Net
Income
$
12,377
13,959
13,433
13,207
1,571
1,853
1,724
1,621
Diluted
Net Income
Per Share (a)
.13
$
.15
.14
.13
$
214,209
$
52,976
$
6,769
$
.54
(a) Each quarterly amount is based on separate calculations of weighted average shares outstanding.
15. CONTINGENCIES
In late 1998, two shareholders who were formerly officers and directors of the Company filed suit against the Company. The former
officers and directors alleged that the Company wrongfully limited the number of shares of the Company’s common stock that could have
been sold by the plaintiffs under a registration rights agreement entered into in connection with an acquisition transaction pursuant to
which the plaintiffs became shareholders of the Company.
A trial in 2002 resulted in a judgment in favor of the plaintiffs for $7.6 million that was affirmed on appeal. In June 2006, the Company
paid $8.6 million, which included post-judgment interest and other items totaling $1.0 million to the plaintiffs to satisfy the judgment.
In November 2002, the Company filed suit on professional liability claims against the attorneys and law firms who had served as its
counsel in the acquisition transaction and in connection with its subsequent dealings with the plaintiffs concerning their various
relationships with the Company resulting from that transaction. In its lawsuit against its former counsel, the Company was seeking
complete indemnification with respect to (1) its costs and counsel fees incurred in the defense against the claims of the plaintiffs; (2) the
amount it paid to satisfy the judgment; and (3) its costs and counsel fees incurred in the prosecution of the legal malpractice action itself.
In February 2007, the Company reached a settlement with one of the law firm defendants resulting in the recovery of $0.8 million. On
March 16, 2009 the Company entered into a settlement agreement with the remaining defendants in this lawsuit. The Company expects to
receive $9.8 million, $5.9 net of tax effect, on or before March 31, 2009.
F-32
Table of Contents
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
15. CONTINGENCIES (CONTINUED)
The Company is party to two agreements of indemnity related to the performance of two construction projects. One of these construction
projects is managed by a former customer of the Company and management of the Company believes this project will be completed by
the end of the first quarter of 2009. The second of these construction projects was managed by the same customer prior to
November 2008 when the initial contract was transferred to the Company. The Company now acts as the general contractor on this
construction project. The contract price is approximately $6.2 million and management of the Company estimates it was approximately
60% complete as of December 27, 2008. The Company believes this project will be finished in the fourth quarter of 2009. In the event of
non-performance on either construction project, the Company may be obligated to indemnify the project owners for certain cost overruns
on such projects. Management believes that any such cost overruns would not have a significant adverse financial impact to the financial
position of the Company and its results of operations.
The Company is also subject to other pending legal proceedings and claims that arise from time to time in the ordinary course of its
business, which may or may not be covered by insurance.
F-33
Table of Contents
MANAGEMENT’S REPORT ON INTERNAL CONTROL OVER FINANCIAL REPORTING
Our management is responsible for establishing and maintaining adequate internal control over financial reporting for the company. Internal
control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the
preparation of financial statements for external purposes in accordance with generally accepted accounting principles. Our system of internal
control over financial reporting includes those policies and procedures that (i) pertain to the maintenance of records that, in reasonable detail,
accurately and fairly reflect the transactions and dispositions of the assets of the company; (ii) provide reasonable assurance that transactions
are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that
receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company;
and (iii) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of the company’s
assets that could have a material effect on the financial statements.
Management performed an assessment of the effectiveness of our internal control over financial reporting as of December 27, 2008 based upon
criteria in Internal Control-Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission
(“COSO”). Based on this assessment, management determined that the company’s internal control over financial reporting was effective as of
December 27, 2008, based on the criteria in Internal Control-Integrated Framework issued by COSO.
This annual report does not include an attestation report of the company’s registered public accounting firm due to a transition period
established by rules of the Securities and Exchange Commission for newly public companies.
This report shall not be deemed “filed” for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to
the liability of that section. Further, this report shall not be deemed to be incorporated by reference into any filing under the Securities Act of
1933, as amended, or the Securities Exchange Act of 1934, as amended.
/s/ Leon Kopyt
Leon Kopyt
Chairman and Chief Executive Officer
Dated: March 23, 2009
/s/ Kevin D. Miller
Kevin D. Miller
Chief Financial Officer, Treasurer and Secretary
F-34
Table of Contents
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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
(the Company) as of December 27, 2008 and December 29, 2007 and the related consolidated statements of operations, changes in
stockholders’ equity, comprehensive income and cash flows for each of the years in the three-year period ended December 27, 2008. Our audits
of the basic financial statements included the financial statement schedules listed in the index appearing under Item 15 (a)(2). These
consolidated financial statements and financial statement schedules are the responsibility of the Company’s management. Our responsibility is
to express an opinion on these consolidated financial statements and financial statement schedules based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material
misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the
circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting.
Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures
in the financial statements, 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 27, 2008 and December 29, 2007, and the consolidated results of its
operations and its cash flows for each of the years in the three-year period ended December 27, 2008, in conformity with accounting principles
generally accepted in the United States of America. Also in our opinion, the related financial statement schedules, when considered in relation
to the basic financial statements taken as a whole, present fairly, in all material respects, the information set forth therein.
/s/ Grant Thornton LLP
Grant Thornton LLP
Philadelphia, Pennsylvania
March 24, 2009
F-35
Table of Contents
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
BALANCE SHEET
December 27, 2008 and December 29, 2007
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
ASSETS
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current assets
Prepaid expenses and other assets
Other assets
Long-term receivables from affiliates
Total assets
Current liabilities
Accounts payable and accrued expenses
Stockholders’ equity
Common stock
Foreign currency translation adjustment
Additional paid in capital
Accumulated deficit
Total stockholders’ equity
Total liabilities and stockholders’ equity
December 27,
2008
December 29,
2007
$
13 $
4
55,338
$
55,351
$
92,201
92,205
December 27,
2008
December 29,
2007
$
— $
157
639
720
106,788
(52,796 )
55,351
$
55,351
$
603
1,484
102,951
(12,990 )
92,048
92,205
The “Notes to Consolidated Financial Statements” of RCM Technologies, Inc. and subsidiaries
are an integral part of these statements.
F-36
Table of Contents
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF INCOME
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Operating expenses
Administrative
Operating loss
Management fee income
Income before income in subsidiaries
Equity in earnings of subsidiaries
Net (loss) income
December 27,
2008
December 29,
2007
December 30,
2006
$
2,388 $
1,414 $
(2,388 )
(1,414 )
2,388
1,414
(39,805 )
$
(39,805 ) $
6,769
6,769
$
1,445
(1,445 )
1,445
6,356
6,356
The “Notes to Consolidated Financial Statements” of RCM Technologies, Inc. and subsidiaries
are an integral part of these statements.
F-37
Table of Contents
SCHEDULE I
RCM TECHNOLOGIES, INC. (PARENT COMPANY)
CONDENSED FINANCIAL INFORMATION OF REGISTRANT
STATEMENTS OF CASH FLOWS
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Cash flows from operating activities:
Net (loss) income
Adjustments to reconcile net income to net cash provided by operating activities:
Recognition of share based compensation
Share (equity) in deficiency in assets of subsidiaries
Changes in operating assets and liabilities:
Prepaid expenses and other assets
Accounts payable and accrued expenses
Net cash (used in) provided by operating activities
Cash flows from investing activities:
Decrease (increase) in long-term receivables from subsidiaries
Net cash provided by (used in) investing activities
Cash flows from financing activities:
Sale of stock for employee stock purchase plan
Exercise of stock options
Net cash provided by financing activities
December 27,
2008
December 29,
2007
December 30,
2006
$
(39,805 ) $
6,769 $
6,356
100
39,805
—
(165 )
411
(6,769 )
956
(6,356 )
(1 )
(77 )
5
112
39,740
(6,436 )
(5,283 )
(65 )
333
1,073
621
621
55
—
55
(807 )
(807 )
144
849
993
(1,458 )
(1,458 )
144
229
373
12
—
—
—
Effect of exchange rate changes on cash and cash equivalents
(611 )
(519 )
Net increase in cash and equivalents
Cash and equivalents at beginning of year
Cash and equivalents at end of year
—
—
—
—
$
—
$
—
$
The “Notes to Consolidated Financial Statements” of RCM Technologies, Inc. and subsidiaries
are an integral part of these statements.
F-38
Table of Contents
Column A
Description
SCHEDULE II
RCM TECHNOLOGIES, INC. AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
Column B
Balance at
Beginning
of Period
Column C
Additions
Column D
Column E
Charged to
Costs and
Expenses
Charged to
Other
Accounts
Deduction
Balance at
End of
Period
Year Ended December 27, 2008
Allowance for doubtful accounts on trade and note
receivable
Year Ended December 29, 2007
$
1,583 $
7,674
$
8,315 $
942
Allowance for doubtful accounts on trade receivables $
1,672 $
598
$
687 $
1,583
Year Ended December 30, 2006
Allowance for doubtful accounts on trade receivables $
1,792 $
294
$
414 $
1,672
F-39
Table of Contents
EXHIBIT INDEX
(3)(d) Amended and Restated Bylaws.
(10)(o) Compensation Arrangements for Named Executive Officers.
(10)(p) Compensation Arrangements for Directors.
(10)(u)
Separation and Release Agreement, dated August 27, 2008; incorporated by reference to Exhibit 99.1 to the Registrant’s Current
Report on Form 8-K dated August21, 2008, filed with the Securities and Exchange Commission on August 27, 2008.
(11)
Computation of Earnings Per Share.
(21)
Subsidiaries of the Registrant.
(23)
Consent of Independent Registered Public Accounting Firm.
31.1
Certification of Chief Executive Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.
31.2
Certification of Chief Financial Officer Required by Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended.
32.1
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002.
32.2
Certification Pursuant To 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of The Sarbanes-Oxley Act of 2002.
Exhibit (3)(d)
Adopted as of June 6, 1997,
as amended as of June 14, 2007
AMENDED AND RESTATED BYLAWS
OF
RCM TECHNOLOGIES, INC.
ARTICLE I
Offices and Fiscal Year
Section 1.01. Registered Office . The Registered Office of the Company shall be at Bank of America Plaza, Suite 800, 50 West
Liberty Street, Reno, Nevada 89501 until otherwise established by the board of directors and a record of such change is filed with the
Department of State in the manner provided by law.
Section 1.02. Other Offices . The Company may have offices at such other places within or without the State of Nevada as the
board of directors may from time to time appoint or the business of the Company may require.
Section 1.03. Fiscal Year . The fiscal year of the Company shall begin on the 1st day of November in each year.
Section 2.01. Manner of Giving Notice .
ARTICLE II
Notice - Waivers - Meetings Generally
(a) General Rule . Whenever written notice is required to be given to any person under the provisions of the Articles of
Incorporation or these Bylaws, it may be given to the person either personally or by sending a copy thereof by first class or express mail,
postage prepaid, or by telegram (with messenger service specified), telex or TWX (with answer back received), courier service, (charges
prepaid), or by telecopier, to the address (or to the telex, TWX, telecopier or telephone number) of the person appearing on the records of the
Company or, in the case of directors, supplied by the director to the Company for the purpose of notice. If the notice is sent by mail, telegraph
or courier service, it shall be deemed to have been given to the person entitled thereto when deposited in the United States mail or with a
telegraph office or courier service for delivery to that person or, in the case of telex or TWX, when dispatched or, in the case of telecopier,
when received. A notice of meeting shall specify the place, day and hour of the meeting and any other information required by any other
provision of the Articles of Incorporation or these Bylaws. Notwithstanding the foregoing, notice to the shareholders of every meeting of
shareholders shall be personally delivered or mailed postage prepaid.
(b) Adjourned Shareholder Meetings . When a meeting of shareholders is adjourned it shall not be necessary to give
any notice of the adjourned meeting or of the business to be transacted at an adjourned meeting, other than by announcement at the meeting at
which
the adjournment is taken, unless the board of directors fixes a new record date for the adjourned meeting.
Section 2.02. Notice of Meetings of Board of Directors . Notice of a regular meeting of the board of directors need not be given.
Notice of every special meeting of the board of directors shall be given to each director by telephone or in writing at least 24 hours (in the case
of notice by telephone, telex, TWX or telecopier) or 48 hours (in the case of notice by telegraph, courier service or express mail) or five days
(in the case of notice by first class mail) before the time at which the meeting is to be held. Every such notice shall state the time and place of
the meeting. Neither the business to be transacted at, nor the purpose of any regular or special meeting of the board of directors need be
specified in a notice of the meeting.
Section 2.03. Notice of Meeting of Shareholders .
(a) General Rule . Written notice of every meeting of shareholders shall be given and signed by, or at the direction of,
the Secretary to each shareholder of record entitled to vote at the meeting at least ten days and not more than 60 days prior to the day named for
a meeting. If the Secretary neglects or refuses to give notice of a meeting, the person or persons calling the meeting may do so. In the case of a
special meeting of shareholders, the notice shall specify the purpose of the meeting and the general nature of the business to be transacted.
Section 2.04. Waiver of Notice.
(a) Written Waiver . Whenever any written notice is required to be given under the provisions of the Articles of
Incorporation or these Bylaws, a waiver thereof in writing signed by the person or persons entitled to the notice, whether before or after the
time stated therein, shall be deemed equivalent to the giving of the notice. Except as otherwise required by this subsection, neither the business
to be transacted at, nor the purpose of a meeting need be specified in the waiver of notice of the meeting. In the case of a special meeting of
shareholders the waiver of notice shall specify the general nature of the business to be transacted.
(b) Waiver by Attendance . Attendance of a person at any meeting shall constitute a waiver of notice of the meeting
except where a person attends a meeting for the express purpose of objecting, at the beginning of the meeting, to the transaction of any business
because the meeting was not lawfully called or convened.
Section 2.05. Modification of Proposal Contained in Notice . Whenever the language of a proposed resolution is included in a
written notice of a meeting required to be given under the provisions of the Articles of Incorporation or these Bylaws, the meeting considering
the resolution may without further notice adopt it with such clarifying or other amendments as do not enlarge its original purpose.
Section 2.06. Exception to Requirement of Notice .
(a) General Rule . Whenever any notice or communication is required to be given to any person under the provisions of
the Articles of Incorporation or these Bylaws or by the terms of any agreement or other instrument or as a condition precedent to taking any
corporate action and communication with that person is then unlawful, the giving of the notice or communication to that person shall not be
required.
(b) Shareholders Without Forwarding Addresses . Notice or other communications shall not be sent to any shareholders
with whom the Company has been unable to communicate for more than 24 consecutive months because communications to the shareholder
are returned unclaimed or the shareholder has otherwise failed to provide the Company with a current address. Whenever the shareholder
provides the Company with a current address, the Company shall commence sending notices and other communications to the shareholder in
the same manner as to other shareholders.
Section 2.07. Use of Conference Telephone and Similar Equipment . Any director may participate in any meeting of the board
of directors, and the board of directors may provide by resolution with respect to a specific meeting or with respect to a class of meetings that
one or more persons may participate in a meeting of the shareholders of the Company, by means of conference telephone or similar
communications equipment by means of which all persons participating in the meeting can hear each other. Participation in a meeting pursuant
to this Section shall constitute presence in person at the meeting.
ARTICLE III
Shareholders
Section 3.01. Place of Meeting . All meetings of the shareholders of the Company shall be held at the Registered Office of the
Company unless another place is designated by the board of directors in the notice of the meeting.
Section 3.02. Annual Meeting . The board of directors may fix and designate the date and time of the annual meeting of
shareholders, notice of which shall be given not less than ten days nor more than 60 days prior to the date named for the meeting.
Section 3.03. Special Meetings.
(a) Call of Special Meetings . Special meetings of the shareholders may be called at any time:
(1) by the board of directors; or
percent of the votes that all shareholders are entitled to cast at the particular meeting. (b) Fixing of Time for Meeting. At any time, upon the
written request of any person who has called a special meeting, it shall be the duty of the Secretary to fix
(2) unless otherwise provided in the Articles of Incorporation, by shareholders entitled to cast at least eighty
the time of the meeting which shall be held not more than 60 days after the receipt of the request. If the Secretary neglects or refuses to fix the
time of the meeting, the person or persons calling the meeting may do so.
Section 3.04. Quorum and Adjournment .
(a) General Rule . A meeting of shareholders of the Company duly called shall not be organized for the transaction of
business unless a quorum is present. The presence of shareholders entitled to cast a majority of the votes all shareholders are entitled to cast on
a particular matter to be acted upon at the meeting shall constitute a quorum for the purposes of consideration and action on the matter.
adjournment notwithstanding the withdrawal of enough shareholders to leave less than a quorum.
(b) Withdrawal of a Quorum . The shareholders present at a duly organized meeting can continue to do business until
(c) Adjournments Generally . Any regular or special meeting of the shareholders, including one at which directors are
to be elected and one which cannot be organized because a quorum has not attended, may be adjourned for such period and to such place as the
shareholders present and entitled to vote shall direct.
(d) Electing Directors at Adjourned Meeting . Those shareholders entitled to vote who attend a meeting called for the
election of directors that has been previously adjourned for lack of a quorum, although less than a quorum as fixed in this section, shall
nevertheless constitute a quorum for the purpose of electing directors.
(e) Other Action in Absence of Quorum . Those shareholders entitled to vote who attend a meeting of shareholders that
has been previously adjourned for one or more periods aggregating at least fifteen days because of an absence of a quorum, although less than a
quorum as fixed in this Section, shall nevertheless constitute a quorum for the purpose of acting upon any matter set forth in the notice of the
meeting if the notice states that those shareholders who attend the adjourned meeting shall nevertheless constitute a quorum for the purpose of
acting upon the matter.
Section 3.05. Action by Shareholders . Except as otherwise provided in the Articles of Incorporation or these Bylaws, whenever
any corporate action is to be taken by vote of the shareholders of the Company, it shall be authorized by a majority of the votes cast at a duly
organized meeting of shareholders by the holders of shares entitled to vote thereon.
Section 3.06. Organization . At every meeting of the shareholders, the Chairman of the Board, if there be one, or in the case of
vacancy in office or absence of the Chairman of the Board, one of the following officers present in the order stated: the Vice Chairman of the
Board, if there be one, the President, the Vice Presidents in their order of rank and seniority, or a person chosen by vote of the shareholders
present, shall act as chairman of the meeting. The Secretary, or, in the absence of the Secretary, an Assistant Secretary, or in the absence of
both the Secretary
and Assistant Secretaries, a person appointed by the Chairman, shall act as secretary of the meeting.
Section 3.07. Voting Rights of Shareholders . Unless otherwise provided in the Articles of Incorporation, every shareholder of
the Company shall be entitled to one vote for every share standing in the name of the shareholder in the books of the Company.
Section 3.08. Voting and Other Action by Proxy .
(a) General Rule .
corporate action in writing without a meeting may authorize another person to act for the shareholder by proxy.
(1) Every shareholder entitled to vote at a meeting of shareholders or to express consent or dissent to
dissent to corporate action in writing, by a proxy of a shareholder shall constitute the presence of, or vote or action by, or written consent or
dissent of, the shareholder.
(2) The presence of, or vote or other action at a meeting of shareholders, or the expression of consent or
(3) Where two or more proxies of a shareholder are present, the Company shall, unless otherwise expressly
provided in the proxy, accept as the vote of all shares represented thereby the vote cast by a majority of them and, if a majority of the proxies
cannot agree whether the shares represented shall be voted or upon the manner of voting the shares, the voting of the shares shall be divided
equally among those persons.
(b) Minimum Requirements . Every proxy shall be executed in writing by the shareholder or by the duly authorized
attorney-in-fact of the shareholder and filed with the Secretary of the Company. A proxy, unless coupled with an interest, shall be revocable at
will, notwithstanding any other agreement or any provision in the proxy to the contrary, but the revocation of a proxy shall not be effective
unless written notice thereof has been given to the Secretary. An unrevoked proxy shall not be valid after three years from the date of its
execution unless a longer time is expressly provided therein. A proxy shall not be revoked by the death or incapacity of the maker unless,
before the vote is counted or the authority is exercised, written notice of the death or incapacity is given to the Secretary of the Company.
(c) Expenses . The Company shall pay the reasonable expenses of solicitation of votes, proxies or consents of
shareholders by or on behalf of the board of directors or its nominees for election to the board, including solicitation by professional proxy
solicitors and otherwise.
Section 3.09. Voting by Fiduciaries and Pledgees . Shares of the Company standing in the name of a trustee or other fiduciary
and shares held by an assignee for the benefit of creditors or by a receiver may be voted by the trustee, fiduciary, assignee or receiver. A
shareholder whose shares are pledged shall be entitled to vote the shares unless the shares have been
transferred into the name of the pledgee, or a nominee of the pledgee, but nothing in this section shall affect the validity of a proxy given to a
pledgee or nominee.
Section 3.10. Voting by Joint Holders of Shares .
fiduciaries or otherwise:
(a) General Rule . Where shares of the Company are held jointly or as tenants in common by two or more persons, as
names of such persons shall be deemed to be represented for the purpose of determining a quorum and the Company shall accept as the vote of
all the shares the vote cast by a joint owner or a majority of them; and
(1) if only one or more of such persons is present in person or by proxy, all of the shares standing in the
of voting the shares, the voting of the shares shall be divided equally among the persons without prejudice to the rights of the joint owners or
the beneficial owners thereof among themselves.
(2) If the persons are equally divided upon whether the shares held by them shall be voted or upon the manner
(b) Exception . If there has been filed with the Secretary of the Company a copy, certified by an attorney at law to be
correct, of the relevant portions of the agreement under which the shares are held or the instrument by which the trust or estate was created or
the order of court appointing them or of an order of court directing the voting of the shares, the persons specified as having such voting power
in the document latest in date of operative effect so filed, and only those persons shall be entitled to vote the shares but only in accordance
therewith.
Section 3.11. Voting by Corporations .
(a) Voting by Corporate Shareholders . Any corporation that is a shareholder of this Company may vote at meetings of
shareholders of this Company by any of its officers or agents, or by proxy appointed by any officer or agent, unless some other person, by
resolution of the board of directors of the other corporation or a provision of its Articles of Incorporation or Bylaws, a copy of which resolution
or provision certified to be correct by one of its officers has been filed with the Secretary of this Company, is appointed its general or special
proxy in which case that person shall be entitled to vote the shares.
Section 3.12. Determination of Shareholders of Record .
(a) Fixing Record Date . The board of directors may fix a time prior to the date of any meeting of shareholders as a
record date for the determination of the shareholders entitled to notice of, or to vote at, the meeting, which time, except in the case of an
adjourned meeting, shall be not more than 60 days prior to the date of the meeting of shareholders. Only shareholders of record on the date
fixed shall be so entitled notwithstanding any transfer of shares on the books of the Company after any record date fixed as provided in this
subsection. The board of directors may similarly fix a record date for the determination of shareholders of record for any other purpose. When a
determination of shareholders of record has been made as
provided in this section for purposes of a meeting, the determination shall apply to any adjournment thereof unless the board fixes a new record
date for the adjourned meeting.
(b) Determination When No Record Date Fixed . If a record date is not fixed:
(1) The record date for determining shareholders entitled to notice of or to vote at a meeting of shareholders
shall be at the close of business on the day next preceding the day on which notice is given or, if notice is waived, at the close of business on
the day immediately preceding the day on which the meeting is held.
action in writing without a meeting, when prior action by the board of directors is not necessary, shall be the close of business on the day on
which the first written consent or dissent is filed with the Secretary of the Company.
(2) The record date for determining those shareholders entitled to express consent or dissent to corporate
day on which the board of directors adopts the resolution relating thereto.
(3) The record date for determining shareholders for any other purpose shall be at the close of business on the
Section 3.13. Voting Lists .
(a) General Rule . The officer or agent having charge of the transfer books for shares of the Company shall make a
complete list of the shareholders entitled to vote at any meeting of shareholders, arranged in alphabetical order, with the address of and number
of shares held by each. The list shall be produced and kept open at the time and place of the meeting and be subject to the inspection of any
shareholder during the meeting for the purposes thereof.
(b) Effect of List . Failure to comply with the requirements of this Section shall not affect the validity of any action
taken at a meeting prior to a demand at the meeting by any shareholder entitled to vote thereat to examine the list. The original share register or
transfer book, or a duplicate thereof kept at the Registered Office of the Company, or at such other place as determined by the board of
directors, shall be prima facie evidence as to who are the shareholders entitled to examine the list or share register or transfer book or to vote at
any meeting of shareholders.
Section 3.14. Judges of Election .
(a) Appointment . In advance of or at any meeting of shareholders of the Company, the board of directors may appoint
judges of election, who need not be shareholders, to act at the meeting or any adjournment thereof. If judges of election are not so appointed,
the presiding officer of the meeting may, and on the request of any shareholder shall, appoint judges of election at the meeting. The number of
judges shall be two. A person who is a candidate for an office to be filled at a meeting shall not act as a judge.
appointment made by the board of directors in advance of the convening of the meeting or at the meeting by the presiding officer.
(b) Vacancies . In case any person appointed as a judge fails to appear or refuses to act, the vacancy may be filled by
(c) Duties . The judges of election shall determine the number of shares outstanding and voting power of each, the
shares represented at the meeting, the existence of a quorum, and the authenticity, validity and effect of proxies, receive votes or ballots, hear
and determine all challenges and questions in any way arising in connection with nominations by shareholders and the right to vote, count and
tabulate all votes, determine the result and do such acts as may be proper to conduct the election or vote with fairness to all shareholders. The
judges of election shall perform their duties impartially, in good faith, to the best of their ability and as expeditiously as is practical, the
decision, act or certificate of a majority shall be effective in all respects as the decision, act or certificate of all.
(d) Report . On request of the presiding officer of the meeting or any shareholder, the judges shall make a report in
writing of any challenge, question or matter determined by them and execute a certificate of any fact found by them. Any such report or
certificate shall be prima facie evidence of the facts stated therein.
Section 3.15. Consent of Shareholders in Lieu of Meeting . Any action required or permitted to be taken at a meeting of the
shareholders or of a class of shareholders may be taken without a meeting if, prior or subsequent to the action, a consent or consents thereto
signed by all the shareholders who would be entitled to vote at a meeting for such purpose shall be filed with the minutes of the proceedings of
the shareholders of the Company.
Section 3.16. Minors as Securityholders . The company may treat a minor who holds shares or obligations of the Company as
having capacity to receive and empower others to receive dividends, interest, principal and other payments or distributions, to vote or express
consent or dissent and to make elections and exercise rights relating to such shares or obligations unless, in the case of payments or
distributions on shares, the corporate officer responsible for maintaining the list of shareholders or the transfer agent of the Company or, in the
case of payments or distributions on obligations, the Treasurer or paying officer or agent has received written notice that the holder is a minor.
Section 4.01. Powers; Personal Liability .
ARTICLE IV
Board of Directors
or under the authority of, and the business and affairs of the Company shall be managed under the direction of the board of directors.
(a) General Rule . Unless otherwise provided by statute all powers vested by law in the Company shall be exercised by
(b) Notation of Dissent . A director who is present at a meeting of the board of directors, or of a committee of the board
of directors, at which action on any corporate matter is taken shall be presumed to have assented to the action taken unless his or her dissent is
entered in
the minutes of the meeting or unless the director files a written dissent to the action with the secretary of the meeting before the adjournment
thereof or transmits the dissent in writing to the Secretary of the Company immediately after the adjournment of the meeting. The right to
dissent shall not apply to a director who voted in favor of the action. Nothing in this Section shall bar a director from asserting that the minutes
of the meeting incorrectly omitted his or her dissent if, promptly upon receipt of a copy of such minutes, the director notifies the Secretary, in
writing, of the asserted omission or inaccuracy.
Section 4.02. Qualifications and Selection of Directors .
State of Nevada or a shareholder of the Company.
(a) Qualifications . Each director of the Company shall be a natural person of full age who need not be a resident of the
by the shareholders.
(b) Power to Select Directors . Except as otherwise provided in these Bylaws, directors of the Company shall be elected
(c) Nomination of Candidates . Subject to the rights of any class or series of stock having a preference over the
common stock as to dividends or upon dissolution to elect directors under specified circumstances, nominations for election of directors may be
made by any shareholder entitled to vote for the election of directors only if notice of such shareholder’s intent to nominate a director at the
meeting is given by the shareholder and received by the Secretary of the Corporation in the manner and within the time specified herein. Notice
must be received by the Secretary of the Corporation not less than 150 days prior to the date fixed for the Annual Meeting of shareholders
pursuant to these Bylaws; provided, however, that if directors are to be elected by the shareholders at any other time, notice must be received
by the Secretary of the Corporation not later than the seventh day following the day on which notice of the meeting was first mailed to
shareholders. The notice may either be delivered or may be mailed to the Secretary of the Corporation by certified or registered mail, return
receipt requested.
The notice shall be in writing and shall contain:
(i) the name and residence of such shareholder;
or by proxy at the meeting to nominate the person or persons specified in the notice;
(ii) a representation that the shareholder is a holder of voting stock of the Corporation and intends to appear in person
(iii) such information regarding each nominee as would have been required to be included in a proxy statement filed
pursuant to Regulation 14A of the rules and regulations established by the Securities and Exchange Commission under the Securities Exchange
Act of 1934 (or pursuant to any successor act or regulation) had proxies been solicited with respect to such nominee by the management or
Board of Directors of the Corporation; and
(iv) the consent of each nominee to serve as director of the Corporation if so elected.
The Chairman of the meeting may, if the facts warrant, determine and declare to the meeting that any nomination made at the meeting
was not made in accordance with the foregoing procedures and, in such event, the nomination shall be disregarded.
(d) Election of Directors . In elections for directors, the candidates receiving the highest number of votes from each
class or group of classes, if any, entitled to elect directors separately up to the number of directors to be elected by the class or group of classes
shall be elected. If at any meeting of shareholders, directors of more than one class are to be elected, each class of directors shall be elected in a
separate election.
Section 4.03 Number and Term of Office .
(a) Number . The board of directors shall consist of such number of directors, not less than three nor more than nine, as
may be determined from time to time by resolution of the board of directors. The Board of Directors shall be divided into three classes, each
class of which shall be as nearly equal in number as possible, the term of office of at least one class shall expire in each year, and the members
of a class shall not be elected for a shorter period than one year, or for a longer period than three years. One-third (or the nearest approximation
thereto) of the number of the Board of Directors, determined as aforesaid, shall be elected at each Annual Meeting of the shareholders by a
meeting plurality vote, for terms to expire at the third subsequent meeting of shareholders at which directors are elected.
(b) Term of Office . Each director shall hold office until the expiration of the term for which he or she was selected and
until a successor has been elected and qualified or until his or her earlier death, resignation or removal. A decrease in the number of directors
shall not have the effect of shortening the term of any incumbent director.
effective upon receipt thereof by the Company or at such subsequent time as shall be specified in the notice of resignation.
(c) Resignation . Any director may resign at any time upon written notice to the Company. The resignation shall be
Section 4.04. Vacancies .
(a) General Rule . All vacancies in the board of directors, whether caused by resignation, death, or otherwise, may be
filled by the remaining director or a majority of the remaining directors attending a stated special meeting called for that purpose even though
less than a quorum be present; provided, however, in the event of a change in control of the Company, all vacancies in the Board of Directors
shall be filled by the directors who where directors prior to the change in control (the “Continuing Directors”). A director thus elected to fill
any vacancy shall hold office for the unexpired term of his predecessor and until his successor is elected and qualifies.
For purposes of these Bylaws, a “change in control of the Company” shall mean a change in control of a nature that would be
required to be reported in response to Item 6(e) of Schedule 14A of Regulation 14A promulgated under the Securities Exchange Act of 1934
(the “Exchange Act”). Such a change in control shall be deemed to have occurred if (a) any “person”
as such term is used in Sections 13(d) and 14(d) of the Exchange Act, other than the Company or any “person” who is a director or officer of
the Company, is or becomes the “beneficial owner” as defined in Rule 13d-3 under the Exchange Act, directly or indirectly, of securities of the
Company representing 20% or more of the combined voting power of the Company’s then outstanding securities, or (b) during any twelve
month period individuals who at the beginning of such period constitute the Board of Directors of the Company cease, for any reason, to
constitute at least a majority, unless the election of each director who was not a director at the beginning of the period has been approved in
advance by directors representing at least two-thirds of the directors then in office who were directors at the beginning of the period.
(b) Action by Resigned Directors . When a director resigns from the board of directors effective at a future date, the
directors then in office, including those who have so resigned, shall have power by applicable vote to fill the vacancies, the vote thereon to take
effect when the resignations become effective.
Section 4.05. Removal of Directors .
(a) Removal by the Shareholders . The entire board of directors, or any class of the board of directors, or any individual
director may be removed from office by a vote of two-thirds of the shareholders entitled to vote thereon without assigning any cause. In case
the board of directors of a class thereof or any one or more directors are so removed, new directors may be elected at the same meeting.
Section 4.06. Place of Meetings . Meetings of the board of directors may be held at the Registered Office of the Company, or at
such place as the board of directors may from time to time appoint or as may be designated in the notice of the meeting.
Section 4.07. Organization of Meetings . At every meeting of the board of directors, the Chairman, if there be one, or, in the case
of a vacancy in the office or absence of the Chairman of the board, one of the following officers present in the order stated: the Vice Chairman,
if there be one, the President, the Vice Presidents in their order of rank and seniority, or a person chosen by a majority of the directors present,
shall act as chairman of the meeting. The Secretary, or, in the absence of the Secretary, an Assistant Secretary, or in the absence of the
Secretary and the Assistant Secretaries, any person appointed by the chairman of the meeting, shall act as secretary of the meeting.
Section 4.08. Regular Meetings . Regular meetings of the board of directors shall be held at such time and place as shall be
designated from time to time by resolution of the board of directors.
Section 4.09. Special Meetings . Special meetings of the board of directors shall be held whenever called by the Chairman or by
a majority of directors in office.
Section 4.10. Quorum of and Action by Directors .
(a) General Rule . A majority of the directors in office shall be necessary to constitute a quorum for the transaction of
business and the acts of a majority of the directors present and voting at a meeting where a quorum is present shall be the acts of the board of
directors.
(b) Action by Written Consent . Any action required or permitted to be taken at a meeting of the directors may be taken
without a meeting if, prior or subsequent to the action, a consent or consents thereto signed by all of the directors in office is filed with the
minutes of the proceedings of the board of directors.
Section 4.11. Executive and Other Committees .
(a) Establishment and Powers . The board of directors may, by resolution adopted by a majority of the directors in
office, establish one or more committees to consist of one or more directors of the Company. Any committee, to the extent provided in the
resolution of the board of directors, shall have and may exercise all of the powers and authority of the board of directors except that a
committee shall not have any power or authority as to the following:
of Nevada;
(1) the submission to shareholders of any action requiring approval of shareholders under the laws of the State
(2) the creation or filling of vacancies in the board of directors;
(3) the adoption, amendment or repeal of these Bylaws;
repealable only by the board of directors; and
(4) the amendment or repeal of any resolution of the board of directors that by its terms is amendable or
directors.
(5) action or matters committed by a resolution of the board of directors to another committee of the board of
(b) Alternate Committee Members . The board of directors may designate one or more directors as alternate members
of any committee who may replace any absent or disqualified member at any meeting of the committee or for the purposes of any written
action by the committee. In the absence or disqualification of a member and alternate member or members of a committee, the member or
members thereof present at any meeting and not disqualified from voting, whether or not constituting a quorum, may unanimously appoint
another director to act at the meeting in the place of the absent or disqualified member.
(c) Term . Each committee of the board of directors shall serve at the pleasure of the board of directors.
organization or procedures of or the manner of taking
(d) Committee Procedures . The term “board of directors” when used in any provision of these Bylaws relating to the
action by the board of directors, shall be construed to include and refer to any executive or other committee of the board of directors.
Section 4.12. Compensation . The board of directors shall have the authority to fix the compensation of directors for their
services as directors and a director may be a salaried officer of the Company.
Section 5.01. Officers Generally .
ARTICLE V
Officers
(a) Number, Qualifications and Designation . The officers of the Company shall be the, President one or more Vice
Presidents, Secretary, Treasurer and such other officers as may be elected in accordance with the provisions of Section 5.03. Officers may but
need not be directors or shareholders of the Company. The President, Treasurer, Secretary and all other officers of the Company shall be
natural persons of full age. The board of directors may elect from among its members a Chairman and Vice Chairman who shall be officers of
the Company. Any number of offices may be held by the same person.
(b) Bonding . The Company may secure the fidelity of any or all of its officers by bond or otherwise.
(c) Standard of Care . Except as otherwise provided in the Articles of Incorporation, an officer shall perform his or her
duties as an officer in good faith, in a manner he or she reasonably believes to be in the best interests of the Company and with such care,
including reasonable inquiry, skill and diligence, as a person of ordinary prudence would use under similar circumstances. A person who so
performs his or her duties shall not be liable by reason of having been an officer of the Company.
Section 5.02. Election, Term of Office and Resignations .
(a) Election and Term of Office . The officers of the Company, except those elected by delegated authority pursuant to
Section 5.03, shall be elected annually by the board of directors and each such officer shall hold office for a term of one year and until a
successor has been selected and qualified or until his or her earlier death, resignation or removal. The board of directors, as soon as may be
done after each annual meeting of stockholders and election, shall choose a President, Secretary and Treasurer and from time to time one or
more Vice Presidents, Assistant Secretaries and Assistant Treasurers, and may appoint such other officers, agents and employees as it may
deem proper. Any two or more offices may be held by the same person.
effective upon its receipt by the Company or at such subsequent time as may be specified in the notice of resignation.
(b) Resignations . Any officer may resign at any time upon written notice to the Company. The resignation shall be
Section 5.03. Other Officers, Committees and Agents . The board of directors may from time to time elect such other officers
and appoint such committees, employees or other agents as the business of the Company may require, including a Chief Financial Officer, an
Executive Vice President, a Chief Operating Officer and one or more Assistant Secretaries, each of whom shall hold office for such period,
have such authority and perform such duties as are provided in these Bylaws, or as the board of directors may from time to time determine. The
board of directors may delegate to any officer or committee the power to elect subordinate officers and to retain or appoint employees or other
agents, or committees thereof, and to prescribe the authority and duties of such subordinate officers, committees, employees or other agents.
Section 5.04. Removal of Officers and Agents . Any officer or agent of the Company may be removed by the board of directors
with or without cause. The removal shall be without prejudice to the contract rights, if any, of any person so removed. Election or appointment
of an officer or agent shall not of itself create contract rights.
Section 5.05. Vacancies . A vacancy in any office because of death, resignation, removal, disqualification, or any other cause
may be filled by the board of directors or by the officer or committee to which the power to fill such office has been delegated pursuant to
Section 5.03, as the case may be, and if the office is one for which these Bylaws prescribe a term, shall be filled for the unexpired portion of the
term.
Section 5.06. Authority . All officers of the Company, as between themselves and the Company, shall have such authority and
perform such duties in the management of the Company as may be provided by or pursuant to resolutions or orders of the board of directors or,
in the absence of controlling provisions in the resolutions or orders of the board of directors, as may be determined by or pursuant to these
Bylaws.
Section 5.07. Chairman and Vice Chairman of the Board . The Chairman, or in the absence of the Chairman, the Vice Chairman,
shall preside at all meetings of the shareholders and of the board of directors, and shall perform such other duties as may from time to time be
requested by the board of directors.
Section 5.08. President . The President shall be the chief executive officer of the Company and shall have general supervision
over its business and subject however, to the control of the board of directors. The President shall sign, execute, and acknowledge, in the name
of the Company, deeds, mortgages, bonds, contracts or other instruments authorized by the board of directors, except in cases where the
signing and execution thereof shall be expressly delegated by the board of directors, these Bylaws or law to some other officer or agent of the
Company and in general shall perform all duties incident to the office of President and such other duties as from time to time may be assigned
by the board of directors.
Section 5.09. Vice Presidents . The Vice Presidents shall perform the duties of the President in the absence of the President and
such other duties as may from time to time be assigned to them by the board of directors or the President. The Vice Presidents may sign,
execute, and acknowledge, in the name of the Company, deeds, mortgages, bonds, contracts or other instruments authorized by the board of
directors, except in cases where the signing and
execution thereof shall be expressly delegated by the board of directors, these Bylaws or law to some other officer or agent of the Company.
Section 5.10. Secretary . The Secretary or an Assistant Secretary shall attend all meetings of the shareholders and board of
directors and record the votes of shareholders and directors, the minutes of the meetings of shareholders, board of directors and of committees
of the board of directors in a book or books to be kept for that purpose; ensure notices are given and records and reports properly kept and filed
by the Company as required by law; serve as custodian of the seal of the Company and ensure it is affixed to all documents to be executed on
behalf of the Company under seal; and, in general, perform all duties incident to the office of Secretary and such other duties as may from time
to time be assigned by the board of directors or the President.
Section 5.11. Treasurer . The Treasurer shall have or provide for the custody of the funds or other property of the Company;
collect and receive or provide for the collection and receipt of moneys earned by or in any manner due to or received by the Company; deposit
all funds in his or her custody as Treasurer in such banks or other places of deposit as the board of directors may from time to time designate;
whenever so required by the board of directors, render an account showing all transactions as Treasurer, and the financial condition of the
Company; and, in general, discharge such other duties as may from time to time be assigned by the board of directors or the President. The
Treasurer may sign, execute and acknowledge in the name of the Company deeds, mortgages, bonds, contracts or other instruments authorized
by the board of directors, except in cases where the signing and execution thereof shall be expressly delegated by the board of directors, these
Bylaws or law to some other officer or agent of the Company.
Section 5.12. Salaries . The salaries of the officers elected by the board of directors shall be fixed from time to time by the board
of directors or by such officer as may be designated by resolution of the board of directors. The salaries or other compensation of any other
officers, employees and other agents shall be fixed from time to time by the officer or committee to which the power to elect such officers or to
retain or appoint such employees or other agents has been delegated pursuant to Section 5.03. No officer shall be prevented from receiving a
salary or other compensation by reason of the fact the officer is also a director of the Company.
Section 6.01 Share Certificates .
ARTICLE VI
Certificates of Stock Transfer, Etc.
(a) Form of Certificates . Shares of the Company may be certified or uncertificated, as provided under Nevada law, and
this Section 6.01(a) of this Article VI shall not be interpreted to limit the authority of the Directors to issue some or all of any of the classes or
series of shares of the Company without certificates.
state the Company is incorporated under the laws
To the extent certificates for shares are issued, such certificates shall be in the form as approved by the board of directors and
of the State of Nevada, the name of the person to whom issued and the number and class of shares and the designation of the series (if any) the
certificate represents. If the Company is authorized to issue shares of more than one class or series, certificate for shares of the Company shall
set forth upon the face or back of the certificate(or shall state on the face or back of the certificate that the Company will furnish to any
shareholder upon request and without charge), a full or summary statement of the designations, voting rights, preferences, limitations and
special rights of the shares of each class or series authorized to be issued so far as they have been fixed and determined and the authority of the
board of directors to fix and determine the designations, voting rights, preferences, limitations and special rights of the classes and series of
shares of the Company.
In the case of shares issued without certificates, the Company will, within a reasonable time after such issuance, send the
holders of such shares a written statement containing the information specified in the preceding paragraph. At least annually thereafter, the
Company shall provide to its stockholders of record a written statement confirming the information contained in the informational statement
sent pursuant to the preceding sentence.
any transfer agent or registrar designated by the board of directors for that purpose.
(b) Share Register . The share register or transfer books and blank share certificates shall be kept by the Secretary or by
Section 6.02. Issuance . The share certificates of the Company shall be numbered and registered in the share register or transfer
books of the Company as they are issued. They shall be executed in such manner as the board of directors shall determine.
Section 6.03. Transfer . Transfers of shares shall be made on the share register or transfer books of the Company upon surrender
of the certificate therefore, endorsed by the person named in the certificate or by an attorney lawfully constituted in writing; provided, that in
the case of shares that are not represented by a certificate, no delivery of a certificate shall be required and transfers shall be made on the share
register or transfer books of the Company only by the record holder of such shares or by an attorney lawfully constituted in writing. No
transfers shall be made inconsistent with the provisions of the Uniform Commercial Code, its amendments and supplements.
Section 6.04. Record Holder of Shares . The Company shall be entitled to treat the person in whose name any share or shares of
the Company stand on its books as the absolute owner thereof, and shall not be bound to recognize any equitable or other claim to or interest in
such share or shares on the part of any other person.
Section 6.05. Lost, Destroyed or Mutilated Certificates . The holder of any shares of the Company shall immediately notify the
Company of any loss, destruction or mutilation of the certificate therefor, and the board of directors may, in its discretion, cause a new
certificate or certificates to be issued to such holder, in case of mutilation of the certificate, upon the surrender of the mutilated certificate or in
case of loss or destruction of the certificate, upon satisfactory proof of such loss or destruction, and if the board of directors shall so determine,
the deposit of a bond in such form and in such sum, and with such surety or sureties, as it may direct.
ARTICLE VII
Miscellaneous
Section 7.01. Corporate Seal . The Company shall have a corporate seal in the form of a circle containing the name of the
Company, the year of its incorporation and such other details as may be approved by the board of directors.
Section 7.02. Checks . All checks, notes, bills of exchange or other orders in writing shall be signed by such person or persons as
the board of directors or any person authorized by resolution of the board of directors may from time to time designate.
Section 7.03. Contracts . Except as otherwise provided in the case of transactions which require action by the shareholders, the
board of directors may authorize any officer or agent to enter into any contract or to execute or deliver any instrument on behalf of the
Company, and such authority may be general or confined to specific instances.
Section 7.04. Interested Directors or Officers; Quorum .
(a) General Rule . A contract or transaction between the Company and one or more of its directors or officers or
between the Company and another corporation, partnership, joint venture, trust or other enterprise in which one or more of its directors or
officers are directors or officers or have a financial or other interest shall not be void or voidable solely for that reason, or solely because the
director or officer is present at or participates in the meeting of the board of directors that authorizes the contract or transaction, or solely
because his, her or their votes are counted for that purpose, if:
(1) the material facts as to the relationship or interest and as to the contract or transaction are disclosed or are
known to the board of directors and it authorizes the contract or transaction by the affirmative vote of a majority of the disinterested directors
even though the disinterested directors are less than a quorum; or
or are known to the shareholders entitled to vote thereon and the contract or transaction is specifically approved in good faith by vote of those
shareholders; or
(2) the material facts as to his or her relationship or interest and as to the contract or transactions are disclosed
the board of directors or the shareholders.
(3) the contract or transaction is fair as to the Company as of the time it is authorized, approved or ratified by
the board of directors which authorizes a contract or transaction specified in subsection (a) above.
(b) Quorum . Common or interested directors may be counted in determining the presence of a quorum at a meeting of
Section 7.05. Deposits . All funds of the Company shall be deposited from time to time to the credit of the Company in such
banks, trust companies or other depositaries as the board of directors may approve or designate, and all such funds shall be withdrawn only
upon checks signed by such one or more officers or employees as the board of directors shall from time to time determine.
Section 7.06. Corporate Records . The Company shall keep complete and accurate books and records of account, minutes of the
proceedings of the incorporators, shareholders and directors and a share register giving the names and addresses of all shareholders and the
number and class of shares held by each. The share register or a copy thereof shall be kept at the Registered Office of the Company, and its
principal place of business wherever situated or at the office of its registrar or transfer agent. Any books, minutes or other records may be in
written form or any other form capable of being converted into written form within a reasonable time.
Section 7.07. Amendment of Bylaws . These Bylaws may be amended or repealed, or new Bylaws adopted, either (i) by vote of
the shareholders at any duly organized annual or special meeting of shareholders, but subject to the provisions of the Articles of Incorporation,
or (ii) by vote of a majority of the board of directors of the Company in office at any regular or special meeting of directors. Any change in
these Bylaws shall take effect when adopted unless otherwise provided in the resolution effecting the change.
RCM TECHNOLOGIES, INC.
Compensation Arrangements for Named Executive Officers
EXHIBIT 10 (o)
Rocco Campanelli. Executive Vice President . The Company on an at-will basis pursuant to an oral agreement employs Mr. Campanelli. In
addition to standard medical, disability, life insurance, 401(k) and employee stock incentive benefits available to all eligible employees, he is
eligible for the Executive Medical Supplementary Plan available to the named executive officers, the Executive Stock Option Plan available to
officers and key employees and an auto allowance available to certain middle managers and above. Mr. Campanelli received a base salary of
$225,000 in 2008. His bonus compensation is comprised of certain percentages of divisional operating income above certain threshold targets
plus any discretionary bonus awarded by the Compensation Committee of the Board, if any.
Kevin D. Miller. Chief Financial Officer, Treasurer and Secretary. The Company on an at-will basis pursuant to an oral agreement employs
Mr. Miller. In addition to the standard medical, disability, life insurance, 401(k) and employee stock incentive benefits available to all eligible
employees, he is eligible for the Executive Medical Supplementary Plan available to the named executive officers, the Executive Stock Option
Plan available to officers and key employees and an auto allowance available to certain middle managers and above. Mr. Miller received a base
salary of $257,000 in 2008. He is eligible for a discretionary bonus.
RCM TECHNOLOGIES, INC.
Compensation Arrangements for Directors
EXHIBIT 10 (p)
Directors who are RCM Technologies, Inc employees are not compensated for their services as directors.
Non-employee directors, except as set forth below, each receive $24,000 in annual compensation for service on the Board, payable in equal
monthly installments in cash.
In addition, each non-employee director receives $750 payable in cash for each in-person meeting of the full Board attended by that director,
and $300 for each meeting of a committee (in excess of four meetings per year of that committee), whether in-person or telephonic, attended by
that director.
Norman S. Berson, one of the non-employee directors, is of counsel to a law firm that from time to time performs services for the Company.
Fees paid by the Company to this law firm are not significant or material. Nevertheless, Mr. Berson has voluntarily declined to accept
compensation for his service on the Board.
COMPUTATION OF EARNINGS PER COMMON SHARE
Years Ended December 27, 2008, December 29, 2007 and December 30, 2006
(Dollars in thousands, except share and per share amounts, unless otherwise indicated)
EXHIBIT 11
Diluted earnings
Net income applicable to common stock
Shares
Weighted average number of common shares outstanding
Common stock equivalents
Total
Diluted earnings per common share
Basic
Net income applicable to common stock
Shares
Weighted average number of common shares outstanding
Basic earnings per common share
December 27,
2008
December 29,
2007
December 30,
2006
$
(39,805 ) $
6,769
$
6,356
12,647,127
—
11,970,042
514,597
11,773,301
261,364
12,647,127
12,484,639
12,034,665
(3.15 ) $
.54
$
.53
(39,805 ) $
6,769
$
6,356
$
$
12,647,127
11,970,042
11,773,301
$
(3.15 ) $
.57
$
.54
SUBSIDIARIES OF THE REGISTRANT
EXHIBIT 21
Business Support Group of Michigan, Inc.
Cataract, Inc.
Programming Alternatives of Minnesota, Inc.
RCMT Delaware, Inc.
RCM Technologies Services Company, Inc.
RCM Technologies (USA), Inc.
RCM Technologies Canada Corp
Soltre Technology, Inc.
CONSENT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
EXHIBIT 23
Board of Directors
RCM Technologies, Inc.
We have issued our report dated March 24, 2009 with respect to the consolidated financial statements and related schedules which are
included in the Annual Report of RCM Technologies, Inc. and Subsidiaries on Form 10-K for the year ended December 27, 2008. 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. 333-
145904, effective September 6, 2007, File No. 333-61306, effective April 21, 1993, File No. 333-80590, effective June 22, 1994, File No. 333-
48089, effective March 17, 1998, 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
March 24, 2009
EXHIBIT 31.1
I, Leon Kopyt, certify that:
1. I have reviewed this annual report on Form 10-K of RCM Technologies, Inc. (the “registrant”);
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 23, 2009
/s/ Leon Kopyt
Leon Kopyt
Chairman and Chief Executive Officer
EXHIBIT 31.2
I, Kevin D. Miller, certify that:
1. I have reviewed this annual report on Form 10-K of RCM Technologies, Inc. (the “registrant”);
CERTIFICATION
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period
covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material
respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-
15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our
supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed
under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions
about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such
evaluation; and
(d) Disclosed in this annual report any change in the registrant’s internal control over financial reporting that occurred during the
registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected,
or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial
reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent
function):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which
are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s
internal control over financial reporting.
Date: March 23, 2009
/s/ Kevin D. Miller
Kevin D. Miller
Chief Financial Officer, Treasurer, and Secretary
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.1
In connection with the Annual Report on Form 10-K of RCM Technologies, Inc. (the “Company”) for the year ended December 27, 2008, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Leon Kopyt, President & Chief Executive Officer of
the Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (15 U.S.C. section
78m (a)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Leon Kopyt
Leon Kopyt
Chief Executive Officer
March 23, 2009
A signed original of this written statement required by Section 906 has been provided to RCM Technologies, Inc. and will be retained by RCM
Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
EXHIBIT 32.2
In connection with the Annual Report on Form 10-K of RCM Technologies, Inc. (the “Company”) for the year ended December 27, 2008, as
filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Kevin D. Miller, Chief Financial Officer of the
Company, certify, pursuant to 18 U.S.C. section 1350, as adopted pursuant to section 906 of the Sarbanes-Oxley Act of 2002, to my
knowledge, that:
(1) The Report fully complies with the requirements of Section 13(a) of the Securities Exchange Act of 1934, as amended (15 U.S.C. section
78m (a)); and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the
Company.
/s/ Kevin D. Miller
Kevin D. Miller
Chief Financial Officer
March 23, 2009
A signed original of this written statement required by Section 906 has been provided to RCM Technologies, Inc. and will be retained by RCM
Technologies, Inc. and furnished to the Securities and Exchange Commission or its staff upon request.