Rcm Technologies, Inc. Business Information, Profile, and History

Company Perspectives:

RCM's mission is to be in a leadership position in its industry by providing responsive, high-quality, reliable, technologically advanced, cost-effective services that enable our customers to meet their business objectives, allow RCM to enhance shareholder value, and offer its employees the opportunity to realize their professional and personal goals. We support this mission with dedication, resources, and expertise.

History of Rcm Technologies, Inc.

RCM Technologies, Inc. provides information technology (IT) and professional engineering services through consultation, project management, and temporary staffing. RCM employee skills in IT include software development, network communications, systems analysis and design, database design, client/server development, web-based technologies, systems integration, and technical support. Professional engineering services involve analysis, design, and drafting and encompass mechanical, chemical, environmental, aeronautical, architectural, civil/structural, electrical, and electronic engineering, as well as field services. RCM seeks out government contracts in most areas of its technical capacities. The company also offers temporary staffing for light industrial, clerical, and office positions, including specialty healthcare. With more than 65 offices in the United States and Canada RCM promotes itself as 'The Source of Smart Solutions.'

A Variant Early History

RCM Technologies began as an environmental technology company through the consolidation of small engineering firms in Los Angeles. The original entity, RCM Corporation, was formed in 1971 for the purpose of developing pollution control systems, such as the patented Clean Coal Technology Process. Preliminary testing of the process revealed that 99 percent of sulfur dioxide (SO₂) could be cleaned from the exhaust gases generated by power stations burning coal with a high sulfur content. RCM's trademarked Novaspar compound assisted removal of impurities from molten steel. The economic difficulties of the steel industry and later importation of cheap, foreign steel led RCM to halt research and development activities related to Novaspar in the early 1980s.

An initial public offering of stock in 1981 enabled RCM to broaden the company's services to temporary staffing of professional engineers and technical personnel. RCM Corporation adopted the name RCM Technologies to reflect the change in July 1981 and completed the acquisition of Intertec Design, Inc., of Camden, New Jersey, a month later. Through Intertec, RCM provided engineering, design, drafting, and other types of technical personnel to the aerospace, electronics, energy, chemical, and marine industries. With 25,000 resumés on file, Intertec engaged individuals at an hourly rate for contracts that averaged nine months, ranging from four months to over three years.

Intertec became the center of revenue growth as sales at RCM increased from under $1 million in 1980 to $6.7 million in 1982. More than 70 percent of revenues came from staffing government-related projects. Intertec had been providing engineers and technicians to the Sikorsky Aircraft Division of United Technologies since 1978. In the early 1980s the value of similar contracts increased along with government spending on national defense. In 1986 more than 56 percent of RCM's revenues came from United Technologies, which designed and built the Blackhawk and Seahawk helicopters for the U.S. military through Sikorsky Aircraft. In 1983 a $1.2 million contract involved technical writing services for revision of specification manuals and drawing of maintenance manuals. Contracts with Lockheed Aircraft also contributed significantly to revenues, at 15 percent in 1984 and 19.9 percent in 1985, with total RCM revenues at $14 million and $17.9 million, respectively.

Other government-related revenues derived from the U.S. Navy. Intertec Marine Corporation (IMC) formed in 1982 to provide ship repair technicians to the U.S. Navy, which had begun a major fleet overhaul and expansion. IMC opened a facility in Norfolk, Virginia, near the Navy's major marine facilities, where the company also provided technical personnel for the U.S. Coast Guard and foreign military contracts. In 1983 the company employed 275 ship repair technicians, but losses led RCM to discontinue IMC in 1984.

RCM formed the Marine and Mechanical Services Corporation (MMS) in 1983 to provide technicians for commercial marine operators as well as for asbestos removal and reinsulation. As ship repair service contracts ended in 1985, asbestos removal became the subsidiary's focus of operations. MMS obtained contracts from the U.S. Navy, the Veterans Administration, school districts in Pennsylvania and New Jersey, the Atlantic City Improvement Authority, and others. With 75 contracts valued at more than $2.5 million, MMS employed between 70 and 100 people, providing the government-required five-day training. By 1987 MMS began to reject business that did not offer an adequate markup over cost, however, and RCM discontinued operations after the fulfillment of active contracts in 1989.

Research and development of RCM's flue gas desulfurization process continued with testing at a demonstration facility completed in Camden, New Jersey, in 1985. The test model involved a modified coal-fired boiler with a heating capacity of two million BTUs per hour and the necessary emission control equipment including SO₂ detector tubes. RCM conducted the tests in accordance with the U.S. Environmental Protection Agency standards, and an independent research laboratory, the Franklin Research Center of Philadelphia, confirmed the results in February 1987.

The first test examined methodology; a second test involved a chemical analysis of sample gases taken from the entrance and exit of the test chamber and from the test stack. Chemical analysis showed that gas entering the system contained 160 parts per million of SO₂, while gas exiting the system contained 0.25 parts per billion, a 99 percent removal rate. Similar tests in June 1987 employed nitrogen dioxide (NO₂) detector tubes and found that the process removed 70 to 99 percent of NO₂ from emissions. RCM filed a patent application as tests indicated enhancements to the basic patent.

As the general public became more aware of the problems of acid rain, caused by high levels of SO₂ and NO₂ in the air, RCM viewed the technology as a potentially low-cost, efficient remedy. The best technology available to the electric utility industry involved costly equipment and proved insufficient for coal with a high sulfur content. In addition, the unique dry process eliminated land and water pollution--the sludge--generated from wet processes. In anticipation of stricter clean air regulations, RCM formed a new subsidiary in 1989, RCM Industries Corporation, to handle the commercial aspects of the new technology. The next stage involved building equipment for commercial use on a small scale.

Focusing on Commercial Staffing: 1990s

In the late 1980s the focus of operations at RCM began to shift away from government-related technical services to temporary staffing services as well as from engineering and technical services to commercial enterprises. Through a new division of Intertec, RCM expanded its services to temporary staffing for office, computer, retail, and manufacturing positions. In 1987 the company acquired small temporary agencies and renamed them IDI Temps. IDI's four offices in the Los Angeles area generated $2.5 million in revenues the first year in operation. By 1990 IDI grew to $11.8 million in revenues through the employment of 4,396 temporary personnel serving 835 clients. IDI clients included Kmart, Saks Fifth Avenue, Honeywell, IBM, Westinghouse, Columbia Pictures, Reebok International, Sony, Marriott, Sunkist, and other large corporations.

RCM diversified for economic stability and necessity as the federal government's reduction of defense-related spending motivated the shift toward commercial staffing services. By 1991 only 25 percent of RCM's revenues originated with contracts to businesses serving government needs, the amount equal to its business from United Technologies. The federal government had terminated the Blackhawk and Seahawk Helicopter program, but affected companies gained some reprieve with the 1991 Light Helicopter program. Indicative of the shift toward commercial staffing, contracts with Dow Corning, of Midland, Michigan, accounted for 12.9 percent of RCM revenues in 1985, but comprised 28 percent by the early 1990s. Offices in Milford, Connecticut; Midland, Michigan; Camden, New Jersey; Louisville, Kentucky; and five offices in the greater Los Angeles area engaged technical and engineering personnel on state and local government projects as well as commercial projects.

The economic recession brought about by reduction in government spending adversely affected overall business. Revenues at IDI Temps fell to $9.2 million, with 683 clients, in 1991, resulting in the closure of two offices. As insurance premiums skyrocketed to 168 percent, the company dissolved business relationships with clients found to have filed excessive worker compensation claims. IDI rebounded in 1992 with a $5 million contract. In the area of engineering staffing services, RCM sought to remain competitive by maintaining up-to-date skills and invested in equipment with capabilities for IBM's new Computer-Aided Design drafting system.

With a newly elected board of directors and new management, including Leon Kopyt as president, RCM sought to reshape company operations. RCM endured net losses through most of the 1980s and RCM Industries continued to absorb operating profits, with more than $600,000 spent on research and development each year since 1985. RCM employed the United Engineers and Constructors to conduct a comprehensive review of the clean air technology in 1992. The report stated that the process was not technically feasible or commercially viable on a large scale, so the board of directors voted to cease operations immediately. At the suggestion of Kopyt, RCM repositioned itself for entrance into professional staffing services for the growing computer and electronics industries. In addition to providing stability for a company now reliant on three clients for 75 percent of revenues, diversification into Information Technology (IT) offered a higher profit margin and higher growth potential.

Coming of Age in the Mid-1990s with Information Technology

RCM pursued its goal of expansion into IT staffing and services with existing resources as well as through acquisition. The company's strategy involved the purchase of several small engineering and IT staffing services with annual revenues from $5 million to $30 million. These companies were too small to become public entities, but wanted to grow. In addition, large competitors tended to ignore small companies as targets for acquisition, so RCM had less competition in pursuing acquisitions. This strategy enabled RCM to expand geographically with companies small enough to integrate easily into its corporate structure. RCM completed its first acquisition in December 1994 with Great Lakes Design, a professional engineering firm based in Grand Haven, Michigan, which accrued $3.9 million in annual revenues; RCM purchased the company for $200,000.

The two transactions that followed involved mergers with much larger companies. RCM merged with Cataract, Inc., a professional engineering company in Newtown, Pennsylvania, for $3.2 million in cash and stock and gained potentially $20.4 million in annual revenues through seven office locations. Cataract merged with RCM and then formed a new legal subsidiary, also named Cataract. In February 1996 RCM merged with The Consortium in a $6.5 million stock transaction. The Fairfield, New Jersey company operated five offices and counted 700 temporary employees, including general staffing, IT staffing, and staffing for the healthcare industry. The Consortium generated $26 million in revenues in 1995.

RCM experienced a realignment in shareholder ownership as two new large shareholders provided financial capital for further acquisitions. Limeport Investment LLC acquired 1.3 million shares off the open market and Heartland Advisors, Inc. acquired 1.4 million shares, together providing more than $2 million in capital. To attract more investors and bring the company's stock value in line with actual assets, RCM applied to the Securities and Exchange Commission for a 5-to-1 reverse stock split. RCM's stock valued at 0.875 cents per share in February 1996; the reversal changed the value to nearly $5 per share.

With the seven acquisitions that followed in 1996 and 1997, RCM expanded primarily into IT staffing services and geographic expansion occurred primarily in the East and the upper Midwest. Most companies acquired generated less than $10 million in annual revenues, with the exception of Camelot Contractors Limited of Manchester, New Hampshire, which garnered $16.2 million in 1996. The January 1997 acquisition of Programming Alternatives of Minnesota, Inc. yielded RCM a staff of IT consultants with crucial client-server skills. In addition, the acquisition of Programming Resources Unlimited, Inc. of Philadelphia brought such high-profile clients as CIGNA and Core States Bank.

Supported by a $50 million stock offering, expansion accelerated in 1998 with the acquisition of ten IT staffing and service companies in the East, upper Midwest, and California. Prominent acquisitions included Global Technology Solutions, Inc. of Sacramento, which provided IT personnel to large corporations, such as IBM, Bank of America, Walt Disney, Hewlett-Packard, and the State of California. Software Analysis & Management, Inc. of Orange, California, provided specialized IT services in software and system engineering through ten offices nationwide. That company's $20 million in revenues stemmed from customers in aerospace, satellite communications, and defense, including ballistic missiles.

RCM's strategy of growth entailed certain risks, which the company controlled through its agreements with new subsidiaries. RCM compensated for the risk of paying too much for a company by shifting some of the risk to the seller. Agreements required owners to remain with the company for two to three years, while a portion of the payment depended on achieving earnings goals. In addition, RCM completed integration of a newly acquired company within 90 days. RCM assumed control of administrative functions, including payroll, employee benefits, invoicing, hiring, and training. The acquired company had complete autonomy in improving sales and service as it gained access to RCM's database of contract opportunities nationwide. RCM integrated literature and marketing plans as the last step. Of the 30 acquisitions RCM completed between December 1994 and October 1999, the revenues of 23 companies ranged from $1 million to $10 million; the small size of these companies eased integration.

By the end of fiscal 1998 the composition of RCM's business had shifted dramatically. In 1995 general staffing services represented 51 percent of revenues and professional engineering the remaining 49 percent. In 1998 general staffing and specialty healthcare accounted for 12 percent and two percent of revenues, respectively, professional engineering accounted for 24 percent, and IT realized 62 percent of revenues. The hourly billing of services greatly increased as well. General staffing charged $8 to $18 per hour, specialty healthcare rates ranged from $40 to $70 per hour, engineering rates ranged from $50 to $75 per hour, and project management or consultation rates ranged from $110 to $155 per hour. Billing rates for IT ranged from $60 to $85 per hour for normal staffing and $125 to $185 per hour for project management or consultation.

Through acquisition RCM expanded its range of professional abilities and gained clients in public utilities, government agencies, manufacturing, finance, and Fortune 500 companies. In 1998 purchase orders, as well as occasional contracts for complex projects, originated from 53 branch offices in 21 states and generated revenues of $201.5 million and net income of $9.8 million. RCM began to integrate its subsidiaries under the RCM Technologies name for brand recognition as well as for simplicity on the company's new web site.

In 1999 RCM completed ten acquisitions that extended the company's reach into Texas, North Carolina, Alabama, and eastern Canada and strengthened markets already served. Revenues of newly acquired companies ranged from $1 million at Mu-Sigma Engineering Consultants of Toronto to $10 million at A.R.I.S. E. International of Houston. RCM planned to target future acquisitions in the range of $75 million to $125 million and to seek opportunities nationally and internationally, especially in Europe.

21st-Century Business Solutions

With the company's later acquisitions RCM expanded further into providing business solutions and more complex IT services. These capabilities included Enterprise Resources Planning implementation and post-implementation support, redesigning business processes, Enterprise Application Integration, and Lawson software implementation. Through the acquisition of Business Support Group of Michigan, Inc., RCM acquired the license to represent QAD software to mid-level clients in industrial electronics and the automotive industry. New clients included Denso Manufacturing, SPX Aftermarket Tool & Equipment Group, and EPI Printers. Although 30 percent of IT service revenues originated from business solutions services, RCM planned to increase that proportion to 50 percent with an emphasis on project management.

RCM's shift toward business solutions led to close collaboration with its customers on web site development. With Pace Global Laboratory Resources (Pace GLR) RCM created an Internet-based application that provided analytical services to companies with insufficient technological capacities, primarily companies in the industrial sector. Introduced in March 1999, the service connected customers who needed analytic capacity with corporate laboratories that possessed excess capacity or specialized capabilities. RCM completed a similar project a year later with LabSeek.com. RCM developed a web-based service to provide for the exchange of scientific measurements and knowledge.

RCM's strategy to provide business solutions extended to wireless communications through in-house development. In March 2000 the company formed the RCM Wireless Business Unit and opened a facility at Morristown, New Jersey, the Wireless Technology Competency Center. RCM planned to develop new applications to provide remote access to desktop tools, such as e-mail, contact lists, and calendars, via wireless, Internet-ready technology, including wireless telephones, Personal Digital Assistants, and two-way pagers. RCM planned to include management and operation of servers and web portals in its wireless integration services.

Principal Subsidiaries: Business Support Group of Michigan, Inc.; Camelot Contractors, Limited; Cataract, Inc.; Constellation Integration Services; Global Technology Solutions, Inc.; Encompass Business Solutions; Insight Consulting Group, Inc.; Intertec Design, Inc.; Northern Technical Services, Inc.; Procon, Inc.; Programming Alternatives of Minnesota, Inc.; Software Analysis & Management, Inc.; Solutions Through Data Processing, Inc.; The Consortium.

Principal Competitors: Alternative Resources Corporation; Metamor Worldwide, Inc.; Modis Professional Services, Inc.

Chronology

• Key Dates:

• 1971: Company incorporates.
• 1981: Expands into engineering and technical temporary staffing.
• 1987: Forms IDI Temps.
• 1990: Federal cuts in defense spending spur diversification.
• 1992: Clean air technology program is terminated.
• 1996: Growth through acquisition strategy is accelerated.
• 1998: Company integrates subsidiaries under RCM Technologies name.
• 2000: Wireless business solutions unit is established.