UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549

 

 

 

 

Form 10-K

 

ANNUAL REPORT

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934

 

 

Commission File Number: 0-32113

 

 

 

 

RESOURCES CONNECTION, INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

 

 

17101 Armstrong Avenue, Irvine, California 92614

(Address of principal executive offices) (Zip Code)

 

Registrant’s telephone number, including area code:

(714) 430-6400

 

 

 

 

Securities registered pursuant to Section 12(b) of the Act:

 

 

Securities registered pursuant to Section 12(g) of the Act:

None (Title of Class)

 

 

 

 

Indicate by check mark whether the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.  Yes þ     No o

 

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Act.  Yes o     No þ

 

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 þ     No o

 

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  Yes o     No o

 

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§ 229.405) 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.  o

 

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):

 

(Do not check if a smaller reporting company)

 

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).  Yes o     No þ

 

As of November 28, 2008, the approximate aggregate market value of common stock held by non-affiliates of the Registrant was $742,279,000 (based upon the closing price for shares of the Registrant’s common stock as reported by The Nasdaq Global Select Market). As of July 21, 2009, there were approximately 45,377,104 shares of common stock, $.01 par value, outstanding.

 

DOCUMENTS INCORPORATED BY REFERENCE

 

The registrant’s definitive proxy statement for the 2009 Annual Meeting of Stockholders, is incorporated by reference in Part III of this Form 10-K to the extent stated herein.

 

 

RESOURCES CONNECTION, INC.

 

TABLE OF CONTENTS

 

In this Report on Form 10-K, “Resources,” “Resources Connection,” “Resources Global Professionals,” “Resources Global,” “company,” “we,” “us” and “our” refer to the business of Resources Connection, Inc. and its subsidiaries. References in this Report on Form 10-K to “fiscal,” “year” or “fiscal year” refer to our fiscal years that consist of the 52- or 53-week period ending on the Saturday in May closest to May 31. The fiscal years ended May 30, 2009 and May 26, 2007 consisted of 52 weeks. The fiscal year ended May 31, 2008 consisted of 53 weeks.

 

This Report on Form 10-K, including information incorporated herein by reference, contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to expectations concerning matters that are not historical facts. Such forward-looking statements may be identified by words such as “anticipates,” “believes,” “can,” “continue,” “could,” “estimates,” “expects,” “intends,” “may,” “plans,” “potential,” “predicts,” “should,” or “will” or the negative of these terms or other comparable terminology.

 

Our actual results, levels of activity, performance or achievements and those of our industry may be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. These statements and all phases of our operations are subject to known and unknown risks, uncertainties and other factors, including those made in Item 1A of this Annual Report on Form 10-K, as well as our other reports filed with the Securities and Exchange Commission. Readers are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date of this Report. We do not intend, and undertake no obligation to update the forward-looking statements in this filing to reflect events or circumstances after the date of this Report or to reflect the occurrence of unanticipated events.

 

 

Overview

 

Resources Connection is an international professional services firm; its operating entities provide services under the name Resources Global Professionals (“Resources Global” or the “Company”). The Company provides experienced finance, accounting, risk management and internal audit, information management, human resources, supply chain management, actuarial and legal services professionals in support of client-led projects and initiatives. We assist our clients with discrete projects requiring specialized expertise in:

 

 

We were founded in June 1996 by a team at Deloitte & Touche LLP (“Deloitte & Touche”), led by our chief executive officer, Donald B. Murray, who was then a senior partner with Deloitte & Touche. Our founders created Resources Connection to capitalize on the increasing demand for high quality outsourced professional services. We operated as a part of Deloitte & Touche from our inception in June 1996 until April 1999. In April 1999, we completed a management-led buyout. In December 2000, we completed our initial public offering of common stock and began trading on the NASDAQ Stock Market. We currently trade on the NASDAQ Global Select Market. In January 2005, we announced the change of our operating entity name to Resources Global Professionals to better reflect the Company’s international capabilities.

 

Our business model combines the client service orientation and commitment to quality from our legacy as part of a Big Four accounting firm with the entrepreneurial culture of an innovative, dynamic company. We are positioned to take advantage of what we believe are two converging trends in the outsourced professional services industry: the increasing global demand for outsourced professional services by corporate clients and a supply of professionals interested in working in a non-traditional professional services firm. We believe our business model allows us to offer challenging yet flexible career opportunities, attract highly qualified, experienced professionals and, in turn, attract clients with challenging professional needs.

 

As of May 30, 2009, we employed 2,065 professional service consultants on assignment. Our consultants have professional experience in a wide range of industries and functional areas. Based upon an internal survey conducted in 2008, and completed by 64% of our then active consultants, 46% of our consultants are CPAs, 41% have advanced professional degrees, and the average years of professional experience is approximately 24. We offer our consultants careers that combine the flexibility of project-based work with many of the advantages of working for a traditional professional services firm.

 

We served a diverse base of more than 2,100 clients during fiscal 2009, ranging from large corporations to mid-sized companies to small entrepreneurial entities, in a broad range of industries. For example, our clients have

included 84 of the companies that have been in the Fortune 100 at one time or another. As of May 30, 2009, we served our clients through 52 offices in the United States and 30 offices abroad.

 

During our first three years of operations, our offices were located only in the United States. As the Company evolved, we have increased our presence in other regions around the world. During fiscal 2009, we acquired two companies with operations in Europe: Limbus Holding B.V. (“Limbus”), a Netherlands-based provider of risk, compliance and process improvement consultancy services to financial institutions and the public sector; and Kompetensslussen X-tern Personalfunktion AB (“Kompetensslussen”), a Sweden-based provider of human capital services. In fiscal 2009, we also purchased certain intangible assets of Xperianz, a Cincinnati-based provider of professional services to expand our presence in the Ohio Valley area. During fiscal 2008, we acquired two companies with operations in Europe: Compliance Solutions (UK), Ltd. (“Compliance Solutions”), a United Kingdom-based provider of regulatory compliance services to investment advisors, hedge funds, private equity and venture capital firms, insurance companies and other financial institutions; and Domenica B.V. (“Domenica”), a Netherlands-based provider of actuarial services to pension and life insurance companies. We also opened an office in Frankfurt, Germany in fiscal 2008 and opened offices in the United States in Tulsa, Oklahoma and Raleigh, North Carolina. While much of our growth in countries outside of the United States has resulted from the establishment of new Resources Global offices, we also completed a number of acquisitions prior to fiscal 2008 to build our presence and to serve our international clients around the world (including acquisitions in the Netherlands, Australia, Sweden and India). In response to the global economic slowdown experienced during fiscal 2009, we consolidated seven of our practice offices (four in the U.S., three internationally) reducing our total office count to 82.

 

We are an international company with offices in twenty countries. Revenue from the Company’s major geographic areas was as follows (in thousands):

 

 

We believe our distinctive culture is a valuable asset and is, in large part, due to our management team, which has extensive experience in the professional services industry. Most of our senior management and office managing directors have Big Four experience and an equity interest in our Company. This team has created a culture of professionalism that we believe fosters in our consultants a feeling of personal responsibility for, and pride in, client projects and enables us to deliver high-quality service to our clients.

 

Industry Background

 

Demand for Project Professional Services

 

Resources Global’s services cover a range of professional areas, with over 50% of revenues derived from accounting and finance-related services. The market for professional services is broad and fragmented and independent data on the size of the market is not readily available. We believe over the last decade that the market for professional services has evolved as a response to financial scandals and legislation passed following such scandals and that companies may be more willing to choose alternatives to traditional professional service providers. However, given the recent economic downturn experienced worldwide, companies are choosing to be cautious and to either defer, downsize or eliminate projects. As economies begin to recover, we believe Resources Global is positioned as a viable alternative to traditional accounting and consulting firms in numerous instances because, by using project professionals, companies can:

 

 

 

Typically, companies use a variety of alternatives to fill their project needs. Companies outsource entire projects to consulting firms; this provides them access to the expertise of the firm but often entails significant cost and less management control of the project. Companies also supplement their internal resources with employees from the Big Four accounting firms or other traditional professional services firms; however, these arrangements are on an ad hoc basis and have been increasingly limited by regulatory concerns focused on external auditor independence. Companies use temporary employees from traditional and Internet-based staffing firms, who may be less experienced or less qualified than employees from professional services firms. Finally, some companies rely solely on their own employees who may lack the requisite time, experience or skills.

 

Supply of Project Professionals

 

Based on discussions with our consultants, we believe that the number of professionals seeking to work on a project basis has historically increased due to a desire for:

 

 

The employment alternatives available to professionals may fulfill some, but not all, of an individual’s career objectives. A professional working for a Big Four firm or a consulting firm may receive challenging assignments and training, but may encounter a career path with less choice and less flexible hours, extensive travel and limited control over work engagements. Alternatively, a professional who works as an independent contractor faces the ongoing task of sourcing assignments and significant administrative burdens.

 

Resources Global Professionals’ Solution

 

We believe that Resources Global is positioned to capitalize on the confluence of the industry trends described above. We believe, based on discussions with our clients, that Resources Global provides clients seeking project professionals with high-quality services because we are able to combine all of the following:

 

 

Resources Global Professionals’ Strategy

 

Our Business Strategy

 

We are dedicated to providing highly qualified and experienced finance, accounting, risk management and internal audit, human capital, supply chain management, information management and legal services professionals to meet our clients’ project and interim professional services needs. Our objective is to be the leading provider of these project-based professional services. We have developed the following business strategies to achieve this objective:

 

 

 

Our Growth Strategy

 

Most of our growth since inception has been organic rather than through acquisition. We believe that we have significant opportunity for continued strong organic growth in our core business once the global economy begins to strengthen and, in addition, can grow through strategic acquisitions. In both our core and acquired businesses, key elements of our growth strategy include:

 

 

 

Consultants

 

We believe that an important component of our success has been our highly qualified and experienced consultants. As of May 30, 2009, we employed or contracted with 2,065 consultants on assignment. Our consultants have professional experience in a wide range of industries and functional areas. We provide our consultants with challenging work assignments, competitive compensation and benefits, and continuing education and training opportunities, while offering choice concerning work schedules and more control over choosing client engagements.

 

Almost all of our consultants in the United States are employees of Resources Global. We typically pay each consultant an hourly rate for each client service hour worked and, in some circumstances, limited administrative time, plus overtime premiums as required by law, and offer benefits, including: paid time off and holidays; bonus programs; group medical, dental and vision programs, each with an approximate 30-50% contribution by the consultant; a basic term life insurance program; a 401(k) retirement plan with a discretionary company match; and professional development and career training. Typically, a consultant must work a threshold number of hours to be eligible for all of these benefits. In addition, we offer our consultants the ability to participate in the Company’s Employee Stock Purchase Plan, which enables them to purchase shares of the Company’s stock at a discount. We intend to maintain competitive compensation and benefit programs.

 

Internationally, our consultants are a mix between employees and independent contractors. Independent contractor arrangements are more common abroad than in the United States due to the labor laws, tax regulations and customs of the international markets we serve. A few international practices also utilize a partial “bench model”; that is, certain consultants are paid a weekly salary rather than for each client service hour worked.

 

Clients

 

We provide our services to a diverse client base in a broad range of industries. In fiscal 2009, we served more than 2,100 clients. Our revenues are not concentrated with any particular client or clients, or within any particular industry. In fiscal 2009, our largest client accounted for less than 3% of our revenue and our 10 largest clients accounted for approximately 16% of our revenues.

 

The clients listed below represent the geographic and industry diversity of our client base in fiscal 2009.

 

Services and Products

 

Resources Global was founded with a business model and operating philosophy rooted in the support of client-led projects and initiatives. Partnering with business leaders, we help clients implement internal initiatives. Often, we deliver our services to clients across multiple service lines: Finance and Accounting, Information Management, Human Capital, Legal & Regulatory, Internal Audit and Risk Management, Actuarial Services and Supply Chain Management.

 

Finance and Accounting

 

Our Finance and Accounting services encompass accounting operations, financial reporting, internal controls, financial analyses and business transactions. Clients utilize our services to bring accomplished talent to bear on change initiatives as well as day-to-day operational issues; we provide specialized skills and then transfer knowledge to clients in order to help them leverage their own personnel. Resources Global helps organizations to manage peak workload periods, add specific skill sets to certain projects, or have access to full project teams for a specific initiative.

 

Project examples include:

 

 

In addition, we may assist with merger and acquisition projects, including divestitures and carve outs. Our finance and accounting consultants assist with the following functions for clients involved in divestitures and carve outs:

 

 

Sample Engagement — IFRS Impact Analysis:  To determine the potential enterprise-wide impact of adopting International Financial Reporting Standards (“IFRS”), a global consumer product company engaged Resources to perform an IFRS enterprise impact analysis.

 

Resources consultants teamed with client personnel and developed an IFRS implementation roadmap, which included assessment tools to analyze the impact of individual accounting standards comprising IFRS and an IFRS conversion timetable.

 

Sample Engagement — Transition to IFRS:  A Canadian public company with a complex organizational structure, including international operations, engaged Resources to assist with its transition from United States generally accepted accounting principles (“GAAP”) and Canadian GAAP to IFRS. In April 2008, the Canadian Accounting Standards Board adopted IFRS in Canada, with a mandatory transition date for public enterprises effective for fiscal years beginning on or after January 1, 2011.

The Resources project team assisted the client with a three-phase transition methodology. In phase I, the diagnostic phase, the team developed a timeline for the transition process, identifying major milestones and deliverables required and a preliminary project plan transition overlay. In addition, the team performed a diagnostic analysis of high-level issues expected to develop from the transition and prepared mock financial statements (using the Company’s 2007 annual report) adjusted to reflect the application of IFRS.

 

In future phases, the team will develop a comprehensive list of detailed steps necessary to prepare the first complete IFRS financial statements and will document issues and solutions for integrating changes necessary in the Company’s underlying financial systems and processes.

 

Sample Engagement — Development of Single Finance System for Joint Venture:  After a joint venture was formed between two aerospace and defense companies, Resources Global was engaged to partner with management to rationalize and integrate the joint venture’s financial and operational business processes. Resources Global consultants, with backgrounds in accounting, finance, information technology and human resources provided project management and technical support functions during the joint venture’s business integration process.

 

Sample Engagement — Conversion to Bank Holding Company:  Faced with a difficult economic environment, a Fortune 500 commercial lending company converted to a bank holding company in order to receive financial assistance from the United States Government. In addition to providing initial support to assist in the formation of a bank holding company, Resources Global was engaged to provide change management project support in the regulatory and financial reporting areas of the Company. Resources consultants with backgrounds in financial reporting, risk management, information technology and United States regulatory reporting assisted the organization to meet the extensive reporting requirements of the newly formed bank holding company while also working to rationalize the organizational structure of the business.

 

Information Management

 

Our Information Management practice provides planning and execution support for designing and implementing project management offices, and for implementing and optimizing system initiatives related to: Enterprise Resource Planning (“ERP”) systems; strategic “front-of-the-house systems”; human resource information systems; disaster recovery and business continuity; core accounting and cost systems; financial reporting systems and business analysis.

 

Our Information Management consultants work under the client’s direction on a variety of projects related to, among other things:

 

 

Sample Engagement — SAP Implementation:  To help ensure its business readiness and a successful go-live, a large apparel business engaged Resources Global to provide project management support for its SAP initiative. Initially, our SAP consultants with finance and compliance expertise:

 

 

Subsequent to the initial engagement, the company engaged Resources Global to replace the incumbent global consulting firm to provide post go-live support, including:

 

 

Sample Engagement — Oracle Project Management:  As part of its growth strategy, a global professional services firm needed consistent, aligned and streamlined processes, systems and reporting. The company was also looking to optimize their global use of Oracle while leveraging its existing design to:

 

 

Resources Global was engaged to serve as the Oracle project lead. The role required the team to:

 

 

Human Capital

 

Consultants in our Human Capital practice apply project management and business analysis skills to help solve the human resource aspects of business problems while working under the client’s direction as members of the project team. The two primary areas of our Human Capital practice are change management and human resources operations and technology.

 

Change Management:  To achieve the desired business outcome, our Human Capital professionals with change management experience assist with the development and implementation of the process, tools and techniques that help clients manage the people side of business change.

 

More specifically, our professionals help our clients via:

 

 

We help manage change resulting from acquisitions, mergers, reorganizations, system implementations, new legislative requirements (Sarbanes, Basel II, HIPAA, etc.), downsizing or any management initiative or reform effort.

 

Human Resources (“HR”) Operations and Technology:  Resources Global’s Human Capital professionals, with backgrounds in HR operations and technology, possess the business acumen and technical skills to bring a blend of expertise to various projects, including:

 

Organizational Development

 

 

Human Resources Information Systems

 

 

HR Operations

 

 

Sample Engagement-Change Management:  As part of its information technology and organization transformation initiatives, a large healthcare organization engaged Resources Global human capital consultants to provide change management expertise. Specifically, Resources Global worked with senior management to:

 

 

Sample Engagement — Restructuring Assistance:  Subsequent to assisting a global company with a large financial restatement, Resources Global evaluated the human resource challenges related to the reorganization of its international controllers’ group. During this engagement, we assisted the company with:

 

 

Sample Engagement — Assistance with Managing Growth:  After completing a series of strategic acquisitions, a large education company identified the need to develop an internal and external communication plan, create a new enterprise-wide compensation structure, and adopt a more cost effective consumer-driven health care program for all employees. To help facilitate these initiatives, the company engaged Resources Global human capital professionals to provide project management and technical professionals.

 

Working with the company’s senior management, Resources Global consultants helped execute a multi-phased implementation plan to realign job roles and responsibilities, redesign the company’s compensation strategy and improve internal and external communications. In addition, Resources Global consultants provided guidance related to the redesign of the health care program, including program pricing and roll out to the employees.

 

Legal & Regulatory

 

Our Legal & Regulatory practice helps clients drive and execute their legal, risk management and regulatory initiatives. The consultants in this group have significant experience working at the nation’s top law firms and companies. Our legal and regulatory consultants work at our clients’ direction to support both routine and sophisticated initiatives and projects, as well as to augment their staff. A few examples of areas in which we serve our clients include:

 

 

Sample Engagement — Bankruptcy Support:  A publicly traded global manufacturer of specialty chemicals and polymer products filed a voluntary petition for relief under Chapter 11 of the United States Bankruptcy Code. In connection with the bankruptcy filing, our client needed to engage in a comprehensive review and analysis of its current commercial and corporate contracts. Given the significant number of agreements to be reviewed, and in order to meet the required deadlines, our client asked for additional support to supplement its in-house legal team and outside counsel.

 

Resources provided a team of five attorney consultants with varied subject matter expertise, including extensive experience in bankruptcy, sophisticated commercial transactions, commercial finance and chemical industry experience. Our consultants worked with our client’s in-house legal team to review a significant volume of contracts and assist in the preparation of a schedule of executory contracts. In addition, we assisted with streamlining various corporate governance processes.

Sample Engagement — Class Action Litigation Support:  One of the world’s largest publicly traded food and beverage companies was facing a substantial class action lawsuit. During the discovery phase, the company was served with various discovery requests, including certain requests for production of documents. Given the extensive breadth and scope of these requests, the number of responsive documents was substantial. In order to respond to the discovery requests in a timely and cost effective manner, our client requested that Resources partner with its outside counsel, a large international law firm.

 

We provided a team of six attorney consultants to work closely with our client’s outside counsel in the review of documents for responsiveness, confidentiality and privilege.

 

Resources Audit Solutions (“RAS”): Corporate Governance, Risk Management, Internal Audit and Sarbanes Compliance Services

 

Through our RAS practice, we assist clients with a variety of governance, risk management, internal audit, and compliance initiatives. The professionals in our RAS practice have an average of 18 years of experience in operations, controllership and internal and external audit and can serve our clients in any number of roles required — from program manager to team member. In addition to having helped more than 2,000 clients worldwide in the areas of audit, risk and compliance, we are able to draw on Resources’ other practice areas to bring the required business expertise to the engagement. Specific types of engagements include:

 

 

 

 

 

 

 

 

 

Sample Engagement — Sarbanes Compliance:  A large U.S. government agency engaged Resources Global to assist with its effort to comply with certain Sarbanes requirements. Resources Global consultants are providing project management, quality assurance and testing expertise to this agency at several locations in which it operates. In its project management support function, Resources Global assists in the coordination of agency personnel and other third parties which are part of the Sarbanes compliance efforts.

 

Sample Engagement — Internal Audit/Sarbanes Compliance:  Resources Global has an ongoing relationship with a Fortune 200 diversified company, assisting it in the areas of internal audit and SOX compliance.

 

Highlights of this relationship include:

 

 

Sample Engagement-Contract Review, Remediation, and Process Improvement:  We were engaged to assist a Global 100 company with determining and documenting the full extent of non-compliance with agreements with wholesalers, resellers and dealers. We determined that the company’s contract generation process had inadequate controls and that many agreements were drafted outside of the normal approval process. The initial scope of the project grew from a review of 5,000 contracts to over 25,000 as the lack of fundamental controls became apparent.

 

During and after the contract review process, our Resources professionals helped the client institute efficient but effective controls around contract administration and to rebuild its contract database and integrate it into the company’s master database system.

 

Supply Chain Management

 

Our Supply Chain Management practice assists clients in the planning, maintenance and troubleshooting of complex supply chain systems. Our consultants work as part of client teams to reduce the total cost of ownership, improve business performance and produce results. Specifically, our services include:

 

 

 

Sample Engagement — Strategic Sourcing Implementation:  A major arts and crafts retailer believed that improved management of expenditures for furniture, fixtures, office equipment and office supplies could significantly increase the company’s profitability. Resources Global consultants were engaged to:

 

 

Sample Engagement — End-to-End Current State Assessment.  A Resources team of supply chain consultants helped a large United States defense contractor complete a supply chain management current state assessment for one of their large business units. The team reviewed and assessed the organization’s end-to-end supply chain function, including:

 

 

policyIQ

 

Delivered via the web, policyIQ is our proprietary content management product for documenting, managing and communicating all types of business information, including policies and procedures, Sarbanes documentation, training documentation and other types of business content. Project teams, departments and entire companies use policyIQ in place of shared directories, e-mail and intranet sites to more effectively manage different types of content including:

 

 

Operations

 

We generally provide our professional services to clients at a local level, with the oversight of our regional managing directors and consultation of our corporate management team. The managing director, client service director(s) and recruiting director(s) in each office are responsible for initiating client relationships, identifying consultants specifically skilled to perform client projects, ensuring client and consultant satisfaction throughout engagements and maintaining client relationships post-engagement. Throughout this process, the corporate management team and regional managing directors are available to consult with the managing director with respect to client services.

 

Our offices are operated in a decentralized, entrepreneurial manner. The managing directors of our offices 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, pricing and hiring. We believe that a substantial portion of the buying decisions made by our clients are made on a local or regional basis and that our offices most often compete with other professional services providers on a local or regional basis. Because our managing directors are in the best position to understand the local and regional outsourced professional services market and because clients often prefer local relationships, we believe that a decentralized operating environment maximizes operating performance and contributes to employee and client satisfaction.

 

We believe that our ability to successfully deliver professional services to clients is dependent on our managing directors working together as a collegial and collaborative team, at times working jointly on client projects. To build a sense of team effort and increase camaraderie among our managing directors, we have an incentive program for our office management that awards annual bonuses based on both the performance of the Company and the performance of the individual’s particular office. In addition, we believe many members of our office management own equity in our Company. We also have a new managing director program whereby new managing directors attend a regularly scheduled series of seminars taught by experienced managing directors and other senior management personnel. This program allows the veteran managing directors to share their success stories, foster the culture of the Company with the new managing directors and review specific client and consultant development programs. We believe these team-based practices enable us to better serve clients who prefer a centrally organized service approach.

 

From our corporate headquarters in Irvine, California, we provide our North American and certain of our international offices with centralized administrative, marketing, finance, human resources, information technology, legal and real estate support. Our financial reporting is centralized in our corporate service center. This center also handles billing, accounts payable and collections, and administers human resources services including employee compensation and benefits administration. During fiscal 2006, we established a service center in our Utrecht, Netherlands office to provide centralized finance, human resources, information technology, payroll and legal support to our European offices. In addition, in the United States, Canada and Mexico, we have a corporate networked information technology platform with centralized financial reporting capabilities and a front office client management system. These centralized functions minimize the administrative burdens on our office management and allow them to spend more time focused on client and consultant development.

 

Business Development

 

Our business development initiatives are composed of:

 

 

Our business development efforts are driven by the networking and sales efforts of our management. The managing directors and client service directors in our offices develop a list of potential clients and key existing clients. In addition, the directors are assisted by management professionals focused on business development efforts

on a national basis. These business development professionals, teamed with the managing directors and client service group, are responsible for initiating and fostering relationships with the senior management of our targeted client companies. These local efforts are supplemented with national marketing assistance. We believe that these efforts have been effective in generating incremental revenues from existing clients and developing new client relationships.

 

Our brand marketing initiatives help develop Resources Global’s image in the markets we serve. Although we have reduced media advertising at this time in response to the economic slowdown, our brand is reinforced by our professionally designed website, brochures and pamphlets, direct mail and public relations efforts. We believe that our branding initiatives coupled with our high-quality client service help to differentiate us from our competitors and to establish Resources Global as a credible and reputable global professional services firm.

 

Our marketing group develops our direct mail campaigns to focus on our targeted client and consultant populations. These campaigns are intended to support our branding, sales and marketing, and consultant hiring initiatives.

 

Competition

 

We operate in a competitive, fragmented market and compete for clients and consultants with a variety of organizations that offer similar services. Our principal competitors include:

 

 

We compete for clients on the basis of the quality of professionals, the timely availability of professionals with requisite skills, the scope and price of services, and the geographic reach of services. We believe that our attractive value proposition, consisting of our highly qualified consultants, relationship-oriented approach and professional culture, enables us to differentiate ourselves from our competitors. Although we believe we compete favorably with our competitors, many of our competitors have significantly greater financial resources, generate greater revenues and have greater name recognition than we do.

 

Employees

 

As of May 30, 2009, we had a total of 2,852 employees, including 787 corporate and local office employees and 2,065 consultants. Our employees are not covered by any collective bargaining agreements.

 

Available Information

 

The Company’s principal executive offices are located at 17101 Armstrong Avenue, Irvine, California 92614. The Company’s telephone number is (714) 430-6400 and its website address is http://www.resourcesglobal.com. The information set forth in the website does not constitute part of this Report on Form 10-K. We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 with the SEC electronically.

 

A free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports may be obtained as soon as reasonably practicable after we file such reports with the SEC on our website at http://www.resourcesglobal.com.

 

You should carefully consider the risks described below before making a decision to buy shares of our common stock. The order of the risks is not an indication of their relative weight or importance. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties, including those risks set forth in “Management’s Discussion and Analysis of Financial Condition and Results of Operations”, may also adversely impact and impair our business. If any of the following risks actually occur, our business could be harmed. In that case, the trading price of our common stock could decline, and you might lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this Report on Form 10-K, including our financial statements and the related notes.

 

A continuation of the economic downturn or change in the use of outsourced professional services consultants could adversely affect our business.

 

During fiscal 2008 and continuing throughout fiscal 2009, the United States economy deteriorated significantly, resulting in a reduction in our revenue as clients have delayed, down-sized or cancelled initiatives that required the use of professional services. In addition, during fiscal 2009 several European and Asia Pacific countries reported significant contraction in their economies. Continued deterioration of the United States and international economies, coupled with tight credit markets, could result in a further reduction in the demand for our services and adversely affect our business in the future. In addition, the use of professional services consultants on a project-by- project basis could decline for non-economic reasons. In the event of a reduction in the demand for our consultants, our financial results would suffer.

 

The economic downturn may also affect our allowance for doubtful accounts. Our estimate of losses resulting from our clients’ failure to make required payments for services rendered has historically been within our expectations and the provisions established. However, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past, especially given the deterioration in the global economy. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and cash flows and additional allowances may be required. These additional allowances could materially affect the Company’s future financial results.

 

In addition, we are required to periodically assess the recoverability of certain assets, including deferred tax assets and long-lived assets. Continued softening of the United States economy and the downturn in international economies could adversely affect our evaluation of the recoverability of such assets, requiring us to record additional tax valuation allowances or consider long-lived asset impairment.

 

The market for professional services is highly competitive, and if we are unable to compete effectively against our competitors, our business and operating results could be adversely affected.

 

We operate in a competitive, fragmented market, and we compete for clients and consultants with a variety of organizations that offer similar services. The competition is likely to increase in the future due to the expected growth of the market and the relatively few barriers to entry. Our principal competitors include:

 

 

We cannot assure you that we will be able to compete effectively against existing or future competitors. Many of our competitors have significantly greater financial resources, greater revenues and greater name recognition, which may afford them an advantage in attracting and retaining clients and consultants. In addition, our competitors may be able to respond more quickly to changes in companies’ needs and developments in the professional services industry.

Our business depends upon our ability to secure new projects from clients and, therefore, we could be adversely affected if we fail to do so.

 

We do not have long-term agreements with our clients for the provision of services. The success of our business is dependent on our ability to secure new projects from clients. For example, if we are unable to secure new client projects because of improvements in our competitors’ service offerings, or because of a change in government regulatory requirements, or because of an economic downturn decreasing the demand for outsourced professional services, our business is likely to be materially adversely affected. New impediments to our ability to secure projects from clients may develop over time, such as the increasing use by large clients of in-house procurement groups that manage their relationship with service providers.

 

We may be legally liable for damages resulting from the performance of projects by our consultants or for our clients’ mistreatment of our consultants.

 

Many of our engagements with our clients involve projects that are critical to our clients’ businesses. If we fail to meet our contractual obligations, we could be subject to legal liability or damage to our reputation, which could adversely affect our business, operating results and financial condition. While we have not been subject to a legal claim filed by a client, it remains possible, because of the nature of our business, that we will be sued in the future. Claims brought against us could have a serious negative effect on our reputation and on our business, financial condition and results of operations.

 

Because we are in the business of placing our consultants in the workplaces of other companies, we are subject to possible claims by our consultants alleging discrimination, sexual harassment, negligence and other similar activities by our clients. We may also be subject to similar claims from our clients based on activities by our consultants. The cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain consultants and clients.

 

We may not be able to grow our business, manage our growth or sustain our current business.

 

Historically, we have grown by opening new offices and by increasing the volume of services provided through existing offices. During the recent economic slow-down, our revenue in the second, third and fourth quarters of fiscal 2009 declined compared to the comparable prior year periods. There can be no assurance that we will be able to maintain or expand our market presence in our current locations or to successfully enter other markets or locations. Our ability to continue to grow our business will depend upon a number of factors, including our ability to:

 

 

Even if we are able to resume growth in our revenue, the growth will result in new and increased responsibilities for our management as well as increased demands on our internal systems, procedures and controls, and our administrative, financial, marketing and other resources. Failure to adequately respond to these new responsibilities and demands may adversely affect our business, financial condition and results of operation.

The increase in our international activities will expose us to additional operational challenges that we might not otherwise face.

 

As we increase our international activities, we will have to confront and manage a number of risks and expenses that we would not face if we conducted our operations solely in the United States. Any of these risks or expenses could cause a material negative effect on our operating results. These risks and expenses include:

 

 

We have acquired, and may continue to acquire, companies, and these acquisitions could disrupt our business.

 

We have acquired several companies and we may continue to acquire companies in the future. Entering into an acquisition entails many risks, any of which could harm our business, including:

 

 

We must provide our clients with highly qualified and experienced consultants, and the loss of a significant number of our consultants, or an inability to attract and retain new consultants, could adversely affect our business and operating results.

 

Our business involves the delivery of professional services, and our success depends on our ability to provide our clients with highly qualified and experienced consultants who possess the skills and experience necessary to satisfy their needs. At various times, such professionals can be in great demand, particularly in certain geographic areas. Our ability to attract and retain consultants with the requisite experience and skills depends on several factors including, but not limited to, our ability to:

 

 

We cannot assure you that we will be successful in accomplishing any of these factors and, even if we are, that we will be successful in attracting and retaining the number of highly qualified and experienced consultants necessary to maintain and grow our business.

 

Decreased effectiveness of equity compensation could adversely affect our ability to attract and retain employees.

 

We have historically used stock options as a key component of our employee compensation program in order to align employees’ interests with the interests of our stockholders, encourage employee retention and provide competitive compensation packages. As a result of our adoption of Statement of Financial Accounting Standards No. 123 (revised), “Share-Based Payment” (“SFAS 123(R)”) in the first quarter of fiscal 2007, the use of stock options and other stock-based awards to attract and retain employees has become more limited due to the possible impact on our results of operations. This development could make it more difficult to attract, retain and motivate employees. In addition, many of our options outstanding are priced at more than the current per share market valuation of our stock, further reducing existing option grants as an incentive to retain employees.

 

Our computer hardware and software and telecommunications systems are susceptible to damage and interruption.

 

The management of our business is aided by the uninterrupted operation of our computer and telecommunication systems. These systems are vulnerable to security breaches, natural disasters, computer viruses, or other interruptions or damage stemming from power outages, equipment failure or unintended usage by employees. System-wide or local failures of these systems could have a material adverse effect on our business, financial condition, results of operations or cash flows.

 

Our cash and short-term investments are subject to economic risk.

 

The Company invests its cash, cash equivalents and short-term investments in United States treasuries and government agencies, bank deposits, money market funds, commercial paper and certificates of deposit. Certain of these investments are subject to general credit, liquidity, market and interest rate risks. In the event these risks caused a decline in value of any of the Company’s investments, it could adversely affect the Company’s financial condition.

 

Our business could suffer if we lose the services of one or more key members of our senior management.

 

Our future success depends upon the continued employment of Donald B. Murray, our chief executive officer. The departure of Mr. Murray or other members of our senior management team could significantly disrupt our operations.

 

Our quarterly financial results may be subject to significant fluctuations that may increase the volatility of our stock price.

 

Our results of operations could vary significantly from quarter to quarter. Factors that could affect our quarterly operating results include:

 

 

 

Due to these factors, we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance. It is possible that in some future periods, our results of operations may be below the expectations of investors. If this occurs, the price of our common stock could decline.

 

If our internal control over financial reporting does not comply with the requirements of Sarbanes, our business and stock price could be adversely affected.

 

Section 404 of Sarbanes requires us to evaluate periodically the effectiveness of our internal control over financial reporting, and to include a management report assessing the effectiveness of our internal controls as of the end of each fiscal year. Our management report on internal controls is contained in this Report on Form 10-K. Section 404 also requires our independent registered public accountant to report on our internal control over financial reporting.

 

Our management does not expect that our internal control over financial reporting will prevent all errors or acts of fraud. A control system, no matter how well designed and operated, can provide only reasonable, not absolute, assurance that the control system’s objectives will be met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, involving us have been, or will be, detected. These inherent limitations include the realities that judgments in decision-making can be faulty and that breakdowns can occur because of simple errors or mistakes. Controls can also be circumvented by individual acts of a person, or by collusion among two or more people, or by management override of controls. The design of any system of controls is based in part on certain assumptions about the likelihood of future events, and we cannot assure you that any design will succeed in achieving its stated goals under all potential future conditions. Over time, controls may become inadequate because of changes in conditions or deterioration in the degree of compliance with policies and procedures. Because of the inherent limitations in a cost-effective control system, misstatements due to errors or fraudulent acts may occur and not be detected.

 

Although our management has determined, and our independent registered public accountant has attested, that internal control over financial reporting was effective as of May 30, 2009, we cannot assure you that we or our independent registered public accountant will not identify a material weakness in our internal controls in the future. A material weakness in our internal control over financial reporting may require management and our independent registered public accountant to evaluate our internal controls as ineffective. If our internal control over financial reporting is not considered adequate, we may experience a loss of public confidence, which could have an adverse effect on our business and our stock price. Additionally, if our internal control over financial reporting otherwise fails to comply with the requirements of Sarbanes, our business and stock price could be adversely affected.

We may be subject to laws and regulations that impose difficult and costly compliance requirements and subject us to potential liability and the loss of clients.

 

In connection with providing services to clients in certain regulated industries, such as the gaming and energy industries, we are subject to industry-specific regulations, including licensing and reporting requirements. Complying with these requirements is costly and, if we fail to comply, we could be prevented from rendering services to clients in those industries in the future. Additionally, changes in these requirements, or in other laws applicable to us, in the future could increase our costs of compliance.

 

In addition, we may face challenges from certain state regulatory bodies governing the provision of certain professional services, like legal services or audit services. The imposition of such regulations could require additional financial and operational burdens on our business.

 

It may be difficult for a third party to acquire our Company, and this could depress our stock price.

 

Delaware corporate law and our amended and restated certificate of incorporation and bylaws contain provisions that could delay, defer or prevent a change of control of our Company or our management. These provisions could also discourage proxy contests and make it difficult for you and other stockholders to elect directors and take other corporate actions. As a result, these provisions could limit the price that future investors are willing to pay for your shares. These provisions:

 

 

The Company’s board of directors has adopted a stockholder rights plan, which is described further in Note — 11 Stockholders’ Equity of the “Notes to Consolidated Financial Statements” included in this Report on Form 10-K. The existence of this rights plan may also have the effect of delaying, deferring or preventing a change of control of our Company or our management by deterring acquisitions of our stock not approved by our board of directors.

We are required to recognize compensation expense related to employee stock options and our employee stock purchase plan. There is no assurance that the expense that we are required to recognize measures accurately the value of our share-based payment awards, and the recognition of this expense could cause the trading price of our common stock to decline.

 

Effective as of the beginning of the first quarter of fiscal 2007, we were required to adopt SFAS 123(R), which requires the measurement and recognition of compensation expense for all stock-based compensation based on estimated values. Thus, operating results beginning with fiscal 2007 contain a non-cash charge for stock-based compensation expense related to employee stock options and our employee stock purchase plan. The application of SFAS 123 (R) generally requires the use of an option-pricing model to determine the value of share-based payment awards. This determination of value is affected by our stock price as well as assumptions regarding a number of highly complex and subjective variables. These variables include, but are not limited to, our expected stock price volatility over the term of the awards, and actual and projected employee stock option exercise behaviors. Option-pricing models were developed for use in estimating the value of traded options that have no vesting restrictions and are fully transferable. Because our employee stock options have certain characteristics that are significantly different from traded options, and because changes in the subjective assumptions can materially affect the estimated value, in management’s opinion the existing valuation models may not provide an accurate measure of the value of our employee stock options. Although the value of employee stock options is determined in accordance with SFAS 123(R) and Staff Accounting Bulletin No. 107 using an option-pricing model, that value may not be indicative of the fair value observed in a willing buyer/willing seller market transaction.

 

As a result of the adoption of SFAS 123(R), our earnings are lower than they would have been had we not been required to adopt SFAS 123(R). There also is variability in our net income due to the timing of the exercise of options that trigger disqualifying dispositions which impact our tax provision. This will continue to be the case for future periods. We cannot predict the effect that this adverse impact on our reported operating results will have on the trading price of our common stock.

 

We may be unable to adequately protect our intellectual property rights, including our brand name. If we fail to adequately protect our intellectual property rights, the value of such rights may diminish and our results of operations and financial condition may be adversely affected.

 

We believe that establishing, maintaining and enhancing the Resources Global Professionals brand name is essential to our business. We have applied for United States and foreign registrations on this service mark. We have previously obtained United States registrations on our Resources Connection service mark and puzzle piece logo, Registration No. 2,516,522 registered December 11, 2001; No. 2,524,226 registered January 1, 2002; and No. 2,613,873, registered September 3, 2002 as well as certain foreign registrations. We had been aware from time to time of other companies using the name “Resources Connection” or some variation thereof and this contributed to our decision to adopt the operating company name of Resources Global Professionals. We obtained United States registration on our Resources Global Professionals service mark, Registration No. 3,298,841 registered September 25, 2007. However, our rights to this service mark are not currently protected in some of our foreign registrations, and there is no guarantee that any of our pending applications for such registration (or any appeals thereof or future applications) will be successful. Although we are not aware of other companies using the name “Resources Global Professionals” at this time, there could be potential trade name or service mark infringement claims brought against us by the users of these similar names and marks and those users may have service mark rights that are senior to ours. If these claims were successful, we could be forced to cease using the service mark “Resources Global Professionals” even if an infringement claim is not brought against us. It is also possible that our competitors or others will adopt service names similar to ours or that our clients will be confused by another company using a name, service mark or trademark similar to ours, thereby impeding our ability to build brand identity. We cannot assure you that our business would not be adversely affected if confusion did occur or if we were required to change our name.

 

 

Not applicable.

 

As of May 30, 2009, we maintained 52 domestic offices, all under operating lease agreements (except for the Irvine, California location), in the following metropolitan areas:

 

 

As of May 30, 2009, we maintained 30 international offices under operating lease agreements, located in the following cities and countries:

 

 

Our corporate offices are located in Irvine, California. We own an approximately 56,800 square foot office building in Irvine, California, of which we occupy approximately 24,000 square feet. Approximately 20,800 square feet is leased to independent third parties, with the remainder offered for lease.

 

 

We are not currently subject to any material legal proceedings; however, we are a party to various legal proceedings arising in the ordinary course of our business.

 

 

No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2009.

 

 

Price Range of Common Stock

 

Our common stock has traded on the NASDAQ Global Select Market under the symbol “RECN” since December 15, 2000. Prior to that time, there was no public market for our common stock. The approximate number of holders of record of our common stock as of July 10, 2009 was 41 (a holder of record is the name of an individual or entity that an issuer carries in its records as the registered holder (not necessarily the beneficial owner) of the issuer’s securities).

 

The following table sets forth the range of high and low closing sales prices reported on the NASDAQ Global Select Market for our common stock for the periods indicated.

 

 

Dividend Policy

 

We have historically not declared or paid cash dividends on our capital stock. However, on July 11, 2007, our board of directors approved the payment of a special cash dividend of $1.25 per share of common stock, payable on August 21, 2007 to stockholders of record on August 8, 2007. We periodically reevaluate the need for a special cash dividend or a regular cash dividend policy. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements, general business condition, contractual restrictions contained in our credit agreement and other agreements, and other factors deemed relevant by our board of directors.

 

Issuances of Unregistered Securities

 

None.

Issuer Purchases of Equity Securities

 

In July 2007, our board of directors approved a new stock repurchase program, authorizing the purchase, at the discretion of the Company’s senior executives, of our common stock for an aggregate dollar limit not to exceed $150 million. The table below provides information regarding our stock repurchases made during the fourth quarter of fiscal 2009 under our stock repurchase program.

 

Performance Graph

 

Set forth below is a line graph comparing the annual percentage change in the cumulative total return to the holders of our common stock with the cumulative total return of the Russell 2000 Indexes, and companies classified under Standard Industry Codes as 8742-Management Consulting Services, and 8748-Business Consulting Services for the period commencing May 29, 2004 and ending on May 30, 2009. The graph assumes $100 was invested on May 29, 2004, in our common stock and in each index (based on prices from the close of trading on May 29, 2004), and that all dividends are reinvested. Stockholder returns over the indicated period may not be indicative of future stockholder returns.

 

The information contained in the performance graph shall not be deemed to be “soliciting material” or to be “filed” with the SEC, nor shall such information be incorporated by reference into any future filing under the Securities Act of 1933 or the Securities Exchange Act of 1934, except to the extent that the Company specifically incorporates it by reference into such filing.

 

COMPARISON OF 5-YEAR CUMULATIVE TOTAL RETURN
AMONG RESOURCES CONNECTION,
RUSSELL 2000 AND SIC CODE INDEX

 

 

ASSUMES $100 INVESTED ON MAY 29, 2004
ASSUMES DIVIDENDS REINVESTED

 

 

You should read the following selected historical consolidated financial data in conjunction with our consolidated financial statements and related notes beginning on page 40 and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” appearing on page 28. The consolidated statements of income data for the years ended May 27, 2006 and May 28, 2005 and the consolidated balance sheet data at May 26, 2007, May 27, 2006 and May 28, 2005 were derived from our consolidated financial statements that have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and are not included in this Report on Form 10-K. The consolidated statements of income data for the years ended May 30, 2009, May 31, 2008 and May 26, 2007 and the consolidated balance sheet data at May 30, 2009 and May 31, 2008 were derived from our consolidated financial statements that have been audited by PricewaterhouseCoopers LLP, an independent registered public accounting firm, and are included elsewhere in this Report on Form 10-K. Historical results are not necessarily indicative of results that may be expected for any future periods.

 

 

 

 

 

 

The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and related notes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain factors including, but not limited to, those discussed in Part I Item 1A. “Risk Factors.” and elsewhere in this Report on Form 10-K.

 

Recent Developments

 

On July 22, 2009, Thomas D. Christopoul resigned from his positions as President and Chief Executive Officer of the Company and as a member of the Company’s Board of Directors. In connection with Mr. Christopoul’s resignation on July 22, 2009, the Company and Mr. Christopoul entered into a Severance and General Release Agreement (the “Severance Agreement”).

 

Under the terms of the Severance Agreement, the Company has agreed to pay Mr. Christopoul within 10 days of July 22, 2009 a lump sum payment of $3.5 million (less applicable tax withholdings).

 

All of Mr. Christopoul’s outstanding unvested stock options, which he was awarded during his employment, will automatically vest as of July 22, 2009 and will remain exercisable for the duration of the term of such awards (generally 10 years following the date of the award), after which time they will expire and be canceled. The Company will record the lump sum payment of $3.5 million and a non-cash charge of approximately $1.5 million resulting from the vesting of Mr. Christopoul’s outstanding stock options during the three months ended August 29, 2009.

 

In connection with Mr. Christopoul’s departure from the Company, the Company’s board of directors has reappointed Donald B. Murray, the Company’s founder and Executive Chairman, as Chief Executive Officer.

 

Overview

 

Resources Global is an international professional services firm that provides experienced finance, accounting, risk management and internal audit, information management, human capital, supply chain management and legal services professionals in support of client-led projects and initiatives. We assist our clients with discrete projects requiring specialized expertise in:

 

 

 

We were founded in June 1996 by a team at Deloitte & Touche LLP, led by our chief executive officer, Donald B. Murray, who was then a senior partner with Deloitte & Touche. Our founders created Resources Connection to capitalize on the increasing demand for high quality outsourced professional services. We operated as a part of Deloitte & Touche from our inception in June 1996 until April 1999. In April 1999, we completed a management-led buyout. In December 2000, we completed our initial public offering of common stock and began trading on the NASDAQ. We currently trade on the NASDAQ Global Select Market. In January 2005, we announced the change of our operating entity name to Resources Global Professionals to better reflect the Company’s international capabilities.

 

We operated solely in the United States until fiscal year 2000, when we began to expand geographically to meet the demand for project professional services across the world and opened our first three international offices. Our most significant international transaction to date was the acquisition of our Netherland practice in fiscal year 2004. As of May 30, 2009, we served clients through 52 offices in the United States and 30 offices abroad.

 

During fiscal 2009, we continued our expansion around the world, acquiring practices in the Netherlands, Sweden and the United States. On January 16, 2009, we acquired Limbus Holding B.V. (“Limbus”), a Netherlands-based provider of risk and compliance and process improvement consultancy services to financial institutions and the public sector. The Company paid approximately $2.0 million for the acquisition, consisting of $1.0 million in cash and $1.0 million (68,459 shares) of the Company’s treasury stock. On December 1, 2008, the Company acquired Kompetensslussen X-tern Personalfunktion AB (“Kompetensslussen”), a Sweden-based provider of human capital services. The Company paid approximately $1.0 million for the acquisition, consisting of $745,000 in cash and $274,000 (18,302 shares) of the Company’s treasury stock. Finally, on May 12, 2009, the Company purchased intangible assets of Xperianz, a Cincinnati-based provider of professional services to expand our presence in the Ohio Valley area. The Company paid cash of approximately $900,000 for the acquisition. All of these acquisitions require certain earn-out payments if particular economic goals are reached at future dates.

 

We expect to continue opportunistic international expansion while also investing in complementary professional services lines that we believe will augment our service offerings.

 

We primarily charge our clients on an hourly basis for the professional services of our consultants. We recognize revenue once services have been rendered and invoice the majority of our clients on a weekly basis. Our clients are contractually obligated to pay us for all hours billed. To a much lesser extent, we also earn revenue if a client hires one of our consultants. This type of contractually non-refundable revenue is recognized at the time our client completes the hiring process and represented 0.6%, 0.5% and 0.6% of our revenue for the years ended May 30, 2009, May 31, 2008 and May 26, 2007, respectively. We periodically review our outstanding accounts receivable balance and determine an estimate of the amount of those receivables we believe may prove uncollectible. Our provision for bad debts is included in our selling, general and administrative expenses.

 

The costs to pay our professional consultants and all related benefit and incentive costs, including provisions for paid time off and other employee benefits, are included in direct cost of services. We pay most of our consultants on an hourly basis for all hours worked on client engagements and, therefore, direct cost of services tends to vary directly with the volume of revenue we earn. We expense the benefits we pay to our consultants as they are earned. These benefits include paid time off and holidays; a discretionary bonus plan; subsidized group health, dental, vision and life insurance programs; a matching 401(k) retirement plan; the ability to participate in the Company’s Employee Stock Purchase Plan (“ESPP”); and professional development and career training. In addition, we pay the related costs of employment, including state and federal payroll taxes, workers’ compensation insurance,

unemployment insurance and other costs. Typically, a consultant must work a threshold number of hours to be eligible for all of the benefits. We recognize direct cost of services when incurred.

 

Selling, general and administrative expenses include the payroll and related costs of our internal management as well as general and administrative, marketing and recruiting costs. Our sales and marketing efforts are led by our management team who are salaried employees and earn bonuses based on operating results for our Company as a whole and within each individual’s geographic market.

 

The Company’s fiscal year consists of 52 or 53 weeks, ending on the last Saturday in May. Fiscal 2009 and 2007 consisted of 52 weeks each. For fiscal years of 53 weeks, such as fiscal 2008, the first three quarters consisted of 13 weeks each and the fourth quarter consisted of 14 weeks.

 

Critical Accounting Policies

 

The following discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with GAAP in the United States. The preparation of these financial statements requires us to make estimates and judgments that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period.

 

The following represents a summary of our critical accounting policies, defined as those policies that we believe: (a) are the most important to the portrayal of our financial condition and results of operations and (b) involve inherently uncertain issues that require management’s most difficult, subjective or complex judgments.

 

Valuation of long-lived assets — We assess the potential impairment of long-lived tangible and intangible assets periodically or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our goodwill and certain other intangible assets are not subject to periodic amortization. These assets are considered to have an indefinite life and their carrying values are required to be assessed by us for impairment at least annually. Depending on future market values of our stock, our operating performance and other factors, these assessments could potentially result in impairment reductions of these intangible assets in the future and this adjustment may materially affect the Company’s future financial results.

 

Allowance for doubtful accounts — We maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered. We estimate this allowance based upon our knowledge of the financial condition of our clients, review of historical receivable and reserve trends and other pertinent information. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect the Company’s future financial results.

 

Income taxes — In order to prepare our consolidated financial statements, we are required to make estimates of income taxes, if applicable, in each jurisdiction in which we operate. The process incorporates an assessment of any current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. These differences result in deferred tax assets and liabilities that are included in our Consolidated Balance Sheets. The recovery of deferred tax assets from future taxable income must be assessed and, to the extent recovery is not likely, we will establish a valuation allowance. An increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect the Company’s future financial result. If the ultimate tax liability differs from the amount of tax expense we have reflected in the Consolidated Statements of Income, an adjustment of tax expense may need to be recorded and this adjustment may materially affect the Company’s future financial results.

 

Revenue recognition — We primarily charge our clients on an hourly basis for the professional services of our consultants. We recognize revenue once services have been rendered and invoice the majority of our clients in the United States on a weekly basis. Some of our clients served by our international operations are billed on a monthly basis. Our clients are contractually obligated to pay us for all hours billed. To a much lesser extent, we also earn

revenue if a client hires one of our consultants. This type of contractually non-refundable revenue is recognized at the time our client completes the hiring process.

 

Stock-based compensation — Under our 2004 Performance Incentive Plan, officers, employees, and outside directors have received or may receive grants of restricted stock, stock units, options to purchase common stock or other stock or stock-based awards. Under our ESPP, eligible officers and employees may purchase our common stock in accordance with the terms of the plan. Effective May 28, 2006, the Company adopted the fair value recognition provisions of Statement of Financial Accounting Standards (“SFAS”) No. 123 (revised), “Share-Based Payment” (“SFAS 123 (R)”), using the modified prospective transition method; accordingly, prior periods have not been restated. Under the previously accepted accounting standards, there was no stock-based compensation expense related to employee stock options and employee stock purchases recognized during prior periods.

 

The accounting required by SFAS 123 (R) requires that the Company estimate a value for employee stock options on the date of grant using an option-pricing model. We have elected to use the Black-Scholes option-pricing model which takes into account assumptions regarding a number of highly complex and subjective variables. These variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Additional variables to be considered are the expected term and risk-free interest rate over the expected term of our employee stock options. In addition, because stock-based compensation expense recognized in the Statement of Income is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. SFAS 123 (R) requires forfeitures to be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. If facts and circumstances change and we employ different assumptions in the application of SFAS 123 (R) in future periods, the compensation expense recorded under SFAS 123 (R) may differ materially from the amount recorded in the current period.

 

The weighted average estimated value per share of employee stock options granted during the years ended May 30, 2009 and May 31, 2008 were $6.64 and $8.20, respectively, using the Black-Scholes model with the following assumptions:

 

 

The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The dividend yield assumption is based on our previous history of not paying dividends and our expectation that the special dividend paid in August 2007 is an isolated event and not the commencement of a regular dividend policy. The Company’s historical expected life of stock option grants is 5.1 years for non-officers and 6.7 years for officers. As permitted under Staff Accounting Bulletin No. 107, the Company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock.

 

We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions.

Results of Operations

 

The following tables set forth, for the periods indicated, our consolidated statements of income data. These historical results are not necessarily indicative of future results.

 

 

 

 

Our operating results for the periods indicated are expressed as a percentage of revenue below.

 

 

Year Ended May 30, 2009 Compared to Year Ended May 31, 2008

 

Computations of percentage change period over period are based upon our results, as rounded and presented herein.

 

Revenue.  Revenue decreased $154.7 million, or 18.4%, to $685.6 million for the year ended May 30, 2009 from $840.3 million for the year ended May 31, 2008. Our revenue was adversely affected by a decline in the number of hours worked by our consultants offset by a minor increase in the average bill rate per hour in comparison to the prior year. We believe the primary cause of the decrease in hours worked by our consultants is client uncertainty about the global economic environment, which is causing clients to approach their business more cautiously and to either defer, downsize or eliminate projects. In addition, fiscal 2008 consisted of 53 weeks while

fiscal 2009 consisted of 52 weeks. Revenues during the fifty-third week of fiscal 2008, which included the Memorial Day holiday in the United States, were $15.1 million.

 

The number of hours worked in fiscal 2009 declined about 19.6% from the prior year, while average bill rates increased by 0.4% compared to the prior year. The number of consultants on assignment at the end of fiscal 2009 was 2,065 compared to the 3,490 consultants engaged at the end of fiscal 2008. Although we believe we have improved the awareness of our service offerings with clients and prospective clients through our previously completed engagements (including Sarbanes or related internal accounting control services), and that the significant changes taking place in the capital markets may present new opportunities going forward, there can be no assurance about the timing of such opportunities or whether we can successfully capitalize on them, especially given the current uncertain economic climate in the United States and international markets.

 

We operated 82 and 89 offices as of May 30, 2009 and May 31, 2008, respectively. Our clients do not sign long-term contracts with us. As such, there can be no assurance as to future demand levels for the services that we provide or that future results can be reliably predicted by considering past trends.

 

Revenue for the Company’s major practice areas across the globe consisted of the following (dollars in thousands):

 

 

On a constant currency basis, international revenues would have been higher by $12.4 million and lower by $17.8 million in fiscal 2009 and 2008, respectively, using the comparable fiscal 2008 and fiscal 2007 conversion rates.

 

We believe our revenues in the near-term will continue to be impacted by the global economic environment which has reduced our clients demand for the services we provide.

 

Direct Cost of Services.  Direct cost of services decreased $96.2 million, or 18.6%, to $422.2 million for the year ended May 30, 2009 from $518.4 million for the year ended May 31, 2008. Direct cost of services declined because of a 19.6% decrease in hours worked compared to the prior year. The average pay rate of our consultants was flat. The direct cost of services as a percentage of revenue (the “direct cost of services percentage”) was 61.6% and 61.7% for the years ended May 30, 2009 and May 31, 2008, respectively. Although the direct cost of services percentage improved slightly over the prior year, a continuing lower level of revenues will put increased pressure on this calculation as consultants earn certain benefits, such as health care services, which are relatively fixed in terms of cost.

 

The cost of compensation and related benefits offered to the consultants of our international offices has been greater as a percentage of revenue than our domestic operations. In addition, international offices use independent contractors more extensively. Thus, the direct cost of services percentage of our international offices has usually exceeded our domestic operation’s targeted direct cost of services percentage of 60%.

 

Selling, General and Administrative Expenses.  Selling, general and administrative expenses (“S, G & A”) decreased $15.2 million, or 6.7%, to $212.7 million for the year ended May 30, 2009 from $227.9 million for the year ended May 31, 2008. S, G & A increased as a percentage of revenue from 27.1% for the year ended May 31, 2008 to 31.0% for the year ended May 30, 2009. Management and administrative head count was 876 at the end of fiscal 2008 but fell to 787 at the end of fiscal 2009. S, G & A decreases in fiscal 2009 as compared to fiscal 2008 included a reduction in marketing expenses; a reduction in recruiting and related expenses, salary, benefit and related costs, bonus expense and stock-based compensation expense. These decreases were partially offset by an increase of $1.1 million in the Company’s provision for doubtful accounts after an evaluation of the Company’s

client base, receivable balances and the current economic environment and the actions taken in the fourth quarter discussed in the following paragraph.

 

As a result of reduced revenue levels experienced beginning in the second quarter of fiscal 2009, the Company announced in its fourth quarter of fiscal 2009 a reduction in headcount and the consolidation of seven offices whose clients could be served from other offices within a close proximity. In connection with these actions, the Company recorded a charge in S, G &A of approximately $3.6 million in the fourth quarter of fiscal 2009 related to severance costs, leasehold improvements write-offs and estimated lease termination accruals. The Company estimates these actions will result in annualized savings of approximately $12 million.

 

Amortization and Depreciation Expense.  Amortization of intangible assets increased to $1.4 million in fiscal 2009 from $1.1 million in fiscal 2008. The increase in fiscal 2009 is attributable to a full year of amortization related to identified intangible assets acquired its fiscal 2008 purchases of Compliance Solutions and Domenica and amounts related to the fiscal 2009 acquisitions of Limbus and Kompetensslussen. The Company considered a number of factors in performing these studies, including the valuation of the identifiable intangible assets. The total intangible assets acquired included: for Limbus, approximately $1.4 million of goodwill, $249,000 for customer relationships (amortized over two years), $130,000 for a non-compete agreement (amortized over one year) and $67,000 for a database of potential consultants (amortized over two years); for Kompetensslussen, approximately $800,000 of goodwill, $150,000 for customer relationships (amortized over two years) and $80,000 for a non-compete agreement (amortized over one year); for Compliance Solutions, approximately $7.4 million of goodwill, $16,000 for a non-compete agreement (amortized over one year) and $763,000 for customer relationships (amortized over five years); and for Domenica, approximately $15.6 million for goodwill, $6.2 million for customer relationships (amortized over seven years) and $556,000 for a database of potential consultants (amortized over five years). Based upon identified intangible assets recorded at May 30, 2009, the Company anticipates amortization expense related to identified intangible assets to approximate $1.5 million during the fiscal year ending May 29, 2010.

 

Depreciation expense increased from $8.5 million for the year ended May 31, 2008 to $8.9 million for the year ended May 30, 2009. The increase in depreciation was related to a higher asset base due to the investments made in offices relocated or expanded since May 2008, and investments in the Company’s operating system and other information technology.

 

Interest Income.  Interest income was $5.6 million in fiscal 2008 compared to $1.6 million in fiscal 2009. The decrease in interest income is the result of a lower average cash balance available for investment during fiscal 2009 and declining interest rates as compared to fiscal 2008. The Company has invested available cash in certificates of deposit, money market investments and government-agency bonds that have been classified as cash equivalents due to the short maturities of these investments. As of May 30, 2009, the Company has $20.5 million of investments in commercial paper, government-agency bonds and certificates of deposit with remaining maturity dates between three months and one year from the balance sheet date classified as short-term investments and considered “held-to-maturity” securities.

 

Income Taxes.  The provision for income taxes decreased from $40.9 million for the year ended May 31, 2008 to $24.3 million for the year ended May 30, 2009. The provision declined primarily because of a reduction in the Company’s pretax income in fiscal 2009 as compared to fiscal 2008, offset in part by an increase in the Company’s effective tax rate between the two years. The effective tax rate was 57.7% for fiscal 2009 and 45.4% for fiscal 2008. The effective tax rate increased because the Company’s lower pre-tax income disproportionally magnifies the effect of non-deductible permanent differences and incentive stock options (“ISOs”). In fiscal 2009, the Company recorded a $3.5 million tax charge comprised of the establishment of a valuation allowance on certain foreign operating loss carryforwards of $2.4 million and for the Company’s forgiveness of certain intercompany debt in France, thereby reducing France’s operating loss carryforwards by $1.1 million. Based upon current economic circumstances, management will continue to monitor the need to record additional valuation allowances in the future, primarily related to certain foreign jurisdictions.

 

Under SFAS 123 (R), the Company cannot recognize a tax benefit for certain ISO grants unless and until the holder exercises his or her option and then sells the shares within a certain period of time. In addition, the Company can only recognize a potential tax benefit for employees’ acquisition and subsequent sale of shares purchased

through the ESPP if the sale occurs within a certain defined period. As a result, the Company’s provision for income taxes is likely to fluctuate for the foreseeable future. Further, under SFAS 123 (R), those tax benefits associated with ISO grants fully vested at the date of adoption of SFAS 123 (R) will be recognized as additions to paid-in capital when and if those options are exercised and not as a reduction to the Company’s tax provision. The Company recognized a benefit of approximately $4.3 million and $4.7 million related to stock-based compensation for nonqualified stock options expensed and for eligible disqualifying ISO exercises during fiscal 2009 and 2008, respectively. The proportion of expense related to non-qualified stock option grants (for which the Company may recognize a tax benefit in the same quarter as the related compensation expense in most instances) increased during fiscal 2009 as compared to expense related to ISOs (including ESPPs). However, the timing and amount of eligible disqualifying ISO exercises cannot be predicted. The Company predominantly grants nonqualified stock options to employees in the United States.

 

Periodically, the Company reviews the components of both book and taxable income to analyze the adequacy of the tax provision. There can be no assurance, particularly because of the unpredictability of timing and the amount of eligible disqualifying ISO exercises, that the Company’s effective tax rate will remain constant in the future.

 

Year Ended May 31, 2008 Compared to Year Ended May 26, 2007

 

Computations of percentage change period over period are based upon our results, as rounded and presented herein.

 

Revenue.  Revenue increased $104.4 million, or 14.2%, to $840.3 million for the year ended May 31, 2008 from $735.9 million for the year ended May 26, 2007. An improvement in our average bill rate per hour and an increase in the number of hours billed were the primary causes of the increase in revenue. In addition, fiscal 2008 consisted of 53 weeks while fiscal 2007 consisted of 52 weeks. Revenues during the fifty-third week of fiscal 2008, which included the Memorial Day holiday in the United States, were $15.1 million.

 

Average bill rates improved by 7.5% compared to the prior year average bill rate. The increase in revenue was also driven by an increase in the number of consultants on assignment from 3,276 at the end of fiscal 2007 to 3,490 at the end of fiscal 2008. We operated 89 and 84 offices as of May 31, 2008 and May 26, 2007, respectively.

 

Revenue for the Company’s major practice areas across the globe consisted of the following (in thousands):

 

 

On a constant currency basis, international revenues would have been lower by $17.8 million and $9.5 million in fiscal 2008 and 2007, respectively, using the comparable fiscal 2007 and fiscal 2006 conversion rates.

 

Direct Cost of Services.  Direct cost of services increased $71.0 million, or 15.9%, to $518.4 million for the year ended May 31, 2008 from $447.4 million for the year ended May 26, 2007. The increase in direct cost of services was attributable to the increase in our consultants average pay rates as well as the previously described increase in number of hours billed; overall, the average pay rate per hour increased by 7.4% year-over-year. The direct cost of services percentage was 61.7% and 60.8% for the years ended May 31, 2008 and May 26, 2007, respectively. This increase was caused primarily by costs associated with the grant of an extra week of vacation for United States consultants who met certain eligibility requirements commencing in the first quarter of fiscal 2008.

 

Selling, General and Administrative Expenses.  S, G & A increased as a percentage of revenue from 26.0% for the year ended May 26, 2007 to 27.1% for the year ended May 31, 2008. S, G &A increased $36.3 million, or 18.9%, to $227.9 million for the year ended May 31, 2008 from $191.6 million for the year ended May 26, 2007.

The increase in S, G &A primarily stems from increased personnel and related benefit costs, in both our United States and international markets. Management and administrative headcount grew from 825 at the end of fiscal 2007 to 876 at the end of fiscal 2008. In addition to the increase in salaries and benefit costs, other significant increases in fiscal 2008 included: an increase in spending for advertising, as the Company continued a branding campaign in various United States and international business periodicals; occupancy and related costs from relocated, expanded or new offices; and certain bonuses that are determined based upon revenue, which was higher in fiscal 2008 than in fiscal 2007.

 

Amortization and Depreciation Expense.  Amortization of intangible assets decreased to $1.1 million in fiscal 2008 from $1.5 million in fiscal 2007. The decrease in fiscal 2008 is attributable to the completion of amortization of intangible assets related to previous acquisitions. However, this decrease was partially offset by the Company’s completion of its valuation studies during fiscal 2008 of its June 2007 purchase of Compliance Solutions and its December 2007 purchase of Domenica. The Company considered a number of factors in performing these studies, including the valuation of identifiable intangible assets.

 

Depreciation expense increased from $6.1 million for the year ended May 26, 2007 to $8.5 million for the year ended May 31, 2008. The increase in depreciation was related to a higher asset base due to the investments made in offices relocated or expanded since May 2007, and investments in the Company’s operating system and other information technology.

 

Interest Income.  Interest income was $5.6 million in fiscal 2008 compared to $8.9 million in fiscal 2007. The decrease in interest income is the result of a lower average cash balance available for investment during fiscal 2008 and declining interest rates as compared to fiscal 2007. During fiscal 2008, the Company used approximately $102.1 million to purchase its common stock; paid a special dividend of approximately $60.7 million in the first quarter of fiscal 2008; and used approximately $29.8 million to acquire Domenica (December 2007) and Compliance Solutions (June 2007).

 

Income Taxes.  The provision for income taxes decreased from $43.5 million for the year ended May 26, 2007 to $40.9 million for the year ended May 31, 2008. The provision declined primarily because of a reduction in the Company’s pretax income in fiscal 2008 as compared to fiscal 2007, offset in part by an increase in the Company’s effective tax rate between the two years. The effective tax rate was 45.4% for fiscal 2008 and 44.3% for fiscal 2007. The primary reason for the increase in the effective tax rate was primarily due to increases in state taxes, lower benefit from international tax rates and an increase in the rate attributable to permanent differences because of lower pretax income in fiscal 2008 as compared to fiscal 2007.

 

The Company recognized a benefit of approximately $4.7 million and $3.4 million related to stock-based compensation for nonqualified stock options expensed and for eligible disqualifying ISO exercises during fiscal 2008 and 2007, respectively. The timing and amount of eligible disqualifying ISO exercises cannot be predicted.

Quarterly Results

 

The following table sets forth our unaudited quarterly consolidated statements of operation data for each of the eight quarters in the two-year period ended May 30, 2009. The quarter ended May 31, 2008 comprised 14 weeks while all other quarters presented comprised 13 weeks. In the opinion of management, this data has been prepared on a basis substantially consistent with our audited consolidated financial statements appearing elsewhere in this document, and includes all adjustments, consisting of normal recurring adjustments, necessary for a fair presentation of the data. The quarterly data should be read together with our consolidated financial statements and related notes appearing elsewhere in this document. The operating results are not necessarily indicative of the results to be expected in any future period.

 

 

 

 

Our quarterly results have fluctuated in the past and we believe they will continue to do so in the future. Certain factors that could affect our quarterly operating results are described in Part I Item 1A. “Risk Factors.” Due to these and other factors, we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance.

 

Liquidity and Capital Resources

 

Our primary source of liquidity is cash provided by our operations and, historically, to a lesser extent, stock option exercises. We have generated positive cash flows from operations since inception, and we continued to do so during the year ended May 30, 2009.

 

At May 30, 2009, the Company had operating leases, primarily for office premises, expiring at various dates. At May 30, 2009, the Company had no capital leases. The following table summarizes our future minimum rental commitments under operating leases and our other known contractual obligations as of May 30, 2009:

 

 

The Company has a $3.0 million unsecured revolving credit facility with Bank of America (the “Credit Agreement”). The Credit Agreement allows the Company to choose the interest rate applicable to advances. The interest rate options are Bank of America’s prime rate, a London Inter-Bank Offered (“LIBOR”) rate plus 1.5% or Bank of America’s Grand Cayman Banking Center (“LIBOR”) rate plus 1.5%. Interest, if any, is payable monthly. There is an annual facility fee of 0.25% payable on the unutilized portion of the Credit Agreement. The Credit Agreement expires December 1, 2009. As of May 30, 2009, the Company had approximately $2.4 million available under the terms of the Credit Agreement as Bank of America has issued approximately $600,000 of outstanding letters of credit in favor of third parties related to operating leases. As of May 30, 2009, the Company was in compliance with all covenants included in the Credit Agreement.

 

Net cash provided by operating activities totaled $66.3 million in fiscal 2009 compared to $57.4 million in fiscal 2008. Cash provided by operations in fiscal 2009 resulted from the net income of the Company of $17.8 million, adjusted for non-cash items of $29.1 million, plus net cash provided by changes in operating assets and liabilities of $19.4 million. In fiscal 2008, cash provided by operations resulted from net income of the Company of $49.2 million, adjusted for non-cash items of $23.1 million, offset by net cash used for changes in operating assets and liabilities of $14.9 million. The most significant cause of the increase in operating cash flows was the reduction in the Company’s accounts receivable balance as a result of the decline in the Company’s revenue, particularly in the third and fourth quarters of fiscal 2009; the decrease in accounts receivable was offset by an increase in the Company’s prepaid income tax balance as well as decreases in the Company’s required accruals for salaries, bonus and vacations as the number of employees was lower at the end of fiscal 2009 as compared to 2008. In addition, the Company also changed its bonus plan for consultants such that a portion of the plan, considered a long-term liability at the end of fiscal 2008, was amended and the liability to the consultants was paid out by the end of fiscal 2009. Non-cash items increased beginning in fiscal 2007 as a result of the Company’s adoption of the accounting required in SFAS 123(R) to expense stock-based compensation; these charges do not reflect an actual cash outflow from the Company but are an estimate of the fair value of the services provided by employees and directors in exchange for stock option grants and purchase of stock through the Company’s ESPP. The Company had $163.7 million in cash and cash equivalents and short-term investments at May 30, 2009.

 

Net cash used in investing activities totaled $5.7 million for fiscal 2009 compared to an increase in cash provided by investing activities of $37.1 million for fiscal 2008. Cash used to invest in short-term and long-term marketable securities (commercial paper and government agency bonds) net of cash received from the redemption of short-term and long-term investments resulted in a net increase of $5.5 million in fiscal 2009 compared to an increase of $76.0 million in fiscal 2008. The Company utilized some of its portfolio of investments in fiscal 2008 to provide funding for the dividend payment and stock purchases discussed in the financing activities paragraph below. During fiscal 2009, the Company purchased Limbus, Kompetensslussen and Xperianz for approximately $2.7 million (net of cash acquired) and made the final earn-out payment for Domenica of approximately $2.6 million, while in fiscal 2008, the Company acquired Compliance Solutions and Domenica for aggregate consideration of approximately $32.0 million. In addition, the Company used approximately $5.9 million to purchase property and equipment in fiscal 2009, compared to $11.3 million in fiscal 2008.

Net cash provided by financing activities was $3.8 million for the year ended May 30, 2009, compared to a use of cash of $138.0 million for the year ended May 31, 2008. During fiscal 2009, the Company used approximately $12.3 million to purchase approximately 785,000 shares of our common stock, offset by proceeds from employee exercises of stock options and purchases of common stock under our Employee Stock Purchase Plan of approximately $15.6 million. In fiscal 2008, the Company paid a special cash dividend of $1.25 per share of common stock for an aggregate amount of approximately $60.7 million; there was no dividend payment made in fiscal 2009; and used approximately $102.1 million to purchase approximately 4.8 million shares of its common stock; the cash used in fiscal 2008 was offset by cash received from stock option exercises and sales of common stock through the ESPP of $22.4 million in fiscal 2008.

 

Our ongoing operations and anticipated growth in the geographic markets we currently serve will require us to continue to make investments in capital equipment, primarily technology hardware and software. In addition, we may consider making strategic acquisitions. We anticipate that our current cash and the ongoing cash flows from our operations will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months. If we require additional capital resources to grow our business, either internally or through acquisition, we may seek to sell additional equity securities or to secure debt financing. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business, which could have a material adverse effect on our operations, market position and competitiveness.

 

Off-Balance Sheet Arrangements

 

The Company has no off-balance sheet arrangements.

 

Recent Accounting Pronouncements

 

Information regarding recent accounting pronouncements is contained in Note 2 to the Consolidated Financial Statements for the year ended May 30, 2009.

 

 

Interest Rate Risk.  At the end of fiscal 2009, we had approximately $163.7 million of cash and cash equivalents and short-term investments. Securities that the Company has the ability and positive intent to hold to maturity are carried at amortized cost. These securities consist of commercial paper and government-agency bonds. Cost approximates market for these securities. The earnings on these investments are subject to changes in interest rates; however, assuming a constant balance available for investment, a 10% decline in interest rates would reduce our interest income but would not have a material impact on our consolidated financial position or results of operations.

 

Foreign Currency Exchange Rate Risk.  For the year ended May 30, 2009, approximately 29% of the Company’s revenues were generated outside of the United States. As a result, our operating results are subject to fluctuations in the exchange rates of foreign currencies in relation to the United States dollar. Revenues and expenses denominated in foreign currencies are translated into United States dollars at the monthly average exchange rates prevailing during the period. Thus, as the value of the United States dollar fluctuates relative to the currencies in our non-United States based operations, our reported results may vary.

 

Assets and liabilities of our non-United States based operations are translated into United States dollars at the exchange rate effective at the end of each monthly reporting period. Approximately 80% of our fiscal year-end balances of cash, cash equivalents and short-term investments were denominated in United States dollars. The remaining amount of approximately 20% was comprised primarily of cash balances translated from Euros, Japanese Yen, Hong Kong Dollars or British Pounds. The difference resulting from the translation each period of assets and liabilities of our non-United States based operations is recorded in stockholders’ equity as a component of accumulated other comprehensive gain.

 

Although we intend to monitor our exposure to foreign currency fluctuations, we do not currently use financial hedging techniques to mitigate risks associated with foreign currency fluctuations and we cannot assure you that exchange rate fluctuations will not adversely affect our financial results in the future.

 

RESOURCES CONNECTION, INC.

 

FINANCIAL STATEMENTS