2019 Annual Report
Nasdaq: RECN
www.rgp.com
Dear Fellow Shareholders,
I am pleased to report we
delivered
strong
performance in fiscal year
successfully
2019. We
grew
and
improved
profitability,
while also investing in
brand, infrastructure and
innovation.
This year, we struck a sound balance
between immediate financial return and balanced
longer-term investment. Before I turn to strategy and
what’s to come, let’s review our year-end financial
fundamentals.
revenue
We achieved 11.4% revenue growth this year by a
combination of targeted efforts around improved sales
leadership and discipline, pricing governance and
aligned incentives. Given that Europe and Asia Pacific
began their operational transformation efforts more
recently, we have not
the full effects yet.
Continuing to improve the sales and delivery functions
in all of our regions of operation will be a key priority
in fiscal year 2020.
felt
Our greatest achievement
this year centers on
improved profitability and cost containment. Global
adjusted EBITDA increased by over 50% on a full year
comparative basis, an increase largely accomplished
through productivity gains and a commitment
to
disciplined hiring and tighter governance around
discretionary spend. This fiscal year we remain
focused on continuing to unlock operational leverage
by doing “more with the same” and committed to
prudent investment and cost containment across all
three theaters of operations.
With the exception of our taskforce business, which
grew nearly 46% year-over-year, we are not satisfied
with our performance in Europe and will be taking
concerted operational steps to improve results. These
include: hiring a new head of Europe following the
incumbent’s retirement, hiring a new revenue leader
for our Dutch business and working to reignite our
German practice under new leadership. We look
forward to updating you next year on the impact of
these efforts.
For fiscal year 2020 and beyond, our core focus areas
are threefold: (1) becoming a more digital business,
infrastructure improvements and (3) brand
(2)
development. We will also focus on optimizing our
evolving seller-doer model.
innovation initiative is well underway. In
Our digital
June, we announced the formation of a new Digital
Innovation function within RGP. This function will be
focused on building and commercializing a digital
engagement platform for RGP, enhancing our consulting
capabilities in the digital transformation space and
building and commercializing digital product offerings
for both our clients and for RGP.
(cid:221) Our digital engagement platform team is on track to
deliver a Minimum Viable Product or MVP by the
second half of fiscal year 2020. This human cloud
platform is a digital marketplace where talent and
business can connect and engage in a project
arrangement. Our clients will be able to self-serve
staff augmentation needs with greater transparency,
speed and control. We also expect to attract new
clients looking for a reliable digital staffing platform.
second
priority – boosting
(cid:221) With the announcement of our acquisition of Veracity
Consulting Group, LLC (‘Veracity’) in late July, we
made instant and meaningful traction on Digital
Innovation’s
our
consulting capabilities around digital transformation.
Veracity is a full-service digital transformation firm
based in Richmond, Virginia, which delivers
innovative solutions to the Fortune 500 and leading
healthcare organizations. This combination is a
powerful step in furthering our objective and allows
RGP to offer comprehensive end-to-end solutions to
its clients by combining Veracity’s customer-facing
offerings with
in
depth
transforming the back office.
experience
our
of
(cid:221) The final
and
immediate priority for our Digital
Innovation team is to design and build digital
products as part of our service offerings to automate
front-office
These
back-office
products are intended to create repeatable revenue
streams and drive improved profitability. For
of
instance, we
commercializing a Robotic Process Automation tool
to make the account reconciliation process more
efficient.
functions.
now in
process
the
are
During fiscal year 2019, we returned $46 million to our
shareholders in the form of dividends and stock
buybacks. In July 2019, our Board authorized an 8%
increase in the quarterly dividend to $0.14 per share.
This is the ninth consecutive year of increase in the
dividend program.
In closing, thank you to our shareholders, clients and
the continued support. We are
employees
optimistic about the opportunities for further growth
and improved financial return in the year to come.
for
Thank you.
Kate W. Duchene
Chief Executive Officer
Improving our technology infrastructure is another key
element of our Strategic Plan. Most notably, we have
kicked off the global extension of our Workday Global
Human Capital Management platform and initiated
planning for the replacement of our core financial,
operational and talent systems, a project that is driven
by our ongoing digital,
financial and operational
transformation.
Now, on to brand development - the launch of our
refreshed brand this June (which included the launch
of our new website at rgp.com) capped a six-month
research project with a boutique brand consulting firm
to discern the distinguishing quality embedded within
RGP. We help clients everyday with projects and
initiatives by putting the right people on the project
team to drive execution. Like the Power of Hydrogen
(pH), we have the unique ability to bind attracting
elements together
transformation. Our
to deliver
elements are our people. This is what we mean by our
pH – the Power of Human. Our refreshed brand hits
the mark and has the power to change perception,
influence preference and command loyalty.
Finally, in late fiscal year 2019, we reorganized our
Advisory and Project Services function, a team of
partner-level seller-doer professionals whose primary
responsibility is to shepherd sales pursuits and
engagement delivery on our more complex projects.
This team’s main objective is to deepen the scoping
conversation, achieve value-oriented pricing and
improve delivery management
through greater
customer
accountability and a more
experience. We also anticipate the seller-doer
approach will help us plug in at an earlier stage of the
client’s project planning process.
seamless
We are very encouraged by these positive trends and
are continuing to grow in sustainable ways. I am
especially excited about the addition of Veracity to the
RGP family and the world of opportunity digital
innovation has the potential to unlock for us. In fiscal
year 2020, we plan to build on our momentum,
continue to execute with excellence and capture more
of the opportunities created by our recent brand
investment
digital
extension
transformation arena.
into
and
the
A final word on financial return for our shareholders:
RESOURCES CONNECTION, INC.
TABLE OF CONTENTS
FINANCIAL HIGHLIGHTS..................................................................................................................................................................... 2
SERVICES AND STRATEGY OF RESOURCES GLOBAL PROFESSIONALS.................................................................................. 4
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ........... 13
CONSOLIDATED FINANCIAL STATEMENTS ................................................................................................................................. 25
1
FINANCIAL HIGHLIGHTS
(In thousands, except per share data)
Financial Results:
Revenue .............................................................................................................................................................
Gross margin .....................................................................................................................................................
Operating income .............................................................................................................................................
Net income .........................................................................................................................................................
Net Income per common share - Diluted .......................................................................................................
Cash dividends declared per common share.................................................................................................
Balance Sheet Data:
Cash, cash equivalents and short-term investments...................................................................................
Accounts receivable, net.................................................................................................................................
Total assets........................................................................................................................................................
Stockholders' equity.........................................................................................................................................
Years Ended
May 25, 2019
May 26, 2018
$
$
$
$
$
$
728,999
282,439
50,159
31,470
0.98
0.52
$
$
$
$
$
$
654,129
246,055
30,624
18,826
0.60
0.48
May 25, 2019
May 26, 2018
$
$
$
$
49,026
133,304
428,370
282,396
$
$
$
$
56,470
130,452
432,674
268,825
2
Total Revenues
Adjusted EBITDA Margin (1)
$728,999
$654,129
$583,411
$598,521
$590,589
10.6%
10.3%
8.9%
7.5%
6.6%
12
10
8
6
4
2
0
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
Cash Divide nds Declared
per Common Share
$0.52
$0.48
$0.44
$0.40
$0.32
Total Numbe r of Consultants on Assignment at
End of Period
3,247
2,965
2,569
2,511
2,516
3,500
3,000
2,500
2,000
1,500
1,000
500
0
$800,000
$700,000
$600,000
$500,000
$400,000
$300,000
$200,000
$100,000
$
$0.60
$0.50
$0.40
$0.30
$0.20
$0.10
$0.00
2019
2018
2017
2016
2015
2019
2018
2017
2016
2015
__________
(1) EBITDA is a key performance indicator we use to assess our financial and operating performance. We define Adjusted
EBITDA as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus stock-
based compensation expense and plus or minus contingent consideration adjustments. Adjusted EBITDA is a non-GAAP
financial measure. A non-GAAP financial measure is defined as a numerical measure of a company’s financial performance
that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the
comparable measure calculated and presented in accordance with generally accepted accounting principles (“GAAP”) in the
statement of operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are
excluded from the comparable measures so calculated and presented. Adjusted EBITDA Margin is calculated by dividing the
Adjusted EBITDA by revenue. For further discussion of Adjusted EBITDA, see page 16.
3
SERVICES AND STRATEGY OF RESOURCES GLOBAL PROFESSIONALS
Resources Global Professionals ("RGP" or the "Company") is a global consulting firm that enables rapid business
outcomes by bringing together the right people to create transformative change. As a human capital partner for our clients,
most pressing business problems across the enterprise in the areas of Business Transformation,
we specialize in solving
Governance, Risk and Compliance and Technology and Digital Innovation. Our engagements are designed to leverage human
connection and collaboration to deliver practical solutions and more impactful results that power our clients, consultants and
partners’ success.
today’s
RGP was founded in 1996 to help finance executives with operational needs and special projects created by workforce
gaps. Our first-to-market, agile human capital model disrupted the professional services industry at a time when traditional
talent models prevailed. Today’s new ecosystem for work embraces our founding principle – quickly align the right resources
for the work at hand with a premium placed on value, efficiency and ease of use.
Our pioneering approach to workforce strategy uniquely positions us to support our clients on their transformation
journeys. With more than 3,800 professionals, we annually engage with over 2,400 clients around the world from more than
70 practice offices. We are their partner in delivering on the future of work. Headquartered in Irvine, California, RGP is proud
to have served 86 of the Fortune 100.
Industry Background
Changing Market for Project- or Initiative-Based Professional Services
RGP’s services respond to a growing marketplace trend: namely, corporate clients are increasingly choosing to plan
for their workforce needs in more flexible ways. We believe the growing trend in the future of work will be project-based and
not role based. Permanent headcount is being reduced as clients purposely engage agile talent for project initiatives and
transformation work.
While the market for professional services is broad and fragmented and independent data on the size of the market is
not readily available, we believe companies may be more willing to choose alternatives to permanent headcount and traditional
professional service providers because of evolving economic competitive pressure and continuing compliance with increases
in government-led regulatory requirements. We believe RGP is positioned as a viable alternative to traditional accounting,
consulting and law firms in numerous instances because, by using project consultants, companies can:
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Strategically access specialized skills, expertise for projects of set duration
Move quickly
Blend independent and fresh points of view
Effectively supplement internal resources
Increase labor flexibility
Reduce their overall hiring, training and termination costs
Typically, companies use a variety of alternatives to fill their project needs. Companies outsource entire projects to
consulting firms, which 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. Companies use temporary employees from traditional and Internet-based
staffing firms, although these employees 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.
4
Supply of Project Consultants
Based on discussions with our consultants, we believe the number of professionals seeking to work on an agile basis
has historically increased due to a desire for:
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More flexible hours and work arrangements, coupled with a professional culture that offers competitive wages
and benefits
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The ability to learn and contribute in different environments
Challenging engagements that advance their careers, develop their skills and add to their experience base
A work environment that provides a diversity of, and more control over, client engagements
Alternate employment opportunities in regions throughout the world
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;
however 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, including potential tax and legal issues.
Resources Global Professionals’ Solution
We believe RGP is positioned to capitalize on the confluence of the industry trends described above. We believe,
based on discussions with our clients, that RGP provides the agility companies desire in today’s competitive and quickly
evolving environment. We are able to combine all of the following:
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A relationship-oriented and collaborative approach with our clients
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workforce
A professional dedicated talent acquisition and management team who excel at developing a project-based
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Client service teams with Big Four, consulting and/or industry backgrounds to assess our clients’ project needs
and customize solutions to meet those needs
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Highly qualified consultants with the requisite expertise, experience and points of view
Competitive rates on an hourly, rather than project, basis
Significant client control of their projects with effective knowledge transfer and change management
Resources Global Professionals’ Strategy
Our Business Strategy
We are dedicated to serving our clients with highly qualified and experienced talent in support of projects and
initiatives in a broad array of functional areas, including:
Business strategy and transformation
Finance and accounting
Program and project management
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(cid:221) Change management
Transaction advisory
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Executive search
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(cid:221) Human resources
Supply chain
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Legal
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Lease accounting
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Financial operations
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Equity administration and accounting
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Tax
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Risk and compliance
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Information security and privacy
Technology and digital.
(cid:221) Business technology
5
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Internal audit and compliance
(cid:221) Operational risk management
(cid:221) Data analytics
(cid:221) Robotics process automation
Our objective is to build RGP’s reputation as the premier provider of agile consulting services for companies facing
transformation, change and compliance challenges. We have developed the following business strategies to achieve our
objectives:
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Hire and retain highly qualified, experienced consultants. We believe our highly qualified, experienced
consultants provide us with a distinct competitive advantage. Therefore, one of our priorities is to continue to attract and retain
high-caliber consultants who are committed to solving problems. We believe we have been successful in attracting and retaining
qualified professionals by providing challenging work assignments, competitive compensation and benefits, and continuing
professional development and learning opportunities, while offering flexible work schedules and more control over choosing
client engagements.
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Maintain our distinctive culture. Our corporate culture is the foundation of our business strategy and we believe
it has been a significant component of our success. Our senior management, virtually all of whom are Big Four, management
consulting and/or Fortune 500 alumni, has created a culture that combines the commitment to quality and the client service
focus of a Big Four firm with the entrepreneurial energy of an innovative, high-growth company. Our culture continues to
evolve to meet the new challenges facing consultants, clients and management and so our original acronym “TIEL” (talent,
In today’s marketplace, we
integrity, enthusiasm and loyalty), representing the traits expected of our people, has evolved.
believe that focus and accountability are key traits that help to strengthen our team and support our ability to provide clients
with high-quality services and solutions. Thus, our culture has evolved to “LIFE AT RGP”, representing Loyalty, Integrity,
Focus, Enthusiasm, Accountability and Talent. We believe our culture has created a circle of quality; our culture is instrumental
to our success in hiring and retaining highly qualified employees who, in turn, attract quality clients.
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Build consultative relationships with clients. We emphasize a relationship-oriented approach to business rather
than a transaction-oriented or assignment-oriented approach. We believe the professional services experience of our
management and consultants enables us to understand the needs of our clients and deliver an integrated, relationship-based
approach to meeting those needs. Client relationships and needs are addressed from a client, not office, perspective. We
regularly meet with our existing and prospective clients to understand their business issues and help them define their project
needs. Once our revenue team helps define the client’s project needs, our talent team identifies consultants with the appropriate
skills and experience to meet the client’s objectives. We believe that by establishing relationships with our clients to solve their
professional service needs, we are more likely to identify new opportunities to serve them. The strength and depth of our client
relationships is demonstrated by two key statistics: 1) during fiscal 2019, 46 of our 50 largest clients in terms of revenue
engaged our consultants in more than one practice area and 40 of those largest 50 clients used three or more practice areas; and
2) 44 of our largest 50 clients in fiscal 2013 remained clients in fiscal 2019 while 38 of our largest 50 clients in 2008 were still
clients in 2019.
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Build the RGP brand. Our objective is to build RGP’s reputation as the premier provider of agile consulting
services for companies facing transformation, change and compliance challenges. We want to be the preferred provider in the
future of work. Our primary means of building our brand is by consistently providing high-quality, value-added services to our
clients. We have also focused on building a significant referral network through our 2,965 consultants and 931 management
and administrative employees working from offices in 20 countries as of May 25, 2019. In addition, we have global, regional
and local marketing efforts that reinforce the RGP brand.
6
Our Growth Strategy
Since inception, our growth has been primarily organic rather than via acquisition. We believe we have significant
opportunity for continued organic growth in our core business and also to grow opportunistically through strategic acquisitions
as the global economy strengthens and economic uncertainties decrease. In both our core and acquired businesses, key elements
of our growth strategy include:
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Expanding work from existing clients. A principal component of our strategy is to secure additional work from
the clients we have served. We believe, based on discussions with our clients, the amount of revenue we currently receive from
many of our clients represents a relatively small percentage of the amount they spend on professional services, and, consistent
with historic industry trends, they may continue to increase the amount they spend on these services as the global economy
evolves. We believe that by continuing to deliver high-quality services and by further developing our relationships with our
clients, we can capture a significantly larger share of our clients’ expenditures for professional services. Near the end of fiscal
2017, we launched our Strategic Client Program to serve a number of our largest clients with dedicated global account teams.
We believe this focus enhances our opportunity to develop in-depth knowledge of these clients’ needs and the ability to increase
the scope and size of projects with those clients.
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Growing our client base. We will continue to focus on attracting new clients. We strive to develop new client
relationships primarily by leveraging the significant contact networks of our management and consultants and through referrals
from existing clients. We believe we can continue to attract new clients by building our brand name and reputation,
supplemented by our global, regional and local marketing efforts. We anticipate our growth efforts this year will focus on
identifying strategic target accounts especially in the large and middle market client segments.
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Expanding geographically. We have expanded geographically to meet the demand for agile professional
services around the world and currently have offices in 20 countries. We believe, based upon our clients’ requests, there are
future opportunities to promote growth globally. Consequently, we intend to continue to expand our international presence on
a strategic and opportunistic basis. We may also add to our existing domestic office network when our existing clients have a
need or if there is a significant new client opportunity.
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Strategic acquisitions. Since fiscal 2009, we grew organically, as we had not identified a target acquisition that
fit one of our primary acquisition goals: either addressing an identified gap in our geographic presence or in our solution
offerings. In fiscal 2018, we identified and acquired -taskforce, Management on Demand AG (“taskforce”) and substantially
all of the assets and assumption of certain liabilities of Accretive Solutions, Inc. (“Accretive”). The acquisitions of taskforce
and Accretive satisfied the need to better penetrate the vibrant economic market in Germany and gaps in serving middle market
companies in the United States, respectively, while also harmonizing well with RGP’s culture.
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Providing additional professional service offerings. We will continue to develop and consider entry into new
professional service offerings. Since our founding, we have diversified our professional service offerings from a primary focus
on accounting and finance to other areas in which our clients have significant needs such as human capital; information
management; governance, risk and compliance; supply chain management; legal and regulatory services; and corporate
advisory, strategic communications and restructuring services. In fiscal 2017, we formed our Integrated Solutions group to
identify project opportunities that we can market at an enterprise level with talent, tools and methodologies. This group
commercializes projects into solution offerings. Currently, our solutions practice is focused on business technology, data
analytics and robotic process automation. When evaluating new solutions offerings to market to current and prospective clients,
we consider (among other things) cultural fit, growth potential, profitability, cross-marketing opportunities and competition.
Consultants
We believe an important component of our success has been our highly qualified and experienced consultants. As of
May 25, 2019, we employed or contracted 2,965 consultants engaged with clients. 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 professional development and learning opportunities, while offering more choice
concerning work schedules and more control over choosing client engagements.
Almost all of our consultants in the United States are employees of RGP. We typically pay each consultant an hourly
rate for each consulting hour worked and for certain administrative time and overtime premiums, and offer benefits, including:
paid time off and holidays; a discretionary bonus program; group medical and dental 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
7
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 (“ESPP”), which enables them to purchase shares of the Company’s stock at a discount. We intend to
maintain competitive compensation and benefit programs. To a much lesser extent, we utilize a “bench model” for consultants
with specialized in-demand skills and experience. These consultants are paid a weekly salary rather than for each consulting
hour worked and have bonus eligibility based upon utilization.
Internationally, our consultants are a blend of 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 the partial “bench model” described above.
Clients
We provide our services and solutions to a diverse client base in a broad range of industries. In fiscal 2019, we served
over 2,400 clients from offices located in 20 countries. Our revenues are not concentrated with any particular client. No single
customer accounted for more than 10% of revenue for the 2019, 2018 an 2017 fiscal years, and in fiscal 2019, our 10 largest
clients accounted for approximately 15% of our revenues.
Operations
We generally provide our professional services to clients at a local level, with the oversight of our market vice
presidents and consultation of our corporate management team. The vice presidents and client development directors in each
market are responsible for initiating client relationships, ensuring client satisfaction throughout engagements, coordinating
services for clients on a national and international platform and maintaining client relationships post-engagement. Throughout
this process, the corporate management team and regional vice presidents are available to consult with the vice presidents with
respect to client services. Market revenue leadership and their teams identify, develop and close new and existing client
opportunities, often working in a coordinated effort with other markets on multi-national/multi-location proposals.
Market revenue leadership works closely with our regionalized talent management team, who are responsible for
identifying, hiring and cultivating a sustainable relationship with seasoned professionals fitting the RGP profile of client needs.
Our consultant recruiting efforts are regionally or nationally based, depending upon the skill set required; talent management
handles both the identification and hiring of consultants specifically skilled to perform client projects as well as monitoring the
satisfaction of consultants during and post-completion of assignments. Talent focuses on getting the right talent in the right
place at the right time.
We believe 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. As the marketplace
for professional services has evolved, we continue to believe our local market leaders are in the best position to understand the
local and regional outsourced professional services market. However, the complexity of relationships with many of our
multinational clients also dictates that in some circumstances a hybrid model, bringing the best of both locally driven
relationships as well as global focus, is important for employee and client satisfaction.
For projects requiring intimate knowledge and thought leadership on particular client concerns, our integrated
solutions group consists of individuals with requisite skills and tools to work with clients.
We believe our ability to deliver professional services successfully to clients is dependent on our leaders in the field
working together as a collegial and collaborative team, often working jointly on client projects. To build a sense of team effort
and increase camaraderie among our leaders, we have a program for field personnel that awards annual incentives based on
specific agreed-to goals focused on the performance of the individual and potential reward tied to the performance of the
Company. We also share across the Company the best and most effective practices of our highest achieving offices and use
this as an introductory tool with new vice presidents and directors. New leadership also spend time in other markets, partnering
with experienced sales and recruiting personnel to understand, among many skills, how best to serve current clients, expand
our presence with prospects and identify and recruit highly qualified consultants. This allows the veteran leadership to share
their success stories, foster the culture of the Company with new vice presidents and 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.
8
From our corporate headquarters in Irvine, California, we provide centralized administrative, marketing, finance, HR,
IT, legal and real estate support. Our financial reporting is also centralized in our corporate service center. This center handles
invoicing, accounts payable and collections, and administers HR services including employee compensation and benefits
administration for North American offices. We also have a business support operations center in our Utrecht, Netherlands office
to provide centralized finance, HR, IT, payroll and legal support to our European offices. We share our Salesforce software
platform world-wide, providing a common database of identified opportunities, prospective new clients, and existing client
proposals for additional projects. In addition, in North America, we have a corporate networked IT 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:
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local and global initiatives focused on existing clients and target companies
national and international targeting efforts focused on multinational companies
brand marketing activities
national and local advertising and direct mail programs
Our business development efforts are driven by the networking and sales efforts of our management. While local
senior management focus on market-related activities, they are also part of the regional, national and international sales efforts,
especially when the client is part of a multinational entity. In certain markets, sales efforts are also enhanced by management
professionals focused solely on business development efforts on a market and national basis based on firm-wide and industry-
focused initiatives. These business development professionals, teamed with the vice-presidents and client service teams, are
responsible for initiating and fostering relationships with the senior management and decision makers of our targeted client
companies. During fiscal 2018, we completed our implementation of software from Salesforce.com on a world-wide basis, to
serve as a tool to enhance our local and worldwide business development efforts.
We believe our national marketing efforts have been effective in generating incremental revenues from existing clients
and developing new client relationships. Our brand marketing initiatives help develop RGP’s image in the markets we serve.
Our brand is reinforced by our professionally designed website, print, and online advertising, direct marketing, seminars,
initiative-oriented brochures, social media and public relations efforts. We believe our branding initiatives, coupled with our
high-quality client service, help to differentiate us from our competitors and to establish RGP as a credible and reputable global
professional services firm.
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:
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consulting firms
local, regional, national and international accounting and other traditional professional services firms
independent contractors
traditional and Internet-based staffing firms
the in-house or former in-house resources of our clients
We compete for clients on the basis of the quality of professionals, the knowledge base they possess, the timely
availability of professionals with requisite skills, the scope and price of services, and the geographic reach of services. We
believe 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
9
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 25, 2019, we had 3,896 employees, including 931 management and administrative employees and
2,965 consultants. Our employees are not covered by any collective bargaining agreements.
Price Range of Common Stock
Our common stock has traded on the Nasdaq Global Select Market under the symbol “RECN” since December 15,
2000. As of July 8, 2019, the last reported sales price on Nasdaq of the Company’s common stock was $15.88 per share and
the approximate number of holders of record of our common stock was 48 (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).
Dividend Policy
Our board of directors has established a quarterly dividend, subject to quarterly board of directors’ approval. Pursuant
to declaration and approval by our board of directors, we declared a dividend of $0.13 per share of common stock during each
quarter in fiscal 2019 and $0.12 per share of common stock during each quarter in fiscal 2018. On April 18, 2019, our board
of directors declared a regular quarterly dividend of $0.13 per share of our common stock. The dividend was paid on June 13,
2019 to stockholders of record at the close of business on May 16, 2019. Continuation of the quarterly dividend 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 current or future credit agreements and other agreements,
and other factors deemed relevant by our board of directors.
Purchases of Equity Securities
In July 2015, our board of directors approved a stock repurchase program (the “July 2015 program”), authorizing the
purchase, at the discretion of our senior executives, of our common stock for an aggregate dollar limit not to exceed
$150.0 million. Subject to the aggregate dollar limit, the currently authorized stock repurchase program does not have an
expiration date. Repurchases under the program may take place in the open market or in privately negotiated transactions and
may be made pursuant to a Rule 10b5-1 plan.
The following summarizes shares of common stock repurchased by the Company during the fourth quarter of fiscal
2019:
Period
February 24, 2019— March 23, 2019
March 24, 2019 — April 20, 2019
April 21, 2019 — May 25, 2019
Total February 24, 2019 — May 25, 2019
Total Number of
Average
Shares
Approximate Dollar
Total
Number
of Shares
Purchased
Price
Paid
per
Share
-
352,629
131,034
483,663
$
$
$
$
-
15.70
16.05
15.80
Purchased as
Part of
Announced
Programs (1)
Value of Shares
that May Yet be
Purchased Under
Announced Program
-
352,629
131,034
483,663
$
$
$
$
97,736,690
92,199,776
90,096,548
90,096,548
10
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 3000 Index, a customized peer group consisting of nine
companies listed below the following table and a combined classification of companies under Standard Industry Codes as 8742-
Management Consulting Services for the five years ended May 25, 2019. The graph assumes $100 was invested on May 30,
2014 in our common stock and in each index (based on prices from the close of trading on May 30, 2014), 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, Inc., the Russell 3000 Index,
SIC Code 8742 - Management Consulting and Peer Group
$180
$160
$140
$120
$100
$80
$60
$40
$20
$0
5/31/14
5/30/15
5/28/16
5/27/17
5/26/18
5/25/19
Resources Connection, Inc.
Russell 3000
Peer Group
SIC Code 8742 - Management Consulting
*$100 invested on 5/31/14 in stock or index, including reinvestment of dividends.
Index calculated on month-end basis.
Copyright© 2019 Russell Investment Group. All rights reserved.
Resources Connection, Inc.
Russell 3000
SIC Code 8742 - Management Consulting
Peer Group
For the Fiscal Years Ended
May 30, 2014 May 30, 2015 May 28, 2016 May 27, 2017 May 26, 2018 May 25, 2019
144.26
155.60
159.93
163.02
100.00
100.00
100.00
100.00
129.08
111.86
103.29
115.28
130.89
112.11
100.62
132.42
146.79
151.81
156.02
134.27
109.89
131.94
100.07
148.04
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
The Company’s customized peer group includes the following nine professional services companies that we believe
reflect the competitive landscape in which the Company operates and acquires talent: CRA International, Inc.; FTI Consulting,
Inc.; Heidrick & Struggles International, Inc.; Hudson Global, Inc.; Huron Consulting Group Inc.; ICF International, Inc.;
Kforce, Inc.; Korn/Ferry International; and Navigant Consulting, Inc. The Advisory Board Company is no longer included in
11
the Company’s customized peer group due to acquisition by OptumInsight, Inc. in November 2017. The Company’s
compensation committee, a committee of our board of directors comprised of independent directors, reviews the composition
of the peer group annually to ensure its alignment with the Company’s size, practice areas, business model delivery and
geographic reach.
SELECTED FINANCIAL DATA
You should read the following selected historical consolidated financial data in conjunction with our Consolidated
Financial Statements and related notes in Part II, Item 8. Financial Statements and Supplementary Data and Management’s
Discussionand Analysis of Financial ConditionandResults of Operations in Part I, Item7of this Annual Report.The Consolidated
Statements of Operations data for the years ended May 28, 2016 and May 30, 2015 and the Consolidated Balance Sheet data
at May 27, 2017, May 28, 2016, and May 30, 2015 were derived from our audited Consolidated Financial Statements that are
not included in this Annual Report. The Consolidated Statements of Operations data for the years ende d May 25, 2019,
May 26, 2018 and May 27, 2017 and the Consolidated Balance Sheet data at May 25, 2019 and May 26, 2018 were derived
from our audited Consolidated Financial Statements that are included elsewhere in this Annual Report. Historical results are
not necessarily indicative of results that may be expected for any future periods. All years presented consisted of 52 weeks.
May 25,
2019
Years Ended
May 27,
2017
(In thousands, except per common share and other data)
May 26,
2018 (1)
May 28,
2016
May 30,
2015
Revenue
Income from operations
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
Other Data:
Number of offices open at end of year
Number of consultants on assignment at end of year
Cash dividends paid
$
$
$
$
$
$
$
728,999
50,159
31,470
1.00
0.98
31,596
32,207
0.52
73
2,965
16,158
$
$
$
$
$
$
$
654,129
30,624
18,826
0.61
0.60
30,741
31,210
0.48
74
3,247
14,269
$
$
$
$
$
$
$
583,411
34,402
18,651
0.57
0.56
32,851
33,471
0.44
67
2,569
14,157
$
$
$
$
$
$
$
598,521
53,803
30,443
0.82
0.81
37,037
37,608
0.40
68
2,511
14,085
$
$
$
$
$
$
$
590,589
50,258
27,508
0.73
0.72
37,825
38,248
0.32
68
2,516
11,748
Total assets
Long-term debt
Stockholders' equity
$
$
$
428,370
43,000
282,396
$
$
$
May 25,
2019
May 26,
2018
May 27,
2017
(Amounts in thousands)
$
$
$
364,128
48,000
238,142
$
$
$
May 28,
2016
May 30,
2015
417,255
-
342,649
$
$
$
416,981
-
340,452
432,674
63,000
268,825
(1) See Note 3 – Acquisitions in the Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual
Report for discussions on the Company’s acquisitions of taskforce and Accretive during fiscal 2018.
12
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
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.” in our Annual Report
on Form 10-K for the year ended May 25, 2019 and elsewhere in this Annual Report.
Overview
RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people to create
transformative change. As a human capital partner for our clients, we specialize in solving today’s most pressing business
problems across the enterprise in the areas of Business Transformation, Governance, Risk and Compliance and Technology
and Digital Innovation. Our engagements are designed to leverage human connection and collaboration to deliver practical
solutions and more impactful results that power our clients, consultants and partners’ success. See Part 1 Item 1. “Business”
for further discussions about the Company’s business and operations.
The Company announced certain strategic initiatives in April 2017. The first initiative focused on cultivating a more
sophisticated and robust sales culture. The Company has now completed this initiative. Among the features of the initiative are
enhanced training activities; the alignment of the Company’s sales process using tools such as Salesforce.com and the
establishment of an enterprise-wide business development function; and the initiation of a new incentive compensation program
for individuals focused on profitable revenue generation and gross margin. The new incentive compensation program rewards
individuals for achieving or exceeding pre-determined sales goals, with bonus multipliers applicable for exceeding goals; the
rewards for sales achievement are tied to both gross margin goals and qualitative goals associated with the Company’s culture
of “LIFE AT RGP”. Finally, to complete this initiative, the Company expanded its Strategic Client Program, which involves a
dedicated account team for certain high profile clients with global operations.
The second initiative redesigned the Company’s business model to enhance its client offerings, with a focus on
building its integrated solutions capabilities and delivering multi-disciplinary offerings to its clients in three areas of focus –
Business Strategy and Transformation, Finance and Accounting, and Technology and Digital. During fiscal 2018, the Company
implemented the new operating model for sales, talent and integrated solutions within RGP for all of North America; that is,
reporting relationships are now largely defined by functional area rather than on an office location basis. While we believe this
effort has already delivered improved revenue growth and improved customer experience into fiscal 2019, we are focused on
continued improvement from this initiative. The Company completed the redesigned operating model in Europe and Asia
Pacific during the third quarter of fiscal 2019.
The third initiative focuses on cost containment. Goals of this initiative include (i) improving leverage of selling,
general and administrative expenses (“S, G & A”) as a percentage of revenue and (ii) realizing cost synergies in the core
business and with the Accretive acquisition. S, G & A as a percentage of revenue decreased to 30.7% during fiscal 2019 as
compared to 32.0% and 31.4% in fiscal years 2018 and 2017, respectively.
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.
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.
13
The following represents a summary of our critical accounting policies, defined as those policies 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.
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 (which may not include knowledge of all significant events), 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 we will continue to experience the same credit loss rates 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 Operations, an adjustment of tax expense
may need to be recorded and this adjustment may materially affect the Company’s future financial results and financial
condition.
Revenue recognition — Revenues are recognized when control of the promised service is transferred to our clients, in
an amount that reflects the consideration expected in exchange for the services. Revenue is recorded net of sales or other
transaction taxes collected from clients and remitted to taxing authorities. Revenues from contracts are recognized over time,
based on hours worked by the Company’s professionals. The performance of the agreed-to service over time is the single
performance obligation for revenues. Certain clients may receive discounts (for example, volume discounts or rebates) to the
amounts billed. These discounts or rebates are considered variable consideration. Management evaluates the facts and
circumstances of each contract and client relationship to estimate the variable consideration assessing the most likely amount
to recognize and considering management’s expectation of the volume of services to be provided over the applicable period.
Rebates are the largest component of variable consideration and are estimated using the most likely amount method prescribed
by Accounting Standards Codification (“ASC”) Topic 606, contracts terms and estimates of revenue. Revenues are recognized
net of variable consideration to the extent that it is probable that a significant reversal of revenues will not occur in subsequent
periods.
Stock-based compensation — Under our 2014 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.
The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing
model. The Company determines the estimated value of restricted stock awards using the closing price of our common stock
on the date of grant. We have elected to use the Black-Scholes option-pricing model for our stock options and stock-based
awards issued under our ESPP 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, expected dividends and
the risk-free interest rate over the expected term of our employee stock options. In addition, because stock-based compensation
expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, it is reduced
for estimated forfeitures. Forfeitures are 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 future periods, the compensation expense recorded may differ materially from
the amount recorded in the current period.
14
The Company uses its historical volatility over the expected life of the stock option award and ESPP to estimate the
expected volatility of the price of its common stock. The risk-free interest rate assumption is based upon observed interest rates
appropriate for the term of our employee stock options. The impact of expected dividends ($0.13 per share for each quarter
during fiscal 2019 and $0.12 per share for each quarter of fiscal 2018) is also incorporated in determining the estimated value
per share of employee stock option grants and ESPP. Such dividends are subject to quarterly board of director approval. The
Company’s expected life of stock option grants is 5.7 years for non-and 8.3 years for officers and expected life of ESPP is 6
months. The Company reviews the underlying assumptions related to stock-based compensation at least annually or more
frequently if the Company believes triggering events exist.
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 the carrying value may not be recoverable. Identifiable
intangible assets are amortized over their lives, typically ranging from three to ten years. Goodwill is not subject to amortization.
This asset is considered to have an indefinite life and its carrying value is 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 this intangible asset in the future and this adjustment may materially affect
the Company’s future financial results and financial condition.
Business Combinations — We allocate the fair value of the purchase consideration of our acquisitions to the tangible
assets, liabilities, and intangible assets acquired based on their estimated fair values. Purchase price allocations for business
acquisitions require significant judgments, particularly with regards to the determination of value of identifiable assets,
liabilities, and goodwill. Often third-party specialists are used to assist in valuations requiring complex estimation. The excess
of the fair value of purchase consideration over the fair values of these identifiable assets and liabilities is recorded as goodwill.
Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Purchase agreements related to certain business acquisitions may include provisions for the payment of additional
cash consideration if certain future performance conditions are met. These contingent consideration arrangements are
recognized at their acquisition date fair value and included as part of the purchase price at the acquisition date. The estimated
fair value of these contingent consideration arrangements are classified as accrued liabilities or other long-term liabilities on
our Consolidated Balance Sheets. The fair value is remeasured each reporting period with any change in fair value being
recognized in the applicable period’s results of operations. Measuring the fair value of contingent consideration at the
acquisition date, and for all subsequent remeasurement periods, requires a careful examination of the facts and circumstances
to determine the probable resolution of the contingency(ies). The estimated fair value of the contingent consideration is based
primarily on our estimates of meeting the applicable contingency conditions as per the terms of the applicable agreements.
These include estimates of various operating performance and other measures and our assessment of the probability of meeting
such results, with the probability-weighted earn-out then discounted to estimate fair value.
15
Results of Operations
The following tables set forth, for the periods indicated, our Consolidated Statements of Operations 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.
For the Years Ended
May 25,
2019
May 26,
2018
(Amounts in thousands, except percentages)
May 27,
2017
Revenue
Direct cost of services
Gross margin
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Income from operations
Interest expense
Income before provision for income taxes
Provision for income taxes
Net income
$
$
728,999
446,560
282,439
223,802
3,799
4,679
50,159
2,190
47,969
16,499
31,470
100.0 %$
61.3
38.7
30.7
0.5
0.6
6.9
0.3
6.6
2.3
4.3 %$
654,129
408,074
246,055
209,042
2,298
4,091
30,624
1,735
28,889
10,063
18,826
100.0 %$
62.4
37.6
32.0
0.4
0.6
4.6
0.3
4.3
1.5
2.8 %$
583,411 100.0 %
362,086
221,325
183,471
-
3,452
34,402
629
33,773
15,122
18,651
62.1
37.9
31.4
-
0.6
5.9
0.1
5.8
2.6
3.2 %
We also assess the results of our operations using Adjusted EBITDA and Adjusted EBITDA Margin. We define
Adjusted EBITDA as net income before amortization of intangible assets, depreciation expense, interest and income taxes plus
stock-based compensation expense and plus or minus contingent consideration adjustments. Adjusted EBITDA Margin is
calculated by dividing Adjusted EBITDA by revenue. These measures assist management in assessing our core operating
performance. The following table presents Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated and
includes a reconciliation of such measures to net income, the most directly comparable GAAP financial measure:
Net income
Adjustments:
Amortization of intangible assets
Depreciation expense
Interest expense
Provision for income taxes
Stock-based compensation expense
Contingent consideration adjustment
Adjusted EBITDA
Revenue
Adjusted EBITDA Margin
May 25,
2019
For the Years Ended
May 26,
2018
(Amounts in thousands, except percentages)
May 27,
2017
$
31,470
$
18,826
$
18,651
3,799
4,679
2,190
16,499
6,570
(590)
64,617
728,999
$
$
2,298
4,091
1,735
10,063
6,033
-
43,046
654,129
$
$
-
3,452
629
15,122
6,068
-
43,922
583,411
8.9 %
6.6 %
7.5 %
$
$
The financial measures and key performance indicators we use to assess our financial and operating performance
above are not defined by, or calculated in accordance with, GAAP. A non-GAAP financial measure is defined as a numerical
measure of a company’s financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of
excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the
Consolidated Statement of Operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including
amounts, that are excluded from the comparable measure so calculated and presented.
Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. We believe Adjusted EBITDA
and Adjusted EBITDA Margin provide useful information to our investors because they are financial measures used by
16
management to assess the core performance of the Company. Adjusted EBITDA and Adjusted EBITDA Margin are not
measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as
substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability
or liquidity. These measures should be considered in addition to, and not as a substitute for, net income, earnings per share,
cash flows or other measures of financial performance prepared in conformity with GAAP.
Further, Adjusted EBITDA and Adjusted EBITDA Margin have the following limitations:
(cid:221)
Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will
often have to be replaced in the future and Adjusted EBITDA do not reflect any cash requirements for such replacements;
(cid:221)
Equity based compensation is an element of our long-term incentive compensation program, although we
exclude it as an expense from Adjusted EBITDA when evaluating our ongoing operating performance for a particular
period;
(cid:221) We exclude the changes in the fair value of the contingent consideration obligation related to a business
acquisition from Adjusted EBITDA; and
(cid:221)
Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently
than we do, limiting their usefulness as a comparative measure.
Because of these limitations, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered a substitute
for performance measures calculated in accordance with GAAP.
17
Year Ended May 25, 2019 Compared to Year Ended May 26, 2018
Amounts are in millions unless otherwise stated. Percentage change computations are based upon amounts in
thousands.
Revenue. Revenue increased $74.9 million, or 11.5%, to $729.0 million for the year ended May 25, 2019 from $654.1
million for the year ended May 26, 2018. The increase in revenue is primarily attributable to the full year impact of our
acquisitions of Accretive and taskforce, which were completed during the third and second quarter of fiscal 2018, respectively.
In addition, bill rates improved 0.8% and hours worked increased 10.7% between the two periods; a portion of the increase in
hours worked is due to the Accretive and taskforce acquisitions. Revenue and hours worked resulting from both acquisitions
are not possible to isolate due to the completion of the integration of Accretive operations into RGP at the beginning of the first
quarter of 2019.
We believe the improvement in revenue for the current period compared to the prior year period is in part the product
of the operational changes made throughout fiscal 2018 and into fiscal 2019, including the use of Salesforce.com as a tool to
directly measure individual productivity and structuring reporting lines with a function and client focus. In addition, we believe a
portion of the revenue growth is attributable to client service and technical teams spending more time interacting with clients and
prospects, improved alignment of our incentive systems to sales growth and an increase in sales efforts delivered by a focused
business development team.
Revenue for the Company’s major geographies across the globe consisted of the following (dollars in thousands):
Revenue for the
Years Ended
May 25,
2019
593,799
86,355
48,845
728,999
% of Total
81.5 % $
11.8
6.7
100.0 % $
May 26,
2018
524,872
84,705
44,552
654,129
% of Total
80.3 %
12.9
6.8
100.0 %
%
Change
13.1 %
1.9 %
9.6 %
11.4 %
North America
Europe
Asia Pacific
Total
$
$
Our financial results are subject to fluctuations in the exchange rates of foreign currencies in relation to the United
States dollar. Revenues denominated in foreign currencies are translated into U.S. dollars at the monthly average exchange
rates in effect during each period. Thus, as the value of the United States dollar strengthens relative to the currencies of our
non-United States based operations, our translated revenue (and expenses) will be lower; conversely, if the value of the U.S.
dollar weakens relative to the currencies of our non-United States operations, our translated revenue (and expenses) will be
higher. Using the comparable fiscal 2018 conversion rates, international revenues would have been higher than reported under
GAAP by $5.9 million for the year ended May 25, 2019. Using these constant currency rates, which we believe provides a
more comprehensive view of trends in our business, our revenue increased by 12.4% overall and by 13.3%, 6.4% and 12.7%
in North America, Europe and Asia Pacific, respectively. Average bill rates increased 1.6% on a constant currency basis in
fiscal 2019.
The number of consultants on assignment at the end of fiscal 2019 was 2,965 compared to 3,247 at the end of fiscal
2018.
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.
On a sequential quarter basis, fiscal 2019 fourth quarter revenue increased $2.6 million, or 1.5%, to $182.1 million
from $179.5 million. The slight increase in fourth quarter revenue was partially because there are no significant compensated
holidays in the quarter as compared to the third quarter which included the Christmas, New Year’s and Chinese New Year’s
holidays. The remaining increase is attributable primarily to increases in non-hourly revenue. Total hours worked increased
0.9% while average bill rates remained the same between the third and fourth quarter. The Company’s sequential revenue
18
increased in North America (0.1%), Asia Pacific (15.2%) and Europe (3.3%). On a constant currency basis, using the
comparable third quarter fiscal 2019 conversion rates, sequential revenue increased in North America (0.1%), Asia Pacific
(15.0%) and Europe (4.0%).
Direct Cost of Services. Direct cost of services increased $38.5 million, or 9.4%, to $446.6 million for the year ended
May 25, 2019 from $408.1 million for the year ended May 26, 2018. The primary reason for the change is an increase in hours
worked of 10.7% between the two periods (partially attributable to the Accretive and taskforce acquisitions), while the average
consultant pay rates per hour remained consistent in both periods.
Direct cost of services as a percentage of revenue was 61.3% and 62.4% for the during fiscal 2019 and 2018,
respectively. The direct cost of services as a percentage of revenue improved in the current period primarily because of
improvement in the bill/pay ratio and a reduction in cost of the Company’s self-insured medical program as compared to the
prior year.
Our target direct cost of services percentage is 60% for all of our markets.
On a sequential quarter basis, the direct cost of services percentage improved to 59.9% in the fourth quarter of fiscal
2019 from 62.2% in the third quarter of fiscal 2019. This improvement is primarily attributable improved bill pay ratio, driven
by internal initiatives to improve pricing, and an improvement in the cost of the Company’s self-insured medical coverage of
consultants.
Selling, General and Administrative Expenses. S, G & A increased $14.8 million, or 7.1%, to $223.8 million for the
year ended May 25, 2019 from $209.0 million for the year ended May 26, 2018 and a decreased as a percentage of revenue to
30.7% in fiscal 2019 from 32.0% in fiscal 2018. The increase in SG&A is primarily due to the following: (1) $12.9 million of
additional payroll and benefit costs from taskforce and Accretive personnel and new headcount to support the growth of critical
markets, including approximately $0.5 million of compensation benefits related to the loan forgiveness of our recently
appointed Chief Operating Officer (“COO”); (2) $5.5 million related to increased commission and bonus expenses tied to the
revenue growth of the business; (3) $1.8 million of marketing costs associated with driving revenue growth; and (4) increases
of $1.8 million in rent, stock-based compensation expense, bad debt and other categories. These costs were partially offset by
lower acquisition, severance and integration costs of $7.2 million incurred in the comparable prior period.
On a sequential quarter basis, S, G & A as a percentage of revenue was 31.2% and 31.0% for the fourth and third
quarters of fiscal 2019, respectively. S, G & A in the fourth quarter increased $1.3 million to $56.9 million from $55.6 million
in the previous quarter. The primary reasons for the change were: (1) $0.8 million of additional payroll and benefit costs from
new headcount to support the growth of critical markets, including approximately $0.5 million of compensation benefits related
to the loan forgiveness of our recently appointed COO; (2) $0.6 million related to increased severance, acquisition and
integration costs; and (3) $0.4 million related to increased commission and bonus expenses tied to the revenue growth of the
business. These costs were partially offset by lower marketing and legal costs of $0.5 million.
Amortization and Depreciation Expense. Amortization of intangible assets was $3.8 million in fiscal 2019 compared
to $2.3 million in fiscal 2018. The increase is primarily due to the full year impact of amortization related to identifiable
intangible assets acquired in the December 4, 2017 acquisition of Accretive and the September 1, 2017 acquisition of taskforce.
Depreciation expense was $4.7 million and $4.1 million in fiscal 2019 and 2018, respectively. The increase is primarily
the result of depreciation on fixed assets acquired in the acquisition of Accretive.
Interest Expense. Total interest expense for fiscal 2019, including commitment fees, was approximately $2.5 million
compared to $1.9 million in fiscal 2019. The increase in the 2019 period is the result of interest on incremental borrowings of
$15.0 million in fiscal 2018 to finance a portion of the acquisition of Accretive and generally higher interest rates in fiscal
2019. Interest income was approximately $0.3 million and $0.1 million in fiscal 2019 and 2018, respectively.
Income Taxes. On December 22, 2017, Congress enacted H.R.1, the “Tax Cuts and Jobs Act” (“Tax Reform Act”),
which made significant changes to U.S. federal income tax laws including reducing the corporate rate from 35% to 21%
In December 2017, the SEC issued Staff Accounting Bulletin No. 118 (“SAB 118”) which allowed
effective January 1, 2018.
the Company to record provisional amounts related to the expected impact of the Tax Reform Act and adjust those amounts
19
during a measurement period not to extend more than one year from date of enactment. The Company completed its
accounting for the impact of Tax Reform Act during fiscal 2019.
The Tax Reform Act also included the Global Intangible Low-Tax Income (“GILTI”) provision, a new mechanism
for taxing certain foreign profits, the Base Erosion Anti-Abuse Tax, a minimum tax on payments to related parties, and the
Foreign-Derived Intangible Income provision, a tax incentive to earn income abroad. The Company was permitted to make
an accounting policy election to account for GILTI as either a period charge when the tax arises or as a part of deferred taxes.
The Company determined to account for GILTI as a period cost and has recognized the tax impacts associated with GILTI as
a current expense for fiscal 2019.
The provision for income taxes increased to $16.5 million (effective rate of approximately 34%) for the year ended
May 25, 2019 from $10.1 million (effective rate of approximately 35%) for the year ended May 26, 2018. The provision for
income taxes increased due to improved global income. The reduction in the U.S. statutory federal tax rate contributed to the
lower effective tax rate.
The provision for taxes in both fiscal 2019 and fiscal 2018 resulted from taxes on income from operations in the United
States and certain other foreign jurisdictions, a lower benefit for losses in certain foreign jurisdictions with tax rates lower than
the United States statutory rates, and no benefit for losses in jurisdictions in which a valuation allowance on operating loss
carryforwards had previously been established. Based upon current economic circumstances, management will continue to
monitor the need to record additional or release existing valuation allowances in the future, primarily related to certain foreign
jurisdictions. Realization of the currently reserved foreign deferred tax assets is dependent upon generating sufficient future
taxable income in those foreign territories.
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 that the Company’s effective tax rate will remain constant in the future because of the
lower benefit from the United States statutory rate for losses in certain foreign jurisdictions, the limitation on the benefit for
losses in jurisdictions in which a valuation allowance for operating loss carryforwards has previously been established, and the
unpredictability of timing and the amount of eligible disqualifying incentive stock options (“ISO”) exercises.
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 from these factors for the foreseeable
future. The Company recognized a benefit of approximately $31,000 and $0.3 million related to stock-based compensation for
nonqualified stock options expensed and for eligible disqualifying ISO exercises during fiscal 2019 and 2018, 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) is significant 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.
The Company has maintained a position of being indefinitely reinvested in its foreign subsidiaries’ earnings by not
expecting to remit foreign earnings in the foreseeable future. Being indefinitely reinvested does not require a deferred tax
liability to be recognized on the foreign earnings. Management’s indefinite reinvestment position is supported by:
(cid:221)
RGP in the United States has generated more than enough cash to fund operations and expansion, including
acquisitions. RGP uses its excess cash to, at its discretion, return cash to shareholders through dividend payments and stock
repurchases.
(cid:221)
RGP in the United States has no debt or any other current or known obligations that require cash to be remitted
from foreign subsidiaries.
(cid:221)
Management’s growth objectives include allowing cash to accumulate in RGP’s profitable foreign subsidiaries
with the expectation of finding strategic expansion plans to further penetrate RGP’s most successful locations.
(cid:221)
The consequences of distributing foreign earnings have historically been deemed to be tax inefficient for RGP
or not materially beneficial.
20
Year Ended May 26, 2018 Compared to Year Ended May 27, 2017
For a comparison of our results of operations for the fiscal years ended May 26, 2018 and May 27, 2017, see “Part II,
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on
Form 10-K for the fiscal year ended May 26, 2018, filed with the SEC on July 23, 2018 (File No. 0-32113).
Quarterly Results
The following table sets forth our unaudited quarterly Consolidated Statements of Operations data for each of the eight
quarters in the two-year period ended May 25, 2019. 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.
May 25,
2019
Feb. 23,
2019
Nov. 24,
2018
Aug. 25,
2018
May 26,
2018
Feb. 24,
2018
Nov. 25,
2017
Aug. 26,
2017
(In thousands, except net income per common share)
Quarters Ended
$
182,144 $
179,498 $
188,799 $
178,558 $
183,791 $
172,414 $
156,738 $ 141,186
109,188
111,587
115,378
110,407
113,363
109,904
97,319
87,488
72,956
67,911
73,421
68,151
70,428
62,510
59,419
53,698
56,890
944
1,250
13,872
461
55,587
948
1,163
10,213
595
54,959
952
1,197
16,313
608
56,366
955
1,069
9,761
526
58,861
972
1,115
9,480
553
55,268
1,004
1,089
5,149
508
47,498
322
947
10,652
365
13,411
4,042
9,369 $
9,618
3,822
5,796 $
15,705
5,141
10,564 $
9,235
3,494
5,741 $
8,927
4,946
3,981 $
4,641
46
4,595 $
10,287
2,149
8,138 $
0.30 $
0.29 $
0.18 $
0.18 $
0.33 $
0.33 $
0.18 $
0.18 $
0.13 $
0.12 $
0.15 $
0.14 $
0.27 $
0.27 $
$
$
$
47,415
-
940
5,343
309
5,034
2,922
2,112
0.07
0.07
Revenue
Direct cost of services,
payroll and related taxes for
professional services
Gross margin
Selling, general and
administrative expenses
Amortization of intangible
Depreciation expense
Income from operations
Interest expense
Income before provision for
income taxes
Provision for income taxes
Net income
Net income per common share
Basic
Diluted
(1) Net income per common share calculations for each of the quarters were based upon the weighted average number of
shares outstanding for each period, and the sum of the quarters may not necessarily be equal to the full year net income per
common share amount.
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” of our Annual Report on Form
10-K for the fiscal year ended May 25, 2019, filed with the SEC on July 19, 2019. 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 our $120 million secured revolving credit
facility (“Facility”) with Bank of America and, historically, to a lesser extent, stock option exercises and ESPP purchases. On
21
an annual basis, we have generated positive cash flows from operations since inception, and we continued to do so for the year
ended May 25, 2019. Our ability to generate positive cash flow from operations in the future will be, at least in part, dependent
on continued stable global economic conditions. As of May 25, 2019, the Company had $43.0 million of cash and cash
equivalents including $25.6 million held in international operations.
We entered into the Facility in October 2016, which is available for working capital and general corporate purposes,
including potential acquisitions and stock repurchases. The Facility allows the Company to choose the interest rate applicable
to advances. Borrowings under the Facility bear interest at a rate per annum of either, at the Company’s option, (i) LIBOR plus
a margin of 1.25% or 1.50% or (ii) an alternate base rate, plus margin of 0.25% or 0.50% with the applicable margin depending
on the Company’s consolidated leverage ratio. The alternate base rate is the highest of (i) Bank of America’s prime rate, (ii)
the federal funds rate plus 0.50% and (iii) the Eurodollar rate plus 1.0%. The Company pays an unused commitment fee on the
average daily unused portion of the Facility at a rate of 0.15% to 0.25% depending upon on the Company’s consolidated
leverage ratio. The Facility expires October 17, 2021. The Company’s borrowings on the Facility were $43.0 million as of May
25, 2019 and the Company had $1.3 million of outstanding letters of credit issued under the Facility as of May 25, 2019.
Subsequent to year end, on June 28, 2019, the Company made a $5.0 million principal payment on the Facility. The Facility
contains both affirmative and negative covenants. The Company was in compliance with all financial covenants under the
Facility as of May 25, 2019. Additional information regarding the Facility is included in Note 6 — Long Term Debt in the
Notes to Consolidated Financial Statements included in Part II, Item 8 of this Annual Report.
Our ongoing operations and anticipated growth in the geographic markets we currently serve will require us to
continue to make investments in office premises and capital equipment, primarily technology hardware and software. In
addition, we may consider making strategic acquisitions. We currently believe that our current cash, ongoing cash flows from
our operations and funding available under our Facility 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 increase our use of our Facility. In addition, if we decide to
make additional share repurchases, we may fund these through existing cash balances or use of our Facility. 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 or to
pay dividends on our capital stock, which could have a material adverse effect on our operations, market position and
competitiveness.
Operating Activities, fiscal 2019 and 2018
Operating activities provided $43.6 million and $15.4 million in cash in fiscal 2019 and fiscal 2018, respectively. Cash
provided by operations in fiscal 2019 resulted from net income of $31.5 million and net favorable non-cash reconciling
adjustments of $22.6 million. Other balance sheet account changes in fiscal 2019, including working capital balances, were a
net use of cash of $10.4 million. The primary drivers of the increase in working capital are the increase in the balance of
accounts receivable as of the end of the fiscal year 2019, reflecting increasing revenue during the fourth quarter, and the
unfavorable increase in the balance of income taxes due during fiscal 2019. In fiscal 2018, cash provided by operations resulted
from net income of $18.8 million and net favorable non-cash reconciling adjustments of $8.2 million. Other balance sheet
account changes in fiscal 2018, including working capital balances, were a net use of cash of $11.7 million, due primarily to
the increase in the balance of accounts receivable as of the end of the fiscal year, reflecting increasing revenue during the fourth
quarter; the accounts receivable increase was offset by an increase in bonus obligations, payable in the first quarter of fiscal
2019.
Investing Activities, fiscal 2019 and 2018
Net cash used in investing activities was $12.9 million for fiscal 2019, compared to $25.7 million in fiscal 2018. Fiscal
2018 included cash used to acquire Accretive and taskforce of approximately $23.5 million, net of cash acquired; the Company
did not make any business acquisitions during fiscal 2019. Purchases of property and equipment increased approximately
$4.7 million between the two periods as the Company relocated or refurbished certain offices during fiscal 2019. Included in
fiscal 2019 was a purchase of $6.0 million of short-term investments.
22
Financing Activities, fiscal 2019 and 2018
Net cash used by financing activities totaled $43.6 million compared to net cash provided of $3.5 million for the years
ended May 25, 2019 and May 26, 2018, respectively. Financing activities for fiscal 2019 include dividends paid on the
Company’s common stock of $16.2 million, approximately $1.9 million higher than in the comparable prior fiscal year.
Additional information regarding dividends is included in Note 10 — Stockholders’ Equity in the Notes to Consolidated
Financial Statements included in Part II, Item 8 of this Annual Report.
The Company used $29.9 million to purchase approximately 1.8 million shares of common stock on the open market
during fiscal 2019. In fiscal 2018, the Company used $5.1 million to purchase 321,000 shares of common stock on the open
market. Proceeds from the exercise of employee stock options and issuance of shares via the ESPP were approximately
$24.3 million in fiscal 2019 as compared to $10.4 million in fiscal 2018. The Company also repaid $20.0 million of its
obligation on the Facility during fiscal 2019. In fiscal 2018, the Company borrowed $15.0 million under the Facility as part of
the Accretive acquisition.
As described in Note 3 –Acqu isitions in the Notes to Consolidated Financial Statements included in Part II, Item 8 of
this Annual Report, the purchase agreement for taskforce requires earn-out payments to be made .The Company paid the portion
related to Adjusted EBITDA for calendars 2018 and 2017 of €1.6 million (approximately $1.9 million) and €2. 1 million
(approximately $2.6 million) on March 27, 2019 and March 28, 2018, respectively.
For a comparison of our cash flow activities for the fiscal years ended May 26, 2018 and May 27, 2017, see “Part II,
Item 7. Management’s Discussion and Analysis of Financial Conditions and Results of Operations” of our Annual Report on
Form 10-K for the fiscal year ended May 26, 2018, filed with the SEC on July 23, 2018 (File No. 0-32113).
Contractual Obligations
At May 25, 2019, the Company had operating leases, primarily for office premises, and purchase obligations include
payments due under various types of licenses, expiring at various dates through March 2028. At May 25, 2019, 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 25, 2019:
Total
Fiscal 2020
Payments Due by Period
Fiscal
2021-2022
(Amounts in thousands)
Fiscal
2023-2024
Thereafter
Operating lease obligations
Purchase obligations
Long-term debt
$
$
$
54,705
1,959
43,000
$
$
$
12,828
1,784
-
$
$
$
21,548
175
43,000
$
$
$
14,286
-
-
$
$
$
6,043
-
-
Long-term debt above reflects the Company’s outstanding borrowings under the Facility as of May 25, 2019, assumes
no future borrowings under the Facility and does not include any estimated future interest payments.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements.
Inflation
Inflation was not a material factor in either revenue or operating expenses during the fiscal years ended May 25, 2019,
May 26, 2018 or May 27, 2017.
23
QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Interest Rate Risk. We are primarily exposed to market risks from fluctuations in interest rates and the effects of
those fluctuations on the market values of our cash and cash equivalents and our borrowings under our Facility that bear interest
at a variable market rate.
At the end of fiscal 2019, we had approximately $43.0 million of cash and cash equivalents and $43.0 million of
borrowings under our Facility. The earnings on cash and cash equivalents 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. Subsequent to year end, on
June 28, 2019, the Company made a $5.0 million principal payment on the Facility.
Borrowings under the Facility bear interest at a rate per annum of either, at the Company’s option, (i) LIBOR plus a
margin of 1.25% or 1.50% or (ii) an alternate base rate, plus margin of 0.25% or 0.50% with the applicable margin depending
on the Company’s consolidated leverage ratio. The alternate base rate is the highest of (i) Bank of America’s prime rate, (ii)
the federal funds rate plus 0.50% and (iii) the Eurodollar rate plus 1.0%. We are exposed to interest rate risk related to
fluctuations in the LIBOR rate; at the current level of borrowing as of May 25, 2019 of $43.0 million, a 10% change in interest
rates would have resulted in approximately a $0.2 million change in annual interest expense.
Foreign Currency Exchange Rate Risk. For the year ended May 25, 2019, approximately 21.0% 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 U.S. dollar. Revenues and expenses denominated in foreign currencies
are translated into U.S. dollars at the monthly average exchange rates prevailing during the period. Thus, as the value of the
U.S. 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 U.S. dollars at the exchange rate
effective at the end of each monthly reporting period. Approximately 41% of our fiscal year-end balances of cash and cash
equivalents were denominated in U.S. dollars. The remaining amount of approximately 59% was comprised primarily of cash
balances translated from Euros, Mexican Pesos, British Pound Sterling and Chinese Yuan. The difference resulting from the
translation each period of assets and liabilities of our non-United States based operations is recorded as a component of
stockholders’ equity in other accumulated other comprehensive income or loss.
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 including in a limited number of circumstances when
we may be asked to transact with our client in one currency but are obligated to pay our consultant in another currency. We
cannot provide assurance that exchange rate fluctuations will not adversely affect our financial results in the future.
CAUTION CONCERNING FORWARD LOOKING STATEMENTS
This Annual Report, 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.
These statements and all phases of our operations are subject to known and unknown risks, uncertainties and other
factors that could cause our actual results, levels of activity, performance or achievements and those of our industry to differ
materially from those expressed or implied by these forward-looking statements. You are urged to review carefully the
disclosures we make concerning risks, uncertainties and other factors that may affect our business or operating results, including
those identified in Item 1A of this Annual Report on Form 10-K, as well as our other reports filed with the Securities and
Exchange Commission (“SEC”). Additional risks and uncertainties not presently known to us or that we currently deem
immaterial may also affect our business or operating results. Readers are cautioned not to place undue reliance on these forward-
looking statements, which speak only as of the date of this Annual 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 Annual Report or to
reflect the occurrence of unanticipated events, unless required by law to do so.
24
[THIS PAGE INTENTIONALLY LEFT BLANK]
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Resources Connection, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of Resources Connection, Inc. and its subsidiaries (the
Company) as of May 25, 2019 and May 26, 2018, the related consolidated statements of operations, comprehensive income,
stockholders' equity and cash flows for each of the three years in the period ended May 25, 2019, and the related notes to the
consolidated financial statements (collectively, the financial statements). In our opinion, the financial statements present fairly,
in all material respects, the financial position of the Company as of May 25, 2019 and May 26, 2018, and the results of its
operations and its cash flows for each of the three years in the period ended May 25, 2019, in conformity with accounting
principles generally accepted in the United States of America.
in accordance with the standards of
We have also audited,
the Public Company Accounting Oversight Board
(United States) (PCAOB), the Company's internal control over financial reporting as of May 25, 2019, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the
Treadway Commission in 2013, and our report dated July 19, 2019 expressed an unqualified opinion on the effectiveness of
the Company's internal control over financial reporting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on
the Company’s financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are
required to be independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform
the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due
to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the financial
statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements. Our audits also included
evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall
presentation of the financial statements. We believe that our audits provide a reasonable basis for our opinion.
/s/ RSM US LLP
We have served as the Company’s auditor since 2013.
Irvine, California
July 19, 2019
25
RESOURCES CONNECTION, INC.
CONSOLIDATED BALANCE SHEETS
ASSETS
Current assets:
Cash and cash equivalents
Short-term investments
Trade accounts receivable, net of allowance for doubtful accounts of
$2,520 and $1,640 as of May 25, 2019 and May 26, 2018, respectively
Prepaid expenses and other current assets
Income taxes receivable
Total current assets
Goodwill
Intangible assets, net
Property and equipment, net
Deferred income taxes
Other assets
Total assets
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other liabilities
Total current liabilities
Long-term debt
Deferred income taxes
Other long-term liabilities
Total liabilities
Commitments and contingencies
Stockholders’ equity:
Preferred stock, $0.01 par value, 5,000 shares authorized; zero shares
issued and outstanding
Common stock, $0.01 par value, 70,000 shares authorized; 63,054 and
61,252 shares issued, and 31,588 and 31,614 shares outstanding as of
May 25, 2019 and May 26, 2018, respectively
Additional paid-in capital
Accumulated other comprehensive loss
Retained earnings
Treasury stock at cost, 31,466 and 29,638 shares as of
May 25, 2019 and May 26, 2018, respectively
Total stockholders’ equity
Total liabilities and stockholders’ equity
$
$
$
May 25,
2019
(Amounts in thousands, except
par value per share)
May 26,
2018
43,045
5,981
$
133,304
7,103
2,224
191,657
190,815
14,589
26,632
1,497
3,180
428,370
21,634
58,628
11,154
91,416
43,000
5,146
6,412
145,974
$
$
56,470
-
130,452
7,230
729
194,881
191,950
18,531
22,413
2,850
2,049
432,674
23,280
58,418
12,826
94,524
63,000
-
6,325
163,849
-
-
631
460,226
(12,588)
350,230
(516,103)
282,396
428,370
$
$
613
429,578
(10,385)
335,741
(486,722)
268,825
432,674
The accompanying notes are an integral part of these consolidated financial statements.
26
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
May 27,
2017
583,411
362,086
221,325
183,471
-
3,452
34,402
629
33,773
15,122
18,651
0.57
0.56
32,851
33,471
0.44
Revenue
Direct cost of services, primarily payroll and related taxes for professional
$
728,999
May 25,
2019
For the Years Ended
May 26,
2018
(Amounts in thousands, except
per share amounts)
$
654,129
$
services employees
Gross margin
Selling, general and administrative expenses
Amortization of intangible assets
Depreciation expense
Income from operations
Interest expense
Income before provision for income taxes
Provision for income taxes
Net income
Net income per common share:
Basic
Diluted
Weighted average common shares outstanding:
Basic
Diluted
Cash dividends declared per common share
446,560
282,439
223,802
3,799
4,679
50,159
2,190
47,969
16,499
31,470
1.00
0.98
31,596
32,207
0.52
$
$
$
$
408,074
246,055
209,042
2,298
4,091
30,624
1,735
28,889
10,063
18,826
0.61
0.60
30,741
31,210
0.48
$
$
$
$
$
$
$
$
The accompanying notes are an integral part of these consolidated financial statements.
27
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
COMPREHENSIVE INCOME:
Net income
Foreign currency translation adjustment, net of tax
Total comprehensive income
May 25,
2019
For the Years Ended
May 26,
2018
(Amounts in thousands)
May 27,
2017
$
$
31,470
(2,203)
29,267
$
$
18,826
1,011
19,837
$
$
18,651
(602)
18,049
The accompanying notes are an integral part of these consolidated financial statements.
28
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Balances as of May 28, 2016
Exercise of stock options
Stock-based compensation expense
Tax shortfall from stock-based
compensation arrangements
Issuance of common stock under Employee
Stock Purchase Plan
Issuance of restricted stock
Issuance of restricted stock out of treasury
stock to board of director members
Forfeitures of restricted stock
Purchase of shares
Cash dividends declared ($0.44 per share)
Currency translation adjustment
Net income for the year ended May 27, 2017
Balances as of May 27, 2017
Exercise of stock options
Stock-based compensation expense
Issuance of common stock under Employee
Stock Purchase Plan
Issuance of restricted stock
Issuance of restricted stock out of treasury
stock to board of director members
Purchase of shares
Issuance of common stock for acquisition of
Accretive
Issuance of common stock for acquisition of
taskforce
Cash dividends declared ($0.48 per share)
Currency translation adjustment
Net income for the year ended May 26, 2018
Balances as of May 26, 2018
Exercise of stock options
Stock-based compensation expense
Issuance of common stock under Employee
Common Stock
Shares Amount
58,237
305
582
3
4
1
359
92
(1)
58,992
517
590
6
339
105
1,072
227
3
1
11
2
61,252
1,444
613
15
Additional
Paid-in
Capital
388,763
3,853
6,068
(4,344)
4,489
(1)
398,828
6,483
5,978
3,947
(1)
11,743
2,600
429,578
19,794
6,358
Stock Purchase Plan
358
3
4,496
Issuance of restricted stock out of treasury
stock to board of director members
Purchase of shares
Cash dividends declared ($0.52 per share)
Currency translation adjustment
Net income for the year ended May 25, 2019
Balances as of May 25, 2019
Accumulated
Other
Treasury Stock
Amount
Shares
Comprehensive Retained
Earnings
(Loss) Income
(Amounts in thousands)
(363,856)
22,008
(10,794)
327,954
Total
Stockholders'
Equity
342,649
3,856
6,068
(4,344)
4,493
-
-
-
(118,886)
(13,743)
(602)
18,651
238,142
6,489
5,978
3,950
-
-
(5,116)
11,754
2,602
(14,811)
1,011
18,826
268,825
19,809
6,358
4,499
-
(29,891)
(16,471)
(2,203)
31,470
282,396
(838)
(13,743)
18,651
332,024
(298)
(14,811)
18,826
335,741
(510)
(16,471)
31,470
350,230 $
(36)
838
7,358
(118,886)
29,330
(481,904)
(11,396)
(602)
(13)
321
298
(5,116)
29,638
(486,722)
(10,385)
1,011
(21)
1,849
510
(29,891)
(2,203)
63,054
$
631
$
460,226
31,466 $
(516,103) $
(12,588) $
The accompanying notes are an integral part of these consolidated financial statements.
29
RESOURCES CONNECTION, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash provided by operating
activities:
Depreciation and amortization
Stock-based compensation expense
Contingent consideration adjustment
Loss on disposal of assets
Bad debt expense
Deferred income taxes
Changes in operating assets and liabilities, net of effects of business
combinations:
Trade accounts receivable
Prepaid expenses and other current assets
Income taxes
Other assets
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Redemption of short-term investments
Purchase of short-term investments
Proceeds from sale of property and equipment
Acquisition of Accretive
Acquisition of taskforce, net of cash acquired
Purchase of property and equipment
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Proceeds from exercise of stock options
Proceeds from issuance of common stock under Employee Stock Purchase Plan
Purchase of common stock
Payment of contingent consideration
Proceeds from Revolving Credit Facility
Repayment on Revolving Credit Facility
Debt issuance costs
Cash dividends paid
Net cash (used in) provided by financing activities
Effect of exchange rate changes on cash
Net decrease in cash
Cash and cash equivalents at beginning of period
Cash and cash equivalents at end of period
$
May 25,
2019
For the Years Ended
May 26,
2018
May 27,
2017
$
31,470
$
18,826
$
18,651
8,478
6,570
(590)
126
1,540
6,452
(5,690)
109
(4,324)
(1,147)
(1,469)
547
1,549
43,621
-
(5,981)
-
-
-
(6,896)
(12,877)
19,809
4,499
(29,891)
(1,860)
-
(20,000)
-
(16,158)
(43,601)
(568)
(13,425)
56,470
43,045
$
6,389
6,033
-
14
826
(5,035)
(19,373)
(1,567)
4,733
(166)
3,332
4,173
(2,815)
15,370
-
-
4
(20,047)
(3,410)
(2,213)
(25,666)
6,489
3,949
(5,116)
(2,579)
15,000
-
-
(14,269)
3,474
963
(5,859)
62,329
56,470
3,452
6,068
-
19
458
4,530
(1,494)
374
(6,232)
253
681
(434)
1,939
28,265
24,957
-
233
-
-
(4,781)
20,409
3,864
4,493
(118,886)
-
58,000
(10,000)
(190)
(14,157)
(76,876)
(558)
(28,760)
91,089
62,329
$
The accompanying notes are an integral part of these consolidated financial statements.
30
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Description of the Company and its Business
Resources Connection, Inc. (“Resources Connection”), a Delaware corporation, was incorporated on November 16,
1998. The Company’s operating entities provide services primarily under the name Resources Global Professionals (“RGP” or
the “Company”). RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people
to create transformative change. As a human capital partner for our clients, the Company specializes in solving today’s most
pressing business problems across the enterprise in the areas of Business Transformation, Governance, Risk and Compliance
and Technology and Digital Innovation. The Company has offices in the United States (“U.S.”), Asia, Australia, Canada,
Europe and Mexico.
The Company’s fiscal year consists of 52 or 53 weeks, ending on the Saturday in May closest to May 31. Fiscal years
2019, 2018 and 2017 consisted of four 13 week quarters and a total of 52 weeks of activity for the fiscal year. For fiscal years
of 53 weeks (which next occurs for fiscal 2020), the first three quarters consist of 13 weeks each and the fourth quarter consists
of 14 weeks.
2. Summary of Significant Accounting Policies
Basis of Presentation and Principles of Consolidation
The Consolidated Financial Statements of the Company (“financial statements”) have been prepared in conformity
with accounting principles generally accepted in the U.S. (“GAAP”) and the rules of the Securities and Exchange Commission
(“SEC”). The financial statements include the accounts of the Company and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation.
Revenue Recognition
Effective May 27, 2018, the Company adopted Accounting Standards Codification (“ASC”) Topic 606, Revenue from
Contracts with Customers (“ASC 606”), using the modified retrospective method, which allows companies to apply the new
revenue standard to reporting periods beginning in the year the standard is first implemented, while prior periods continue to
be reported in accordance with previous accounting guidance. The adoption of ASC 606 did not have a significant impact on
revenue recognition; therefore, the Company did not have an opening retained earnings adjustment for the fiscal year ended
May 25, 2019.
Revenues are recognized when control of the promised service is transferred to the Company’s clients, in an amount
that reflects the consideration expected in exchange for the services. Revenue is recorded net of sales or other transaction taxes
collected from clients and remitted to taxing authorities. Revenues from contracts are recognized over time, based on hours
worked by the Company’s professionals. The performance of the agreed-to service over time is the single performance
obligation for revenues. Certain clients may receive discounts (for example, volume discounts or rebates) to the amounts billed.
These discounts or rebates are considered variable consideration. Management evaluates the facts and circumstances of each
contract and client relationship to estimate the variable consideration assessing the most likely amount to recognize and
considering management’s expectation of the volume of services to be provided over the applicable period. Rebates are the
largest component of variable consideration and are estimated using the most likely amount method prescribed by ASC 606,
contracts terms and estimates of revenue. Revenues are recognized net of variable consideration to the extent that it is probable
that a significant reversal of revenues will not occur in subsequent periods.
On a limited basis, the Company may have fixed-price contracts, for which revenues are recognized over time using
the input method based on time incurred as a proportion of estimated total time. Time incurred represents work performed,
which corresponds with, and therefore best depicts, the transfer of control to the client. Management uses significant judgments
when estimating the total hours expected to complete the contract performance obligation. It is possible that updated estimates
for consulting engagements may vary from initial estimates with such updates being recognized in the period of determination.
Depending on the timing of billings and services rendered, the Company accrues or defers revenue as appropriate.
31
The Company recognizes revenues on a gross basis as it acts as a principal for primarily all of its revenue transactions.
The Company has concluded that gross reporting is appropriate because the Company a) has the risk of identifying and hiring
qualified consultants; b) has the discretion to select the consultants and establish the price and responsibilities for services to
be provided; and c) bears the risk for services provided that are not fully paid for by clients. The Company recognizes all
reimbursements received from clients for “out-of-pocket” expenses as revenue and all such expenses as direct cost of services.
Reimbursements received from clients were $12.3 million, $11.8 million and $10.1 million for the years ended May 25, 2019,
May 26, 2018 and May 27, 2017, respectively.
The Company’s clients are contractually obligated to pay the Company for all hours billed. We invoice the majority of
our clients on a weekly basis or, in certain circumstances, on a monthly basis, in accordance with our typical arrangement of
payment due within 30 days. To a much lesser extent, the Company also earns revenue if one of its consultants is hired by, or
if the Company places an outside candidate with, its client. Conversion fees or permanent placement fees are recognized when
one of the Company’s professionals, or a candidate identified by the Company, accepts an offer of permanent employment
from a client and all requisite terms of the agreement have been met. Such conversion fees or permanent placement fees are
recognized when the performance obligation is considered complete, which the Company considers a) when the consultant or
candidate accepts the position; b) the consultant or candidate has notified either RGP or their current employer of their decision;
and c) the start date is within the Company’s current quarter. Conversion fees were 0.5%, 0.4% and 0.5% of revenue for the
years ended May 25, 2019, May 26, 2018 and May 27, 2017, respectively. Permanent placement fees were 0.6%, 0.3% and
0.1% of revenue for the years ended May 25, 2019, May 26, 2018 and May 27, 2017, respectively.
The Company’s contracts generally have termination for convenience provisions and do not have termination
penalties. While our clients are contractually obligated to pay the Company for all hours billed, the Company does not have
long-term agreements with its clients for the provision of services and the Company’s clients may terminate engagements at
any time. All costs of compensating the Company’s professionals are the responsibility of the Company and are included in
direct cost of services.
Foreign Currency Translation
The financial statements of subsidiaries outside the U.S. are measured using the local currency as the functional
currency. Assets and liabilities of these subsidiaries are translated at current exchange rates, income and expense items are
translated at average exchange rates prevailing during the period and the related translation adjustments are recorded as a
component of comprehensive income or loss within stockholders’ equity. Gains and losses from foreign currency transactions
are included in selling, general and administrative expenses in the Consolidated Statements of Operations.
Per Share Information
The Company presents both basic and diluted earnings per share (“EPS”). Basic EPS is calculated by dividing net
income by the weighted average number of common shares outstanding during the period. Diluted EPS is based upon the
weighted average number of common and common equivalent shares outstanding during the period, calculated using the
treasury stock method for stock options. Under the treasury stock method, exercise proceeds include the amount the employee
must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet
recognized and the amount of tax benefits that would be recorded when the award becomes deductible. Common equivalent
shares are excluded from the computation in periods in which they have an anti-dilutive effect. Stock options for which the
exercise price exceeds the average market price over the period are anti-dilutive and are excluded from the calculation.
32
The following table summarizes the calculation of net income per share for the years ended May 25, 2019, May 26,
2018 and May 27, 2017 (in thousands, except per share amounts):
Net income
Basic:
Weighted average shares
Diluted:
Weighted average shares
Potentially dilutive shares
Total dilutive shares
Net income per common share:
Basic
Dilutive
Anti-dilutive shares not included above
Cash and Cash Equivalents
May 25,
2019
For the Years Ended
May 26,
2018
May 27,
2017
$
$
$
31,470
$
18,826
$
31,596
31,596
611
32,207
30,741
30,741
469
31,210
1.00
0.98
3,316
$
$
0.61
0.60
4,619
$
$
18,651
32,851
32,851
620
33,471
0.57
0.56
4,582
The Company considers cash on hand, deposits in banks, and short-term investments purchased with an original
maturity date of three months or less to be cash and cash equivalents. The carrying amounts reflected in the consolidated
balance sheets for cash and cash equivalents approximate the fair values due to the short maturities of these instruments.
Financial Instruments
The fair value of the Company’s financial instruments reflects the amounts that the Company estimates it will receive
in connection with the sale of an asset in an orderly transaction between market participants at the measurement date (exit
price). The fair value hierarchy prioritizes the use of inputs used in valuation techniques into the following three levels:
Level 1 – Quoted prices in active markets for identical assets and liabilities.
Level 2 – Observable inputs other than quoted prices in active markets for identical assets and liabilities; quoted prices
in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for
substantially the full term of the assets.
Level 3 – Unobservable inputs.
The following table shows the Company’s financial instruments that are measured and recorded in the consolidated
financial statements at fair value on a recurring basis (in thousands):
Assets:
Short-term investments
Total assets
$
$
Liabilities:
Contingent consideration liability $
$
Total liabilities
Level 1
May 25, 2019
Level 2
Level 3
Level 1
May 26, 2018
Level 2
Level 3
- $
- $
- $
- $
5,981 $
5,981 $
-
-
- $
- $
2,195
2,195
$
$
$
$
- $
- $
- $
- $
- $
- $
- $
- $
-
-
4,289
4,289
The Company’s short-term investments had original contractual maturities of between three months and one year and
are considered “held-to-maturity” securities. The Company had no investments with a maturity in excess of one year as of the
33
end of either fiscal year 2019 or 2018. The Company’s investments in commercial paper are measured using quoted prices in
markets that are not active (Level 2). There were no unrealized holding gains or losses as of May 25, 2019.
The contingent consideration liability in the table above is for estimated future contingent consideration payments
related to the prior acquisition of taskforce. The fair value measurement of this liability is based on significant inputs not
observed in the market and thus represents a Level 3 measurement. The significant unobservable inputs used in the fair value
measurement of the contingent consideration liability are the Company’s measures of the estimated payouts based on internally
generated financial projections and discount rates. The fair value of this contingent consideration liability is reassessed on a
quarterly basis by the Company using additional information as it becomes available, and any change in the fair value estimates
are recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations. See
Note 3 – Acquisitions.
The Company's financial instruments, including cash, accounts receivable, accounts payable, accrued expenses and
long-term debt are carried at cost, which approximates their fair value because of the short-term maturity of these instruments
or because their stated interest rates are indicative of market interest rates.
Allowance for Doubtful Accounts
The Company maintains an allowance for doubtful accounts for estimated losses resulting from its clients’ failure to
make required payments for services rendered. Management estimates this allowance based upon knowledge of the financial
condition of the Company’s clients (which may not include knowledge of all significant events), review of historical receivable
and reserve trends and other pertinent information. If the financial condition of the Company’s clients deteriorates or there is
an unfavorable trend in aggregate receivable collections, additional allowances may be required.
The following table summarizes the activity in our allowance for doubtful accounts (in thousands):
Beginning
Balance
Charged to
Operations
Currency
Rate
Changes
(Write-offs)/
Recoveries
Ending
Balance
$
$
$
2,994
2,517
1,640
$
$
$
458
826
1,540
$
$
$
(20)
12
-
$
$
$
(915)
(1,715)
(660)
$
$
$
2,517
1,640
2,520
Years Ended:
May 27, 2017
May 26, 2018
May 25, 2019
Property and Equipment
Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation is computed
using the straight-line method over the following estimated useful lives:
Building
Furniture
Leasehold improvements
Computer, equipment and software
30 years
5 to 10 years
Lesser of useful life of asset or term of lease
3 to 5 years
Costs for normal repairs and maintenance are expensed to operations as incurred, while renewals and major
refurbishments are capitalized.
Assessments of whether there has been a permanent impairment in the value of property and equipment are
periodically performed by considering factors such as expected future operating income, trends and prospects, as well as the
effects of demand, competition and other economic factors. Management believes no permanent impairment has occurred.
34
Goodwill and Intangible Assets
Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate
consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired. Goodwill is not subject
to amortization but the carrying value is tested for impairment on an annual basis in the fourth quarter of our fiscal year, or
more frequently if the Company believes indicators of impairment exist. Impairment evaluations involve management’s
assessment of qualitative factors to determine whether it is more likely than not that goodwill is impaired. If management
concludes from its assessment of qualitative factors that it is more likely than not that impairment exists, then a quantitative
impairment test will be performed involving management estimates of asset useful lives and future cash flows. Significant
management judgment is required in the forecasts of future operating results that are used in these evaluations. For application
of this methodology the Company determined that it operates as a single reporting unit resulting from the combination of its
practice offices. The Company’s annual goodwill impairment analysis indicated that there was no related impairment for the
fiscal years ended May 25, 2019, May 26, 2018, and May 27, 2017.
The Company’s identifiable intangible assets include customer contracts and relationships, tradenames, consultant
list, and non-compete agreements. These assets are amortized on a straight-line basis over lives ranging from three to ten years.
See Note 4 — Intangible Assets and Goodwill for a further description of the Company’s intangible assets.
Stock-Based Compensation
The Company recognizes compensation expense for all share-based payment awards made to employees and directors,
including employee stock options and employee stock purchases made via the Company’s Employee Stock Purchase Plan (the
“ESPP”), based on estimated fair value at the date of grant.
The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing
model. The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite
service periods. Stock options vest over four years and restricted stock award vesting is determined on an individual grant basis
under the Company’s 2014 Performance Incentive Plan (“2014 Plan”). The Company determines the estimated value of stock
options using the Black-Scholes valuation model and the estimated value of restricted stock awards using the closing price of
the Company’s common stock on the date of grant. The Company recognizes stock-based compensation expense on a straight-
line basis over the service period for options that are expected to vest and records adjustments to compensation expense at the
end of the service period if actual forfeitures differ from original estimates.
See Note 11 — Stock-Based Compensation Plans for further information on the 2014 Plan and stock-based
compensation.
Income Taxes
The Company recognizes deferred income taxes for the estimated tax consequences in future years of differences
between the tax basis of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws
and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation
allowances are established to reduce deferred tax assets to the amount expected to be realized when, in management’s opinion,
it is more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes
represents current taxes payable net of the change during the period in deferred tax assets and liabilities.
Recent Accounting Pronouncements
Accounting Pronouncements Adopted During Fiscal Year 2019
Effective the beginning of fiscal year 2019 (May 27, 2018), the Company adopted ASC 606, Revenue from Contracts
with Customers, using the modified retrospective method. The adoption of ASC 606 did not have a significant impact on the
Company’ revenue recognition; therefore, the Company did not have an opening retained earnings adjustment for the year
ended May 25, 2019. See Note 2— Summary of Significant Accounting Policies for additional information.
35
Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40): Customer’s Accounting for
Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract. In August 2018, the Financial
Accounting Standards Board (“FASB”) issued ASU 2018-15, which aligns the requirements for capitalizing implementation
costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs
incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).
An entity in a hosting arrangement that is a service contract must determine which implementation costs to capitalize as an
asset related to the service contract and which costs to expense. Costs that cannot be capitalized include training costs, certain
data conversion costs, costs incurred during preliminary project and post implementation stages. Costs that are subject to
evaluation for potential capitalization are incurred during the application development stage. The guidance also specifies factors
to consider when developing the period over which to amortize the capitalized costs once the arrangement is deployed for usage
by the entity and elements to consider in analyzing potential impairment of the asset.
The guidance is effective for financial statements for annual periods beginning after December 15, 2019 (for the
Company, fiscal 2021) and for interim periods within those fiscal years. However, early adoption is permitted. The Company
adopted this guidance prospectively in the first quarter of fiscal 2019 as the Company has an initiative involving a cloud
computing arrangement. The initiative is now complete and the amount capitalized during fiscal 2019 was approximately
$0.8 million and is accounted for in Other Assets in the Company’s Consolidated Balance Sheet.
Accounting Pronouncements Pending Adoption
Leases (Topic 842): Leases. In February 2016, the FASB issued ASU 2016-02, which amends the existing guidance
to require lessees to recognize operating lease obligations on their balance sheets by recording the rights and obligations created
by those leases. ASU 2016-02 was effective for the Company beginning May 26, 2019. The Company will adopt this standard
utilizing the optional transition method by recognizing a cumulative-effect adjustment to the opening balance of retained
earnings on the adoption date without retrospective application to comparative periods. The Company will elect the package
of practical expedients permitted under the transition guidance within the new standard. The Company will also elect the
practical expedient to keep leases with an initial term of 12 months or less off of the balance sheet. While we are currently
finalizing our implementation of new policies, processes and internal controls to comply with the new rules, we anticipate that
the adoption of the new standard will result in the recognition of right of use assets and lease liabilities on our consolidated
balance sheet of between $45 million and $50 million as of the beginning of the first quarter of fiscal 2020. The adoption of
the new standard will not have a material impact on the Company’s consolidated statement of operations or consolidated
statement of cash flows.
Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the
American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the
Company’s results of operations, financial position or cash flows.
Use of Estimates
The preparation of financial statements in conformity with GAAP requires management to make estimates and
assumptions 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. Although
management believes these estimates and assumptions are adequate, actual results could differ from the estimates and
assumptions used.
3. Acquisitions
During fiscal 2018, the Company completed two acquisitions. The first acquisition, completed August 31, 2017 (the
second quarter of fiscal 2018), was of taskforce – Management on Demand AG (“taskforce”), a German based professional
services firm founded in 2007, that provided clients with senior interim management and project management expertise.
Subsequent to the acquisition, taskforce continues to operate as a separate brand. The Company paid initial consideration of
€5.8 million (approximately $6.9 million at the date of acquisition) in a combination of cash and restricted stock.
36
The following table summarizes the consideration for the acquisition of taskforce and the amounts of the identified assets
acquired and liabilities assumed at the acquisition date:
Fair Value of Consideration Transferred (in thousands, except share and per share amounts):
Cash
Working capital adjustment -receivable
Common stock - 226,628 shares @ $11.48 (closing price on acquisition date discounted for restriction on
Estimated initial contingent consideration
Total
$
$
Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):
Cash and cash equivalents
Accounts receivable
Prepaid expenses and other current assets
Intangible assets
Property and equipment
Total identifiable assets
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other current liabilities
Total liabilities assumed
Net identifiable assets acquired
Deferred tax liability
Goodwill
Net assets acquired
$
$
4,384
(123)
2,602
6,514
13,377
974
1,930
45
5,727
39
8,715
2,116
16
140
2,272
6,443
(1,815)
8,749
13,377
In addition, the purchase agreement for taskforce requires additional earn-out payments to be made based on
performance in calendar years 2017, 2018 and 2019. Under accounting rules for business combinations, obligations that are
contingently payable to the sellers based upon the occurrence of one or more future events are recorded as a discounted liability
on the Company’s balance sheet. The Company was obligated to pay the sellers in Euros as follows: for calendar year 2017,
Adjusted EBITDA times 6.1 times 20%; and for both calendar years 2018 and 2019, Adjusted EBITDA times 6.1 times 15%;
(Adjusted EBITDA is calculated as defined in the purchase agreement). The payment for calendar year 2017 of €2.1 million
(approximately $2.6 million) was made on March 28, 2018. The payment for calendar year 2018 of €1.6 million (approximately
$1.9 million) was made on March 27, 2019. The Company estimated the fair value of the obligation to pay the remaining
contingent consideration for calendar year 2019 based on a number of different projections of the estimated Adjusted EBITDA
for the year. The Company recorded this future obligation using a discount rate of approximately 11.0%, representing the
Company’s weighted average cost of capital. The current estimated fair value of the contractual obligation to pay the contingent
consideration for calendar year 2019 totals €2.0 million (approximately $2.2 million based on the exchange rate on the last day
of fiscal 2019) as of May 25, 2019. Each reporting period, the Company will estimate changes in the fair value of contingent
consideration and any change in fair value will be recognized in the Company’s Consolidated Statements of Operations. The
estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential Adjusted
EBITDA results and discount rates. Future revisions to these assumptions could materially change the estimate of the fair value
of contingent consideration and therefore could materially affect the Company’s future operating results. During the year ended
May 25, 2019, the Company decreased the remaining estimated contingent consideration for calendar year 2019 by €523,000
($590,000) and also recognized accretion expense on the discounted liability. These amounts are included in S, G & A for the
respective periods. Results of operations of taskforce are included in the Consolidated Statements of Operations from the date
of acquisition.
The second acquisition occurred December 4, 2017 (the third quarter of fiscal 2018) when the Company acquired
substantially all of the assets and assumed certain liabilities of Accretive Solutions, Inc. (“Accretive”). Accretive was a
37
professional services firm that provided expertise in accounting and finance, enterprise governance, business technology and
business transformation solutions to a wide variety of organizations in the U.S. and supported startups through its Countsy suite
of back office services. The Company paid consideration of $20.0 million in cash and issued 1,072,000 shares of Resources
Connection, Inc. common stock restricted for sale for four years; additional cash and shares of Company common stock will
be due after settlement of working capital adjustments. Further, additional amounts may be paid to the sellers at the end of a
certain period of time if there are no claims or may be used to satisfy any preacquisition claims in favor of the buyers. As of
the end of fiscal 2019, the amounts due based on initial estimates of the resolution of these items are $0.1 million in cash and
108,000 in additional shares of common stock and are accrued as a liability on the balance sheet as of May 25, 2019.
The following table summarizes the consideration paid for Accretive and the amounts of the identified assets acquired
and liabilities assumed at the acquisition date:
Cash
Common stock - 1,072,474 shares @ $10.96 (closing price on acquisition date discounted for restriction on
Total
$
$
20,047
11,754
31,801
Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):
Accounts receivable
Prepaid expenses and other current assets
Intangible assets
Property and equipment
Total identifiable assets
Accounts payable and accrued expenses
Accrued salaries and related obligations
Other current liabilities
Total liabilities assumed
Net identifiable assets acquired
Goodwill
Net assets acquired
4. Intangible Assets and Goodwill
$
$
11,360
1,084
15,200
979
28,623
3,649
4,562
136
8,347
20,276
11,525
31,801
The following table presents details of our intangible assets, estimated lives and related accumulated amortization (in
thousands):
As of May 25, 2019
Accumulated
Amortization
Gross
Net
Gross
As of May 26, 2018
Accumulated
Amortization
Net
Customer contracts and
relationships (3-8 years)
Tradenames (3-10 years)
Consultant list (3 years)
Non-compete agreements (3
years)
Total
$
$
14,495
4,407
783
896
20,581
$
$
(3,439) $
(1,563)
(462)
(528)
(5,992) $
11,056
2,844
321
368
14,589
$
$
14,565 $
4,481
815
(1,263) $
(560)
(205)
13,302
3,921
610
932
20,793 $
(234)
(2,262) $
698
18,531
The weighted-average useful lives of the customer contracts and relationships and other are approximately 5.2 and 1.5
years, respectively.
38
The following table summarizes amortization expense for the years stated (in thousands):
May 25,
2019
For the Years Ended
May 26,
2018
May 27,
2017
Amortization expense
$
3,799
$
2,298
$
-
The following table presents future estimated amortization expense based on existing intangible assets for the years
presented (in thousands):
Expected amortization expense
$
3,770
$
2,484
$
1,778
$
1,778
$
1,778
2020
2021
2022
2023
2024
Fiscal Years Ending
The following table summarizes the activity in the Company’s goodwill balance (in thousands):
Goodwill, beginning of year
Acquisitions-taskforce (see Note 3)
Acquisitions-Accretive (see Note 3)
Impact of foreign currency exchange rate changes
Goodwill, end of period
5. Property and Equipment
Property and equipment consist of the following (in thousands):
Building and land
Computers, equipment and software
Leasehold improvements
Furniture
Less accumulated depreciation and amortization
6. Long-Term Debt
For the Years Ended
May 25,
2019
May 26,
2018
191,950
-
-
(1,135)
190,815
$
$
171,088
8,749
11,525
588
191,950
As of
May 25, 2019
As of
May 26, 2018
14,227
20,042
22,074
11,260
67,603
(40,971)
26,632
$
$
14,198
18,965
19,802
10,427
63,392
(40,979)
22,413
$
$
$
$
The Company has a $120 million secured revolving credit facility (“Facility”) with Bank of America, consisting of (i)
a $90 million revolving loan facility (“Revolving Loan”), which includes a $5 million sublimit for the issuance of standby
letters of credit, and (ii) a $30 million reducing revolving loan facility (“Reducing Revolving Loan”), any amounts of which
may not be reborrowed after being repaid. The Facility is available for working capital and general corporate purposes,
including potential acquisitions and stock repurchases. The Company’s obligations under the Facility are guaranteed by all of
the Company’s domestic subsidiaries and secured by essentially all assets of the Company, Resources Connection LLC and
39
their domestic subsidiaries, subject to certain customary exclusions. Borrowings under the Facility bear interest at a rate per
annum of either, at the Company’s option, (i) a London Interbank Offered Rate (“LIBOR”) defined in the Facility plus a margin
of 1.25% or 1.50% or (ii) an alternate base rate, plus margin of 0.25% or 0.50% with the applicable margin depending on the
Company’s consolidated leverage ratio. The alternate base rate is the highest of (i) Bank of America’s prime rate, (ii) the federal
funds rate plus 0.50% and (iii) the Eurodollar rate plus 1.0%. The Company pays an unused commitment fee on the average
daily unused portion of the Facility at a rate of 0.15% to 0.25% depending upon on the Company’s consolidated leverage ratio.
The Facility expires October 17, 2021.
The Facility contains both affirmative and negative covenants. Covenants include, but are not limited to, limitations
on the Company’s and its subsidiaries ability to incur liens, incur additional indebtedness, make certain restricted payments,
merge or consolidate and make dispositions of assets. In addition, the Facility requires the Company to comply with financial
covenants limiting the Company’s total funded debt, minimum interest coverage ratio and maximum leverage ratio.
Upon the occurrence of an event of default under the Facility, the lender may cease making loans, terminate the
Facility and declare all amounts outstanding to be immediately due and payable. The Facility specifies a number of events of
default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults,
covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment
defaults.
The Company’s borrowings on the Facility were $43.0 million and $63.0 million as of May 25, 2019 and May 26,
2018, respectively. In addition, the Company has $1.3 million and $1.0 million of outstanding letters of credit issued under the
Facility as of May 25, 2019 and May 26, 2018, respectively. There was $47.0 million remaining to borrow under the Revolving
Loan and $30.0 million remaining under the Reducing Revolving Loan as of May 25, 2019. As of May 25, 2019, the interest
rates on the Company’s borrowings were 4.1% on each of the three tranches of the Company’s borrowings of $24.0 million,
$10.0 million and $9.0 million, respectively, based on a 3-month LIBOR plus 1.5%.
Subsequent to year end, on June 28, 2019, the Company made a $5.0 million principal payment on the Facility.
7. Income Taxes
The following table represents the current and deferred income tax provision for federal, state and foreign income
taxes attributable to operations (in thousands):
Current
Federal
State
Foreign
Deferred
Federal
State
Foreign
May 25,
2019
For the Years Ended
May 26,
2018
May 27,
2017
$
$
5,068
2,278
2,690
10,036
5,890
619
(46)
6,463
16,499
$
$
10,785
2,829
(392)
13,222
(3,011)
367
(515)
(3,159)
10,063
$
$
10,901
2,551
1,472
14,924
259
62
(123)
198
15,122
40
Income before provision for income taxes is as follows (in thousands):
Domestic
Foreign
May 25,
2019
For the Years Ended
May 26,
2018
$
$
41,828
6,141
47,969
$
$
26,774
2,115
28,889
$
$
May 27,
2017
32,390
1,383
33,773
The provision for income taxes differs from the amount that would result from applying the federal statutory rate as
follows:
Statutory tax rate
State taxes, net of federal benefit
Non-U.S. rate adjustments
Stock-based compensation
Long-term net capital gains
Foreign tax credit
Valuation allowance
Global Intangible Low-Taxed Income ("GILTI")
Permanent items, primarily meals and entertainment
Deferred tax impact of U.S. federal rate changes
Deferred tax impact of foreign rate changes
Other, net
Effective tax rate
May 25,
2019
21.0 %
4.9
1.3
2.8
(6.1)
9.3
(2.8)
1.1
1.4
0.1
1.2
0.2
34.4 %
For the Years Ended
May 26,
2018
29.4 %
7.9
(0.8)
4.5
10.1
(16.5)
(4.3)
-
3.2
(2.8)
3.9
0.2
34.8 %
May 27,
2017
35.0 %
5.0
0.1
0.7
-
(0.1)
1.2
-
2.2
-
0.5
0.2
44.8 %
The impact of state taxes, net of federal benefit, and foreign income taxed at other than U.S. rates fluctuates year over
year due to the changes in the mix of operating income and losses amongst the various states and foreign jurisdictions in which
the Company operates.
41
The components of the net deferred tax asset (liability) consist of the following (in thousands):
Deferred tax assets:
Allowance for doubtful accounts
Accrued compensation
Accrued expenses
Stock options and restricted stock
Foreign tax credit
Net operating losses
Property and equipment
State taxes
Gross deferred tax asset
Valuation allowance
Gross deferred tax asset, net of valuation allowance
Deferred tax liabilities:
Property and equipment
Goodwill and intangibles
Net deferred tax asset (liability)
As of
May 25,
2019
As of
May 26,
2018
1,108
3,347
2,418
5,541
498
14,489
-
208
27,609
(13,190)
14,419
(77)
(17,991)
(3,649)
$
$
854
3,210
2,311
7,326
5,596
15,563
1,017
138
36,015
(15,298)
20,717
-
(17,867)
2,850
$
$
The Company had a net income tax receivable of $1.0 million and income tax payable of $3.3 million as of May 25,
2019 and May 26, 2018, respectively.
The tax benefit associated with the exercise of nonqualified stock options and the disqualifying dispositions by
employees of incentive stock options, restricted stock awards and shares issued under the Company’s ESPP reduced income
taxes payable by $1.8 million and $1.1 million for the years ended May 25, 2019 and May 26, 2018, respectively.
The Company has foreign net operating loss carryforwards of $63.5 million and foreign tax credit carryforwards of
$0.5 million. The foreign tax credits will expire beginning in fiscal 2023. The following table summarizes the net operating
loss expiration periods.
Expiration Periods
Fiscal Years Ending:
2020
2021
2022
2023
2024
2025-2029
Unlimited
Amount of Net
Operating Losses
(in thousands)
1,600
4,200
300
300
2,300
1,200
53,600
63,500
$
$
The following table summarizes the activity in our valuation allowance accounts (in thousands):
Years Ended:
May 27, 2017
May 26, 2018
May 25, 2019
Beginning
Balance
Charged to
Operations
Currency
Rate
Changes
Ending
Balance
$
$
$
15,714
15,971
15,298
$
$
$
438
(1,181)
(1,440)
$
$
$
(181)
508
(668)
$
$
$
15,971
15,298
13,190
42
Realization of the deferred tax assets is dependent upon generating sufficient future taxable income. Management
believes that it is more likely than not that all other remaining deferred tax assets will be realized through future taxable earnings
or alternative tax strategies.
Deferred income taxes have not been provided on the undistributed earnings of approximately $17.6 million from the
Company’s foreign subsidiaries as of May 25, 2019 since these amounts are intended to be indefinitely reinvested in foreign
operations. If the earnings of the Company’s foreign subsidiaries were to be distributed, management estimates that the income
tax impact would be immaterial as a result of the transition tax and federal dividends received deduction for foreign source
earnings provided under the US Tax Cuts and Jobs Act of 2017.
The following table summarizes the activity related to the gross unrecognized tax benefits (in thousands):
Unrecognized tax benefits, beginning of year
Gross increases-tax positions in prior period
Gross decreases-tax positions in prior period
Gross increases-current period tax positions
Settlements
Lapse of statute of limitations
Unrecognized tax benefits, end of year
For the Years Ended
May 25,
2019
May 26,
2018
42
-
-
-
-
-
42
$
$
42
-
-
42
-
(42)
42
$
$
The Company’s total liability for unrecognized gross tax benefits was $42,000 as of both May 25, 2019 and May 26,
2018, which, if ultimately recognized, would impact the effective tax rate in future periods. The unrecognized tax benefits
include long-term liabilities of $42,000 as of both May 25, 2019 and May 26, 2018; none of the unrecognized tax benefits are
short-term liabilities due to the closing of the statute of limitations.
The Company’s major income tax jurisdiction is the U.S., with federal statute of limitations remaining open for fiscal
2016 and thereafter. For states within the U.S. in which the Company does significant business, the Company remains subject
to examination for fiscal 2015 and thereafter. Major foreign jurisdictions in Europe remain open for fiscal years ended 2014
and thereafter.
The Company continues to recognize interest expense and penalties related to income tax as a part of its provision for
income taxes. During the current fiscal year, the Company did not accrue for any interest and penalties as a component of the
liability for unrecognized tax benefits.
43
8. Accrued Salaries and Related Obligations
Accrued salaries and related obligations consist of the following (in thousands):
Accrued salaries and related obligations
Accrued bonuses
Accrued vacation
9. Concentrations of Credit Risk
As of
May 25,
2019
$
$
19,667
20,645
18,316
58,628
$
$
As of
May 26,
2018
22,613
18,506
17,299
58,418
The Company currently maintains cash, cash equivalents and short-term investments in commercial paper.
Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade
receivables. However, concentrations of credit risk are limited due to the large number of customers comprising the Company’s
customer base and their dispersion across different business and geographic areas. The Company monitors its exposure to credit
losses and maintains an allowance for anticipated losses. A significant change in the liquidity or financial position of one or
more of the Company’s customers could result in an increase in the allowance for anticipated losses. No single customer
accounted for more than 10% of revenue for the years ended May 25, 2019, May 26, 2018 and May 27, 2017.
10. Stockholders’ Equity
The Company has 70,000,000 authorized shares of common stock with a $0.01 par value. At May 25, 2019 and May
26, 2018, there were 31,588,000 and 31,614,000 shares of common stock outstanding, respectively, all of which provide the
holders with voting rights.
The Company has authorized for issuance 5,000,000 shares of preferred stock with a $0.01 par value per share. The
board of directors has the authority to issue preferred stock in one or more series and to determine the related rights and
preferences. No shares of preferred stock were outstanding as of May 25, 2019 and May 26, 2018.
Stock Repurchase Program
The Company’s board of directors has periodically approved a stock repurchase program authorizing the repurchase,
at the discretion of the Company’s senior executives, of the Company’s common stock for a designated aggregate dollar limit.
The current program was authorized in July 2015 (the “July 2015 program”) and set an aggregate dollar limit not to exceed
$150 million. Repurchases under the program may take place in the open market or in privately negotiated transactions and
may be made pursuant to a Rule 10b5-1 plan. During the years ended May 25, 2019 and May 26, 2018, the Company purchased
on the open market approximately 1.8 million and 0.3 million shares of its common stock, respectively, at an average price of
$16.17 and $15.95 per share, respectively, for approximately $29.9 million and $5.1 million, respectively. As of May 25, 2019,
approximately $90.1 million remains available for future repurchases of the Company’s common stock under the July 2015
program.
Quarterly Dividend
Subject to approval each quarter by its board of directors, the Company pays a regular dividend. On April 18, 2019,
the board of directors declared a regular quarterly dividend of $0.13 per share of the Company’s common stock. The dividend,
paid on June 13, 2019, was accrued in the Consolidated Balance Sheet as of May 25, 2019 for approximately $4.1 million.
Continuation of the quarterly dividend is at the discretion of the board of directors and depends upon the Company’s financial
condition, results of operations, capital requirements, general business condition, contractual restrictions contained in the
Company’s current credit agreements and other agreements, and other factors deemed relevant by the board of directors.
44
11. Stock-Based Compensation Plans
2014 Performance Incentive Plan
On October 23, 2014, the Company’s stockholders approved the 2014 Plan. The 2014 Plan replaced the Resources
Connection, Inc. 2004 Performance Incentive Plan and the 1999 Long Term Incentive Plan (the “Prior Stock Plans”). The
effective date of the 2014 Plan is September 3, 2014 and, unless terminated earlier by the board of directors, will terminate on
September 2, 2024. Under the terms of the 2014 Plan, the Company’s board of directors or one or more committees appointed
by the board of directors will administer the 2014 Plan. The board of directors has delegated general administrative authority
for the 2014 Plan to the Compensation Committee of the board of directors.
The administrator of the 2014 Plan has broad authority to, among other things, select participants and determine the
type(s) of award(s) that they are to receive, and determine the number of shares that are to be subject to awards and the terms
and conditions of awards, including the price (if any) to be paid for the shares or the award. Persons eligible to receive awards
under the 2014 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, and
certain consultants and advisors to the Company or any of its subsidiaries.
The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards
under the 2014 Plan equals the sum of: (1) 2,400,000 shares, plus (2) the number of shares subject to stock options granted
under the Prior Stock Plans and outstanding as of September 3, 2014 (the date at which the Prior Stock Plans terminated),
which expire, or for any reason are cancelled or terminated, after that date without being exercised, plus (3) the number of
shares subject to restricted stock, restricted stock units and other full-value awards granted under the Prior Stock Plans that
were outstanding and unvested as of September 3, 2014, which are forfeited, terminated, cancelled, or otherwise reacquired
after that date without having become vested. As of May 25, 2019, 1,595,000 shares were available for award grant purposes
under the 2014 Plan, subject to future increases as described in (2) and (3) above and subject to increase as then-outstanding
awards expire or terminate without having become vested or exercised, as applicable.
The types of awards that may be granted under the 2014 Plan include stock options, restricted stock, stock bonuses,
performance stock, stock units, phantom stock and other forms of awards granted or denominated in the Company’s common
stock or units of the Company’s common stock, as well as certain cash bonus awards. Under the terms of the 2014 Plan, the
option price for the incentive stock options (“ISOs”) and nonqualified stock options (“NQSO”) may not be less than the fair
market value of the shares of the Company’s stock on the date of the grant. For ISOs, the exercise price per share may not be
less than 110% of the fair market value of a share of common stock on the grant date for any individual possessing more than
10% of the total outstanding stock of the Company. Stock options granted under the 2014 Plan and the Prior Stock Plans
generally become exercisable over periods of one to four years and expire not more than ten years from the date of grant. The
Company predominantly grants NQSOs to employees in the U.S. The Company granted 21,537 and 117,588 shares of restricted
stock during the fiscal years ended May 25, 2019 and May 26, 2018, respectively.
On January 1, 2018, the Company adopted the Directors Deferred Compensation Plan, which provides the members
of the Company’s board of directors who are not officers or employees of the Company the opportunity to defer certain
compensation and equity awards paid or granted for their service in the form of stock units (“Stock Units”). The Stock Units
are used solely as a device for determining the amount of cash benefit to eventually be paid to the director. Each has the same
value as one share of Resources Connection, Inc. common stock. Stock Units must be retained until the director leaves the
board of directors, at which time the cash value of the Stock Units are paid out. Additional Stock Units are credited to reflect
dividends paid on shares of Resources Connection, Inc. common stock. Stock Units credited to a director pursuant to an election
to defer compensation (and any dividend equivalents credited thereon) are fully vested at all times. Stock Units credited to a
director pursuant to an election to defer an equity award are subject to the vesting conditions applicable to the equity award,
except that dividend equivalents credited to a director with respect to such Stock Units are vested at all times. These liability
classified awards are re-measured at each reporting date and on settlement using the closing price of the Company’s common
stock on that date. Any change in fair value is recorded as stock-based compensation expense in the period. We recognize
stock-based compensation on these Stock Units using the straight-line method over the requisite service period.
45
A summary of the share-based award activity under the 2014 Plan and the Prior Stock Plans follows (amounts in
thousands, except weighted average exercise price):
Share-Based
Awards
Available
for Grant
Number of
Shares
Under
Option
Weighted
Average
Exercise
Price
Weighted
A
Remaining
Contractual Life
(in years)
Aggregate
Intrinsic
Value
Options outstanding at May 26, 2018
Granted, at fair market value
Restricted stock (1)
Exercised
Forfeited (2)
Expired
Options outstanding at May 25, 2019
Exercisable at May 25, 2019
Vested and expected to vest at May 25, 2019
2,252
(1,290)
(54)
-
241
446
1,595
6,869 $
1,290
-
(1,444)
(240)
(446)
6,029 $
3,547 $
5,789 $
15.10
18.96
-
13.72
15.91
18.85
15.95
15.09
15.86
5.50 $
12,310
6.06 $
4.30 $
5.93 $
5,482
5,051
5,472
(1)
Amounts represent restricted shares granted. Share-based awards available for grant are reduced by 2.5 shares
for each share awarded as stock grants from the 2014 Plan.
(2)
(3)
Amounts represent both stock options and restricted share awards forfeited.
The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to options
not yet vested of 2,481,959 and 2,366,237 as of May 25, 2019 and May 26, 2018, respectively.
The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s
closing stock price of $15.56 as of May 24, 2019 (the last actual trading day of fiscal 2019), which would have been received
by the option holders had all option holders exercised their options as of that date.
The total pre-tax intrinsic value related to stock options exercised during the years ended May 25, 2019, May 26, 2018
and May 27, 2017 was $5.2 million, $1.7 million and $1.1 million, respectively. The total estimated fair value of stock options
that vested during the years ended May 25, 2019, May 26, 2018 and May 27, 2017 was $5.4 million, $5.1 million and
$3.6 million, respectively.
Valuation and Expense Information for Stock Based Compensation Plans
The following table summarizes the impact of the Company’s stock-based compensation plans. Stock-based
compensation expense is included in selling, general and administrative expenses and consists of stock-based compensation
expense related to employee stock options, ESPP stock purchase rights and restricted stock (in thousands, except per share
amounts):
Income before income taxes
Net income
Net income per share:
Basic
Diluted
May 25,
2019
For the Years Ended
May 26,
2018
May 27,
2017
$
$
$
$
(6,570)
(6,539)
(0.21)
(0.20)
$
$
$
$
(6,033)
(5,697)
(0.19)
(0.18)
$
$
$
$
(6,068)
(3,962)
(0.12)
(0.12)
46
The weighted average estimated fair value per share of employee stock options granted during the years ended May
25, 2019, May 26, 2018 and May 27, 2017 was $4.74, $3.61 and $3.61, respectively, using the Black-Scholes model with the
following assumptions:
Expected volatility
Risk-free interest rate
Expected dividends
Expected life
May 25, 2019
31.6% - 34.7%
3.1% - 3.2%
3.2%
5.7 - 8.3 years
For the Years Ended
May 26, 2018
30.3% - 34.5%
2.1% - 2.4%
3.1%
5.7 - 8.2 years
May 27, 2017
34.6% - 38.4%
1.3% - 1.6%
3.0%
5.6 - 8.1 years
As of May 25, 2019, there was $8.3 million of total unrecognized compensation cost related to non-vested employee
stock options granted. That cost is expected to be recognized over a weighted-average period of 1.83 years.
Unvested restricted shares outstanding at May 26, 2018
Granted
Vested
Forfeited
Unvested restricted shares outstanding at May 25, 2019
Total Number
Total Number of
Shares
234,858
21,537
(97,017)
(452)
158,926
Stock-based compensation expense in the tables above includes compensation for restricted shares of $1.7 million,
$1.4 million and $0.8 million for the years ended May 25, 2019, May 26, 2018 and May 27, 2017 respectively. At May 25,
2019, there was approximately $2.9 million of total unrecognized compensation cost related to restricted shares, which is
expected to be recognized over a weighted-average period of 1.59 years. The Company recognizes compensation expense for
only the portion of stock options and restricted shares that are expected to vest, rather than recording forfeitures when they
occur. If the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation
expense may be required in future periods.
Excess income tax benefits and deficiencies from stock-based compensation are now recognized as a discrete item
within the provision for income taxes in the Consolidated Statement of Operations rather than additional paid-in capital in the
Consolidated Balance Sheets.
Employee Stock Purchase Plan
On October 23, 2014, the Company’s stockholders approved an amendment to the ESPP to extend the term of the
ESPP through October 16, 2024, and to increase the maximum number of shares of the Company’s common stock authorized
for issuance under the ESPP by an additional 1.5 million shares to a total of 5.9 million shares.
The Company’s ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the
Company’s common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or
end of each semi-annual stock purchase period. The Company issued 358,000, 339,000 and 359,000 shares of common stock
pursuant to the ESPP for the years ended May 25, 2019, May 26, 2018 and May 27, 2017, respectively. There are 221,000 shares
of common stock available for issuance under the ESPP as of May 25, 2019.
12. Benefit Plan
47
The Company has a defined contribution 401(k) plan (“the plan”) which covers all employees in the U.S. who have
completed 90 days of service and are age 21 or older. Participants may contribute up to 50% of their annual salary up to the
maximum amount allowed by statute. As defined in the plan agreement, the Company may make matching contributions in
such amount, if any, up to a maximum of 6% of individual employees’ annual compensation. The Company, at its sole
discretion, determines the matching contribution made from quarter to quarter. To receive matching contributions, the employee
must be employed on the last business day of the fiscal quarter. For the years ended May 25, 2019, May 26, 2018 and May 27,
2017, the Company contributed approximately $6.4 million, $5.6 million and $5.1 million, respectively, to the plan as
Company matching contributions.
13. Supplemental Disclosure of Cash Flow Information
Additional information regarding cash flows is as follows (in thousands):
Income taxes paid
Interest paid
Non-cash investing and financing activities:
Capitalized leasehold improvements paid directly by landlord
Acquisition of taskforce:
Issuance of common stock
Liability for contingent consideration
Acquisition of Accretive:
Issuance of common stock
Dividends declared, not paid
14. Commitments and Contingencies
Lease Commitments
May 25,
2019
For the Years Ended
May 26,
2018
May 27,
2017
$
$
$
$
$
$
$
14,229
2,440
2,312
-
2,195
-
4,105
$
$
$
$
$
$
$
10,601
1,769
65
2,602
4,289
11,754
3,791
$
$
$
$
$
$
$
16,756
628
1,026
-
-
-
3,253
At May 25, 2019, the Company had operating leases, expiring at various dates through March 2028, primarily for
office premises, vehicles and equipment. At May 25, 2019, the Company had no capital leases. Future minimum rental
commitments under operating leases as follows (in thousands):
Years Ending:
May 30, 2020
May 29, 2021
May 28, 2022
May 27, 2023
May 25, 2024
Thereafter
Total
Operating
Leases
12,828
11,737
9,811
7,934
6,352
6,043
54,705
$
$
Rent expense for the years ended May 25, 2019, May 26, 2018 and May 27, 2017 totaled $15.5 million, $13.7 million
and $12.9 million, respectively. Rent expense is recognized on a straight-line basis over the term of the lease, including during
any rent holiday periods.
The Company leases approximately 13,000 square feet of the approximately 57,000 square foot Company owned
building located in Irvine, California to independent third parties and has operating lease agreements for sub-let space with
independent third parties expiring through fiscal 2025. Rent income for the years ended May 25, 2019, May 26, 2018 and May
27, 2017 totaled $240,000, $305,000 and $332,000 million, respectively. Under the terms of these operating lease agreements,
48
rental income from such third-party leases is expected to be $414,000, $368,000, $306,000, $226,000 and $232,000 in fiscal
2020 through 2024, respectively, and $78,000 thereafter.
Legal Proceedings
The Company is involved in certain legal matters in the ordinary course of business. In the opinion of management,
all such matters, if disposed of unfavorably, would not have a material adverse effect on the Company’s financial position, cash
flows or results of operations.
15. Segment Information and Enterprise Reporting
The Company discloses information regarding operations outside of the U.S. The Company operates as one segment.
The accounting policies for the domestic and international operations are the same as those described in Note 2 - Summary of
Significant Accounting Policies. Summarized information regarding the Company’s domestic and international operations is
shown in the following table. Amounts are stated in thousands:
Revenue for the
Years Ended
May 26,
2018
May 25,
2019
Long-Lived Assets (1) as of
May 27,
2017
May 25,
2019
United States
International
Total
$
$
575,641
153,358
728,999
$
$
510,935
143,194
654,129
$
$
469,846
113,565
583,411
$
$
200,385
31,651
232,036
$
$
(1) Long-lived assets are comprised of goodwill, intangible assets and property and equipment.
May 26,
2018
198,280
34,614
232,894
Evaluation of Disclosure Controls and Procedures
As required by SEC Rule 13a-15(b) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”),
the Company carried out an evaluation, under the supervision and with the participation of the Company’s management,
including the Company’s Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation
of the Company’s disclosure controls and procedures (as such term is defined in Rule 13a-15(e) under the Exchange Act) as of
May 25, 2019. Based on this evaluation, the Company’s Chief Executive Officer and Chief Financial Officer concluded that
the Company’s disclosure controls and procedures were effective as of May 25, 2019.
Management’s Report on Internal Control Over Financial Reporting
Management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). We maintain internal control over financial reporting designed to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external
purposes in accordance with generally accepted accounting principles.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Under the supervision and with the participation of management, including the Company’s Chief Executive Officer
and Chief Financial Officer, the Company conducted an evaluation of the effectiveness of its internal control over financial
reporting based on the criteria established in the 2013 Internal Control – Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission. This evaluation included an assessment of the design of the
Company’s internal control over financial reporting and testing of the operational effectiveness of its internal control over
49
financial reporting. Based on this evaluation, management has concluded that the Company’s internal control over financial
reporting was effective as of May 25, 2019.
The Company’s independent registered public accounting firm, RSM US LLP, has audited the effectiveness of the
Company’s internal control over financial reporting as of May 25, 2019, as stated in their report which is included in this Item
under the heading “Report of Independent Registered Public Accounting Firm.”
Changes in Internal Control Over Financial Reporting
There has been no change in the Company’s internal control over financial reporting during the fiscal quarter ended
May 25, 2019, that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over
financial reporting.
50
Report of Independent Registered Public Accounting Firm
To the Stockholders and the Board of Directors of Resources Connection, Inc.
Opinion on the Internal Control Over Financial Reporting
We have audited Resources Connection, Inc. and subsidiaries’ (the Company) internal control over financial reporting as of
May 25, 2019, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013. In our opinion, the Company maintained, in all material
respects, effective internal control over financial reporting as of May 25, 2019, based on criteria established in Internal Control
— Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States)
(PCAOB), the consolidated balance sheets of the Company as of May 25, 2019 and May 26, 2018, and the related consolidated
statements of operations, comprehensive income, stockholders’ equity, and cash flows for each of the three years in the period
ended May 25, 2019, and our report dated July 19, 2019, expressed an unqualified opinion.
Basis for Opinion
The Company’s management is responsible for maintaining effective internal control over financial reporting and for its
assessment of the effectiveness of internal control over financial reporting in the accompanying Management’s Report on
Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over
financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be
independent with respect to the Company in accordance with U.S. federal securities laws and the applicable rules and
regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the
audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all
material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk
that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on
the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances.
We believe that our audit provides a reasonable basis for our opinion.
Definition and Limitations of Internal Control Over Financial Reporting
A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the
reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally
accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures
that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit
preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and
expenditures of the company are being made only in accordance with authorizations of management and directors of the
company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or
disposition of the company's assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also,
projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate
because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
/s/ RSM US LLP
Irvine, California
July 19, 2019
51
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Domestic Locations
Phoenix, Arizona
Irvine, California
Los Angeles, California (2)
Mountain View, California
Sacramento, California (2)
Santa Clara, California
San Diego, California
San Francisco, California (2)
Walnut Creek, California
Woodland Hills, California
Denver, Colorado
Hartford, Connecticut
Stamford, Connecticut
Fort Lauderdale, Florida
Jacksonville, Florida
Tampa, Florida
Atlanta, Georgia
Honolulu, Hawaii
Chicago, Illinois
Oakbrook Terrace, Illinois
Indianapolis, Indiana
Boston, Massachusetts
Detroit, Michigan
International Locations
Sydney, Australia
Brussels, Belgium
Toronto, Canada
Paris, France
Frankfurt, Germany
Muenster, Germany
Munich, Germany
Bangalore, India
Mumbai, India
Dublin, Ireland
Milan, Italy
Tokyo, Japan
Mexico City, Mexico
Shareholder Information
Corporate Publications
Minneapolis, Minnesota
Kansas City, Missouri
Las Vegas, Nevada
Parsippany, New Jersey
Princeton, New Jersey
New York, New York
Charlotte, North Carolina
Cincinnati, Ohio
Cleveland, Ohio
Columbus, Ohio
Tulsa, Oklahoma
Portland, Oregon
Cranberry Township, Pennsylvania
Philadelphia, Pennsylvania
Pittsburgh, Pennsylvania
Nashville, Tennessee
Austin, Texas
Dallas, Texas
Houston, Texas
San Antonio, Texas
Seattle, Washington
Washington, D.C. (McLean, Virginia)
Amsterdam (Utrecht), Netherlands
Beijing, People’s Republic of China
Hong Kong, People’s Republic of China
Guangzhou, People's Republic of China
Shanghai, People’s Republic of China
Manila, Philippines
Singapore
Seoul, South Korea
Stockholm, Sweden
Zurich, Switzerland
Taipei, Taiwan
London, United Kingdom
Copies of Resources Connection Inc.’s Annual Report on Form 10-K for the year ended May 25, 2019 (excluding
exhibits thereto), as well as historical Resources Connection, Inc. quarterly reports on Form 10-Q and other Securities
and Exchange Commission filings (excluding exhibits thereto) are available without charge upon request to the
Investor Relations Department, Resources Connection Inc., 17101 Armstrong Avenue, Irvince, CA 92614, or from
the Company’s Investor Relations website at http://ir.rgp/com.
Forward-Looking Statements
Please refer to the section entitled “Caution Concerning Forward-Looking Statements” included in this Annual
Report.
Transfer Agent
Independent Registered Public Accounting Firm
American Stock Transfer & Trust Company
800-937-5449
Address: 6201 15th Avenue
Brooklyn, NY 11219
RSM US, LLP
Irvine, CA
Marco von Maltzan
Business Consultant and Independent Director
Former Chief Executive and Chief Financial Officer
BERU AG, Germany
A. Robert Pisano
Business Consultant
Former President and Chief Operating Officer
Motion Picture Association of America
Jolene Sykes Sarkis
Former Executive Vice President
CFS Restaurant Group, Inc.
Former Publisher and President
Fortune Magazine Group
Anne Shih
Chairwoman
Board of Governors of Bowers Museum
Honorary President
Chinese Cultural Arts Association
Michael H. Wargotz
Co-Founder & Executive Officer
Residence at Axcess Worldwide
Former Chief Financial Officer
The Milestone Aviation Group
Anthony Gutierrez
Senior Vice President, Head of Asia Pacific
Brandon Johnson
Chief Information Officer & EVP, Corporate Operations
Jennifer Ryu
Interim Chief Financial Officer
Thomas Schember
Executive Vice President, Global Client Services
Resources Connection, Inc. Board of Directors
Donald B. Murray
Chairman
Resources Connection, Inc.
Anthony C. Cherbak
Retired Chief Executive Officer
Resources Connection, Inc.
Retired Partner
Deloitte & Touche LLP
Susan J. Crawford
Senior Judge
United States Court of Appeals for the Armed Forces
Neil F. Dimick
Retired Chief Financial Officer
AmerisourceBergen Corporation
Retired Partner
Deloitte & Touche LLP
Kate W. Duchene
Chief Executive Officer
Resources Connection, Inc.
Robert F. Kistinger
Advisor
Executive
Former Chief Operating Officer
Bonita Banana Company
and
Former President and Chief Operating Officer
The Fresh Group of Chiquita Brands International, Inc.
Senior Corporate Executives
Kate W. Duchene
Chief Executive Officer
Timothy Brackney
President and Chief Operating Officer
Mark Campbell
Senior Vice President, Head of Europe
Katy Conway
Senior Vice President, Talent
Tracey Figurelli
Executive Vice President, Digital Innovation
Corporate Headquarters
714-430-6400
17101 Armstrong Avenue
Irvine, CA 92614
Investor Relations
714-830-6295
http://ir.rgp.com