See also Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations-Quarterly
Results, which is incorporated herein by reference.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
The accompanying notes are an integral part of these consolidated financial statements.
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. Resources
Connection is a multinational professional services firm; its operating entities provide services primarily under the name Resources Global Professionals (RGP or the Company). The Company provides agile consulting services to
its global client base utilizing experienced professionals in the areas of accounting; finance; governance, risk and compliance management; corporate advisory, strategic communications and restructuring; information management; human capital; supply
chain management; and legal and regulatory. The Company has offices in the United States (U.S.), Asia, Australia, Canada, Europe and Mexico.
The Companys fiscal year consists of 52 or 53 weeks, ending on the Saturday in May closest to May 31. Fiscal years 2017, 2016
and 2015 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
Revenues are recognized and billed when the Companys professionals deliver services. Conversion fees are recognized when one of the
Companys professionals accepts an offer of permanent employment from a client. Conversion fees were 0.5% of revenue for each of the years ended May 27, 2017, May 28, 2016 and May 30, 2015. All costs of compensating the
Companys professionals are the responsibility of the Company and are included in direct cost of services.
Client
Reimbursements of
Out-of-Pocket
Expenses
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 $10.1 million,
$10.6 million and $10.6 million for the years ended May 27, 2017, May 28, 2016 and May 30, 2015, respectively.
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
59
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 in additional
paid-in
capital 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.
The following table summarizes the
calculation of net income per share for the years ended May 27, 2017, May 28, 2016 and May 30, 2015 (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Net income
|
|
$
|
18,651
|
|
|
$
|
30,443
|
|
|
$
|
27,508
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
32,851
|
|
|
|
37,037
|
|
|
|
37,825
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted:
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares
|
|
|
32,851
|
|
|
|
37,037
|
|
|
|
37,825
|
|
Potentially dilutive shares
|
|
|
620
|
|
|
|
571
|
|
|
|
423
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total dilutive shares
|
|
|
33,471
|
|
|
|
37,608
|
|
|
|
38,248
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per common share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
0.57
|
|
|
$
|
0.82
|
|
|
$
|
0.73
|
|
Dilutive
|
|
$
|
0.56
|
|
|
$
|
0.81
|
|
|
$
|
0.72
|
|
Anti-dilutive shares not included above
|
|
|
4,582
|
|
|
|
4,745
|
|
|
|
5,746
|
|
Cash and Cash Equivalents
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.
Short-Term Investments
The Companys short-term investments were $25.0 million as of May 28, 2016 with original contractual maturities of between three
months and one year. The Company had no short-term investments as of May 27, 2017. The Company had no investments with a maturity in excess of one year as of the end of either fiscal year 2017 or 2016. The Company carries debt securities that
it has the ability and positive intent to hold to maturity at amortized cost.
The fair value of the Companys 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.
60
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Companys investments in commercial paper and U.S. Government Agency securities are
measured using quoted prices in markets that are not active (Level 2). There were no unrealized holding gains or losses as of May 27, 2017 and May 28, 2016. Short-term investments consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 27, 2017
|
|
|
As of May 28, 2016
|
|
|
|
Cost
|
|
|
Fair Value
|
|
|
Cost
|
|
|
Fair Value
|
|
Commercial paper
|
|
$
|
|
|
|
$
|
|
|
|
$
|
19,959
|
|
|
$
|
19,959
|
|
U.S. Government Agency securities
|
|
|
|
|
|
|
|
|
|
|
4,998
|
|
|
|
4,998
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
24,957
|
|
|
$
|
24,957
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 Companys 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 Companys 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
|
|
Years Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2015
|
|
$
|
3,139
|
|
|
$
|
212
|
|
|
$
|
(78
|
)
|
|
$
|
18
|
|
|
$
|
3,291
|
|
May 28, 2016
|
|
$
|
3,291
|
|
|
$
|
1,118
|
|
|
$
|
(16
|
)
|
|
$
|
(1,399
|
)
|
|
$
|
2,994
|
|
May 27, 2017
|
|
$
|
2,994
|
|
|
$
|
458
|
|
|
$
|
(20
|
)
|
|
$
|
(915
|
)
|
|
$
|
2,517
|
|
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
|
|
30 years
|
Furniture
|
|
5 to 10 years
|
Leasehold improvements
|
|
Lesser of useful life of asset or term of lease
|
Computer, equipment and software
|
|
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.
Goodwill
Goodwill
is not subject to amortization but is tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. The Company performed its annual goodwill impairment analysis as of May 27, 2017
61
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and will continue to test for impairment at least annually. The Company performs its impairment analysis by comparing its market capitalization to its book value throughout the fiscal year. For
application of this methodology the Company determined that it operates as a single reporting unit resulting from the combination of its practice offices. No impairment was indicated as of May 27, 2017. The Company has no other intangible
assets.
See Note 4
Intangible Assets and Goodwill
for a further description of the Companys 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 Companys 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
Companys 2014 Performance Incentive Plan (2014 Plan). The Company determines the estimated value of stock options using the Black-Scholes valuation model. 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 10
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
managements 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 Current Fiscal Year
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes.
In November 2015, the Financial Accounting Standards Board
(FASB) issued ASU
2015-17.
The standard requires that deferred tax assets and liabilities be classified as noncurrent on the balance sheet rather than being separated into current and noncurrent
portions. ASU
2015-17
is effective for fiscal years, and interim periods within those years, beginning after December 15, 2016. As permitted, the Company early adopted ASU
2015-17
during the first quarter of fiscal year 2017 on a retrospective basis. Accordingly, current deferred taxes have been reclassified as noncurrent on the May 28, 2016 Consolidated Balance Sheet. This
reclassification decreased current deferred tax assets by $8.4 million and increased noncurrent deferred tax assets by $8.4 million. The Company also netted noncurrent deferred tax liabilities of $5.0 million against noncurrent
deferred tax assets.
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments.
In
September 2015, the FASB issued ASU
2015-16.
This ASU eliminates the requirement to retrospectively account for changes to provisional amounts initially recorded in a business combination. ASU
2015-16
requires that an acquirer recognize adjustments to provisional amounts that are identified during the measurement period in the reporting period in which the adjustments are determined, including the effect
of the change in provisional amount as if the accounting had been completed at the acquisition date. The Company adopted this guidance as of the beginning of fiscal 2017 and will consider it during future business combinations.
62
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Presentation of Financial Statements-Going Concern (Subtopic
205-40):
Disclosure of Uncertainties about an Entitys Ability to Continue as a Going Concern.
In August 2014, the FASB issued ASU
2014-15.This
ASU provides guidance
regarding managements responsibility in evaluating whether there is substantial doubt about a companys ability to continue as a going concern and to provide related footnote disclosures. The Company adopted this guidance as of the
beginning of fiscal 2017.
Compensation-Stock Compensation (Topic 718): Accounting for Share-Based Payments When the Terms of an Award
Provide That a Performance Target Could Be Achieved after the Requisite Service Period.
In June 2014, the FASB issued ASU
2014-12.
This ASU provides guidance requiring that a performance target that
affects vesting and could be achieved after the requisite service period be treated as a performance condition. The Company adopted this guidance as of the beginning of fiscal 2017. The Company does not currently have any performance based awards
and thus the adoption has not had a material impact on its consolidated financial statements.
Accounting Pronouncements Pending Adoption
Compensation Stock Compensation (Topic 718): Scope of Modification Accounting.
In May 2017, the FASB issued ASU
2017-09,
which clarifies when changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting. Under the new guidance, modification accounting is only required if
the fair value, vesting conditions or classification (equity or liability) of the new award are different from the original award immediately before the original award is modified. The new standard is effective for financial statements for annual
periods beginning after December 15, 2017 (for the company, fiscal 2019). Early adoption is permitted. The guidance must be applied prospectively to awards modified on or after the adoption date. The future impact of ASU
2017-09
will be dependent on the nature of future stock award modifications.
Intangibles
Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment.
In January 2017, the FASB issued ASU
2017-04,
which provides guidance regarding the goodwill impairment testing process. The
new standard eliminates Step 2 of the goodwill impairment test. If a company determines in Step 1 of the goodwill impairment test that the carrying value of goodwill is greater than the fair value, an impairment for that difference must be recorded
in the income statement, rather than proceeding to Step 2. The new standard is effective for financial statements for annual periods beginning after December 15, 2019 (for the Company, fiscal 2021). Early adoption is permitted for interim or
annual goodwill impairments tests performed on testing dates after January 1, 2017. Based on the Companys most recent annual goodwill impairment test completed in fiscal 2017, the Company expects no initial impact on adoption.
Statement of Cash Flows (Topic 230): Classification of Certain Cash Receipts and Cash Payments.
In August 2016, the FASB issued ASU
2016-15,
which provides guidance designed to address diversity in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. Examples include cash payments for debt
prepayment or debt extinguishment; contingent consideration payments made after a business combination; and proceeds from the settlement of corporate-owned life insurance policies.
The new standard is effective for financial statements for
annual and interim periods within those annual periods beginning after December 15, 2017 (for the Company, fiscal 2019). Early adoption is permitted. The Company believes the adoption of this guidance will not have a material impact on its
consolidated financial statements.
Compensation-Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment
Accounting.
In March 2016, the FASB issued ASU
2016-09.
The new standard modifies several aspects of the accounting and reporting for employee share-based payments and related tax accounting impacts,
including the presentation in the statements of operations and cash flows of certain tax benefits or deficiencies and employee tax withholdings, as well as the accounting for award forfeitures over the vesting period. The new standard is effective
for financial statements for annual and interim periods within those annual periods beginning after December 15, 2016 (for the Company, fiscal 2018). The Company is currently evaluating the impact the adoption of this new standard will have on
its consolidated financial statements but anticipates three potential impacts: a) added volatility to the Companys effective tax rate from the change in accounting for income taxes; b) changes to its classification of excess tax benefits on
the Consolidated Statement of Cash Flows; and c) change in the accounting for forfeitures, as the guidance allows the
63
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Company to account for forfeitures as they occur, rather than estimating the expected forfeitures over the course of the vesting period. The Company will continue to evaluate the impact of
adoption of this guidance and its preliminary assessments are subject to change.
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.
The requirements are effective for financial statements for annual periods and interim periods within those annual periods beginning after December 15, 2018 (for the Company, fiscal 2020), and early adoption is permitted. The Company is
currently evaluating the impact that ASU
2016-02
will have on its consolidated financial statements and believes that it will have a significant impact on the Companys reported balance sheet assets and
liabilities. Under current accounting guidelines, the Companys office leases are operating lease arrangements, in which rental payments are treated as operating expenses and there is no recognition of the arrangement on the balance sheet as an
asset with related obligation to the lessor.
Revenue from Contracts with Customers (Topic 606)
: In May 2014, the FASB issued ASU
2014-09,
a comprehensive new revenue recognition standard that will supersede current revenue recognition guidance and is intended to improve and converge revenue recognition and related financial reporting
requirements. The core principle of this guidance is that an entity should recognize revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expects to be entitled in
exchange for those goods or services. The guidance provides a number of steps to apply to achieve that core principle and requires additional disclosures. In August 2015, the FASB issued ASU
2015-14,
which
delays the required implementation date for the Company until fiscal 2019, with early adoption permitted for fiscal 2018. The Company has elected to adopt the guidance beginning in fiscal 2019. The standard allows for either full
retrospective adoption, meaning the standard is applied to all periods presented, or cumulative effect adoption, meaning the standard is applied only to the most current period presented in the financial statements. In addition, in
March 2016, the FASB issued
ASU 2016-12,
Narrow-Scope Improvements and Practical Expedients (Topic 606), which provides clarifying guidance in certain areas and adds some practical expedients. The
effective date for this ASU is the same as the effective date for
ASU 2014-09.
We intend to implement the standard using the modified retrospective approach, which recognizes the cumulative effect (if
any) of application recognized on that date. The Company is currently evaluating the impact of adoption of this guidance, including required disclosures, and based upon our current analysis, does not expect a significant impact on processes, systems
or controls. The Company will continue to evaluate the impact of adoption of this guidance and its preliminary assessments are subject to change.
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 Companys 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.
64
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
3. Property and Equipment
Property and equipment consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
May 27, 2017
|
|
|
As of
May 28, 2016
|
|
Building and land
|
|
$
|
14,198
|
|
|
$
|
14,172
|
|
Computers, equipment and software
|
|
|
17,811
|
|
|
|
16,568
|
|
Leasehold improvements
|
|
|
19,403
|
|
|
|
21,170
|
|
Furniture
|
|
|
9,653
|
|
|
|
10,306
|
|
|
|
|
|
|
|
|
|
|
|
|
|
61,065
|
|
|
|
62,216
|
|
Less accumulated depreciation and amortization
|
|
|
(37,711
|
)
|
|
|
(40,942
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
23,354
|
|
|
$
|
21,274
|
|
|
|
|
|
|
|
|
|
|
4. Intangible Assets and Goodwill
The following table presents details of our intangible assets, estimated lives and related accumulated amortization (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of May 27, 2017
|
|
|
As of May 28, 2016
|
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
Gross
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
Trade name and trademark (5 years)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,341
|
|
|
$
|
(1,341
|
)
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The following table summarizes amortization expense for the years ended May 27, 2017, May 28, 2016
and May 30, 2015 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Amortization expense
|
|
$
|
|
|
|
$
|
90
|
|
|
$
|
918
|
|
As of May 27, 2017, all of the Companys intangible assets subject to amortization have been fully
amortized.
The following table summarizes the activity in the Companys goodwill balance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Goodwill, beginning of year
|
|
$
|
171,183
|
|
|
$
|
170,878
|
|
Impact of foreign currency exchange rate changes
|
|
|
(95
|
)
|
|
|
305
|
|
|
|
|
|
|
|
|
|
|
Goodwill, end of period
|
|
$
|
171,088
|
|
|
$
|
171,183
|
|
|
|
|
|
|
|
|
|
|
5. Long-Term Debt
In October 2016, the Company entered into a $120 million secured revolving credit facility (Facility) with Bank of America,
consisting of (i) a $90 million revolving loan facility, which includes a $5 million sublimit for the issuance of standby letters of credit (Revolving Loan), and (ii) a $30 million reducing revolving loan
facility, any amounts of which may not be
65
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
reborrowed after being repaid (Reducing Revolving Loan). The Facility is available for working capital and general corporate purposes, including potential acquisitions and stock
repurchases. Our obligations under the Facility are guaranteed by all of the Companys domestic subsidiaries and secured by essentially all assets of the Company, Resources Connection LLC and their domestic subsidiaries, subject to certain
customary exclusions. Borrowings under the Facility bear interest at a rate per annum of either, at the Companys 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 Companys consolidated leverage ratio. The alternate base rate is the highest of (i) Bank of Americas 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 Companys
consolidated leverage ratio. The Facility expires October 17, 2021.
In November 2016, the Company borrowed $58.0 million under
the Facility to fund a portion of the purchase price of its modified Dutch auction tender offer. See Note 9
Stockholders Equity
, for additional information about the tender offer. During the third quarter of fiscal 2017, the
Company reduced the amount borrowed by $10.0 million. As of May 27, 2017, the outstanding balance on the Facility is $49.0 million, including $1.0 million of outstanding letters of credit issued under the Facility. There is
$41.0 million remaining to borrow under the Revolving Loan and $30.0 million remaining under the Reducing Revolving Loan. As of May 27, 2017, the interest rate on the Companys borrowings was 2.5% on one tranche of
$24.0 million based on a
1-month
LIBOR plus 1.5% and 2.65% on a second tranche of $24.0 million based on a
3-month
LIBOR plus 1.5%.
The Facility contains both affirmative and negative covenants. Covenants include, but are not limited to, limitations on the Companys
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 us to comply with financial covenants limiting the
Companys total funded debt, minimum interest coverage ratio and maximum leverage ratio. The Company was in compliance with all financial covenants under the Facility as of May 27, 2017.
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.
66
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Current
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
10,901
|
|
|
$
|
18,320
|
|
|
$
|
18,046
|
|
State
|
|
|
2,551
|
|
|
|
4,168
|
|
|
|
4,028
|
|
Foreign
|
|
|
1,472
|
|
|
|
1,398
|
|
|
|
1,101
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,924
|
|
|
|
23,886
|
|
|
|
23,175
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
259
|
|
|
|
(178
|
)
|
|
|
(502
|
)
|
State
|
|
|
62
|
|
|
|
(27
|
)
|
|
|
(120
|
)
|
Foreign
|
|
|
(123
|
)
|
|
|
(135
|
)
|
|
|
345
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
198
|
|
|
|
(340
|
)
|
|
|
(277
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
15,122
|
|
|
$
|
23,546
|
|
|
$
|
22,898
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Domestic
|
|
$
|
32,390
|
|
|
$
|
53,417
|
|
|
$
|
51,997
|
|
Foreign
|
|
|
1,383
|
|
|
|
572
|
|
|
|
(1,591
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
33,773
|
|
|
$
|
53,989
|
|
|
$
|
50,406
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes differs from the amount that would result from applying the federal statutory
rate as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Statutory tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
State taxes, net of federal benefit
|
|
|
5.0
|
|
|
|
4.9
|
|
|
|
5.0
|
|
Non-U.S.
rate adjustments
|
|
|
0.1
|
|
|
|
0.4
|
|
|
|
1.1
|
|
Stock-based compensation
|
|
|
0.7
|
|
|
|
0.6
|
|
|
|
0.5
|
|
Valuation allowance
|
|
|
1.2
|
|
|
|
1.3
|
|
|
|
2.8
|
|
Permanent items, primarily meals and entertainment
|
|
|
2.2
|
|
|
|
1.5
|
|
|
|
1.3
|
|
Other, net
|
|
|
0.6
|
|
|
|
(0.1
|
)
|
|
|
(0.3
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effective tax rate
|
|
|
44.8
|
%
|
|
|
43.6
|
%
|
|
|
45.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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.
67
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of the net deferred tax asset consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
May 27,
2017
|
|
|
As of
May 28,
2016
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
1,595
|
|
|
$
|
1,685
|
|
Accrued compensation
|
|
|
4,235
|
|
|
|
4,337
|
|
Accrued expenses
|
|
|
3,755
|
|
|
|
3,163
|
|
Stock options and restricted stock
|
|
|
11,779
|
|
|
|
15,132
|
|
Foreign tax credit
|
|
|
397
|
|
|
|
557
|
|
Net operating losses
|
|
|
15,855
|
|
|
|
15,283
|
|
Property and equipment
|
|
|
1,222
|
|
|
|
1,550
|
|
State taxes
|
|
|
232
|
|
|
|
368
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset
|
|
|
39,070
|
|
|
|
42,075
|
|
Valuation allowance
|
|
|
(15,971
|
)
|
|
|
(15,714
|
)
|
|
|
|
|
|
|
|
|
|
Gross deferred tax asset, net of valuation allowance
|
|
|
23,099
|
|
|
|
26,361
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Goodwill and intangibles
|
|
|
(23,406
|
)
|
|
|
(22,124
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax asset
|
|
$
|
(307
|
)
|
|
$
|
4,237
|
|
|
|
|
|
|
|
|
|
|
The Company had a net income tax receivable of $1.4 million and a net income tax payable of
$0.4 million as of May 27, 2017 and May 28, 2016, 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 Companys ESPP reduced income taxes payable by $1.1 million for both of the years
ended May 27, 2017 and May 28, 2016, respectively.
The Company has foreign net operating loss carryforwards of
$63.5 million and foreign tax credit carryforwards of $0.4 million. The foreign tax credits will expire beginning in fiscal 2023. The following table summarizes the net operating loss expiration periods.
|
|
|
|
|
Expiration Periods
|
|
Amount of Net Operating Losses
|
|
|
|
(in thousands)
|
|
Fiscal Years Ending:
|
|
|
|
|
2018
|
|
$
|
300
|
|
2019
|
|
|
550
|
|
2020
|
|
|
1,600
|
|
2021
|
|
|
4,600
|
|
2022
|
|
|
350
|
|
2023-2027
|
|
|
3,500
|
|
Unlimited
|
|
|
52,600
|
|
|
|
|
|
|
|
|
$
|
63,500
|
|
|
|
|
|
|
68
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the activity in our valuation allowance accounts (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Beginning
Balance
|
|
|
Charged to
Operations
|
|
|
Currency
Rate
Changes
|
|
|
Ending
Balance
|
|
Years Ended:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
May 30, 2015
|
|
$
|
16,719
|
|
|
$
|
1,189
|
|
|
$
|
(2,852
|
)
|
|
$
|
15,056
|
|
May 28, 2016
|
|
$
|
15,056
|
|
|
$
|
691
|
|
|
$
|
(33
|
)
|
|
$
|
15,714
|
|
May 27, 2017
|
|
$
|
15,714
|
|
|
$
|
438
|
|
|
$
|
(181
|
)
|
|
$
|
15,971
|
|
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 $18.4 million from the Companys foreign
subsidiaries as of May 27, 2017 since these amounts are intended to be indefinitely reinvested in foreign operations. If the earnings of the Companys foreign subsidiaries were to be distributed, management estimates that the income tax
impact would be immaterial as the federal taxes would be offset with foreign tax credits.
The following table summarizes the activity
related to the gross unrecognized tax benefits (in thousands):
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
Unrecognized tax benefits, beginning of year
|
|
$
|
42
|
|
|
$
|
42
|
|
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
|
|
$
|
42
|
|
|
$
|
42
|
|
|
|
|
|
|
|
|
|
|
The Companys total liability for unrecognized gross tax benefits was $42,000 as of both May 27,
2017 and May 28, 2016, 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 27, 2017 and May 28, 2016; none of
the unrecognized tax benefits are short-term liabilities due to the closing of the statute of limitations.
The Companys major
income tax jurisdiction is the U.S., with federal statute of limitations remaining open for fiscal 2014 and thereafter. For states within the U.S. in which the Company does significant business, the Company remains subject to examination for
fiscal 2013 and thereafter. Major foreign jurisdictions in Europe remain open for fiscal years ended 2012 and thereafter.
The Company
continues to recognize interest expense and penalties related to income tax as a part of its provision for income taxes. While the amount accrued during the current fiscal year is immaterial, the Company has provided $1,000 of accrued interest and
penalties as a component of the liability for unrecognized tax benefits.
69
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
7. Accrued Salaries and Related Obligations
Accrued salaries and related obligations consist of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
As of
May 27,
2017
|
|
|
As of
May 28,
2016
|
|
Accrued salaries and related obligations
|
|
$
|
18,741
|
|
|
$
|
18,166
|
|
Accrued bonuses
|
|
|
15,600
|
|
|
|
17,092
|
|
Accrued vacation
|
|
|
14,900
|
|
|
|
14,897
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
49,241
|
|
|
$
|
50,155
|
|
|
|
|
|
|
|
|
|
|
8. Concentrations of Credit Risk
The Company maintains cash and cash equivalent balances, short-term investments in commercial paper and U.S. government agency securities
with high credit quality financial institutions. At times, such balances are in excess of federally insured limits.
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 Companys
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 Companys 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 27, 2017, May 28, 2016 and May 30,
2015.
9. Stockholders Equity
The Company has 70,000,000 authorized shares of common stock with a $0.01 par value. At May 27, 2017 and May 28, 2016, there
were 29,662,000 and 36,229,000 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 27, 2017 and May 28, 2016.
Tender Offer for Common Stock
In October 2016, the Company commenced a modified Dutch auction tender offer to purchase up to 6,000,000 shares of common stock at a price not
greater than $16.00 per share and not less than $13.50 per share. In November 2016, the Company exercised its right to increase the size of the tender offer by up to 2.0% of its outstanding common stock. The tender offer period expired on
November 15, 2016 and on November 22, 2016, the Company purchased 6,515,264 shares of its common stock at a per share price of $16.00, excluding transaction costs, for approximately $104.2 million. These shares are currently held as
treasury stock. The tender offer was funded through borrowings of $58.0 million under the Facility and the remainder with cash on hand.
Stock Repurchase Program
The Companys board of directors has periodically approved a stock repurchase program authorizing the repurchase, at the discretion of the
Companys senior executives, of the Companys 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
70
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$150 million. Use of the funds authorized under the July 2015 program commenced in February 2016 upon the exhaustion of the previous stock repurchase program of $150 million approved by
the Companys board of directors in April 2011. 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 27, 2017 and May 28, 2016, the Company purchased on the open market approximately 0.8 million and 1.8 million shares of its common stock, respectively, at an average price of $15.99 and $15.32 per
share, respectively, for approximately $13.5 million and $28.1 million, respectively. As of May 27, 2017, approximately $125.1 million remains available for future repurchases of our common stock under the July 2015 program.
Quarterly Dividend
The Companys board of directors has established a quarterly dividend, subject to quarterly board of directors approval. On
April 20, 2017, the board of directors declared a regular quarterly dividend of $0.11 per share of our common stock. The dividend, payable on June 15, 2017, was accrued in the Consolidated Balance Sheet as of May 27, 2017 for
approximately $3.2 million. Continuation of the quarterly dividend will be at the discretion of the board of directors and will depend upon the Companys financial condition, results of operations, capital requirements, general business
condition, contractual restrictions contained in our current credit agreements and other agreements, and other factors deemed relevant by the board of directors.
10. Stock-Based Compensation Plans
2014 Performance Incentive Plan
On October 23, 2014, the Companys 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 Companys 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 Companys 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 27, 2017,
2,767,000 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 Companys common stock or units of the Companys 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 Companys stock on the date of the grant. For
ISOs, the exercise price per share may not be less than 110% of the fair
71
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 127,720 and
50,354 shares of restricted stock during the fiscal years ended May 27, 2017 and May 28, 2016, respectively.
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
Average
Remaining
Contractual
Life
(in years)
|
|
|
Aggregate
Intrinsic
Value
|
|
Options outstanding at May 28, 2016
|
|
|
3,206
|
|
|
|
7,347
|
|
|
$
|
16.08
|
|
|
|
5.41
|
|
|
$
|
10,109
|
|
Granted, at fair market value
|
|
|
(1,212
|
)
|
|
|
1,212
|
|
|
|
14.52
|
|
|
|
|
|
|
|
|
|
Restricted stock (1)
|
|
|
(319
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
(305
|
)
|
|
|
12.59
|
|
|
|
|
|
|
|
|
|
Forfeited (2)
|
|
|
267
|
|
|
|
(265
|
)
|
|
|
14.18
|
|
|
|
|
|
|
|
|
|
Expired
|
|
|
825
|
|
|
|
(825
|
)
|
|
|
29.77
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding at May 27, 2017
|
|
|
2,767
|
|
|
|
7,164
|
|
|
$
|
15.08
|
|
|
|
5.56
|
|
|
$
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable at May 27, 2017
|
|
|
|
|
|
|
4,608
|
|
|
$
|
15.59
|
|
|
|
4.04
|
|
|
$
|
1,173
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Vested and expected to vest at May 27, 2017 (3)
|
|
|
|
|
|
|
6,962
|
|
|
$
|
15.09
|
|
|
|
5.46
|
|
|
$
|
1,696
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(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)
|
Amounts represent both stock options and restricted share awards forfeited.
|
(3)
|
The expected to vest options are the result of applying the
pre-vesting
forfeiture rate assumptions to options not yet vested.
|
The aggregate intrinsic value in the preceding table represents the total
pre-tax
intrinsic value,
based on the Companys closing stock price of $12.65 as of May 26, 2017 (the last actual trading day of fiscal 2017), 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 27, 2017, May 28, 2016 and May 30, 2015 was $1.1 million, $1.8 million and $1.2 million, respectively. The total estimated fair value of stock options that vested during the years ended May 27, 2017,
May 28, 2016 and May 30, 2015 was $3.6 million, $4.0 million and $3.8 million, respectively.
72
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Valuation and Expense Information for Stock Based Compensation Plans
The following table summarizes the impact of the Companys 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):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Income before income taxes
|
|
$
|
(6,068
|
)
|
|
$
|
(6,280
|
)
|
|
$
|
(5,989
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
(3,962
|
)
|
|
$
|
(4,159
|
)
|
|
$
|
(3,823
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income per share:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
$
|
(0.12
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
$
|
(0.12
|
)
|
|
$
|
(0.11
|
)
|
|
$
|
(0.10
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The weighted average estimated fair value per share of employee stock options granted during the years ended
May 27, 2017, May 28, 2016 and May 30, 2015 was $3.61, $4.54 and $3.93, respectively, using the Black-Scholes model with the following assumptions:
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
May 27, 2017
|
|
May 28, 2016
|
|
May 30, 2015
|
Expected volatility
|
|
34.6% - 38.4%
|
|
35% - 40.5%
|
|
36.2% - 42.1%
|
Risk-free interest rate
|
|
1.3% - 1.6%
|
|
1.7% - 2.0%
|
|
1.7% - 2.2%
|
Expected dividends
|
|
3.0%
|
|
2.2%
|
|
1.9% - 2.1%
|
Expected life
|
|
5.6 - 8.1 years
|
|
5.6 - 7.7 years
|
|
5.5 - 7.5 years
|
As of May 27, 2017, there was $7.0 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 31 months. Stock-based compensation expense included in selling, general and administrative
expenses for the years ended May 27, 2017, May 28, 2016 and May 30, 2015 was $6.1 million, $6.3 million and $6.0 million, respectively; this consisted of stock-based compensation expense related to employee stock
options, employee stock purchases made via the Companys ESPP and issuances of restricted stock. Also included in the stock-based compensation expense for the year ended May 28, 2016 was approximately $900,000 related to the accelerated
vesting of options held by Donald Murray in connection with his transition from Executive Chairman to Chairman.
Stock-based compensation
expense in the tables above includes compensation for restricted shares of $802,000, $598,000 and $515,000 for the years ended May 27, 2017, May 28, 2016 and May 30, 2015, respectively. The Company granted 127,720, 50,354 and
49,840 shares of restricted stock for the years ended May 27, 2017, May 28, 2016 and May 30, 2015, respectively. There were 43,261 and 41,796 restricted shares that vested in fiscal 2017 and 2016, respectively. There were
189,015, 105,925 and 97,938 unvested restricted shares as of May 27, 2017, May 28, 2016 and May 30, 2015, respectively. At May 27, 2017, there was approximately $2.7 million of total unrecognized compensation cost related to
restricted shares, which is expected to be recognized over a weighted-average period of 32 months.
Excess tax benefits related to
stock-based compensation expense are recognized as an increase to additional
paid-in
capital and tax shortfalls are recognized as income tax expense unless there are excess tax benefits from previous equity
awards to which the shortfall can be offset. On the adoption date of the required accounting for stock-based compensation expense, the Company calculated the amount of eligible excess tax benefits available to offset future tax shortfalls in
accordance with the long-form method.
73
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The Company recognizes compensation expense for only the portion of stock options and
restricted stock units 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.
Employee Stock Purchase Plan
On October 23, 2014, the Companys 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 Companys common stock authorized for issuance under the ESPP by an additional 1.5 million shares.
The Companys ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Companys 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. After approval of the amendment, a total of 5.9 million shares of common stock may be issued under
the ESPP. The Company issued 359,000, 325,000 and 337,000 shares of common stock pursuant to the ESPP for the years ended May 27, 2017, May 28, 2016 and May 30, 2015, respectively. There are 918,000 shares of common stock
available for issuance under the ESPP as of May 27, 2017.
11. Benefit Plan
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 27, 2017, May 28, 2016 and May 30, 2015, the Company contributed approximately $5.1 million, $5.0 million and $4.8 million, respectively,
to the plan as Company matching contributions.
12. Supplemental Disclosure of Cash Flow Information
Additional information regarding cash flows is as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the Years Ended
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
Income taxes paid
|
|
$
|
16,756
|
|
|
$
|
23,135
|
|
|
$
|
24,326
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest paid
|
|
$
|
628
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash
investing and financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capitalized leasehold improvements paid directly by landlord
|
|
$
|
1,026
|
|
|
$
|
405
|
|
|
$
|
144
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared, not paid
|
|
$
|
3,253
|
|
|
$
|
3,623
|
|
|
$
|
2,982
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
74
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Commitments and Contingencies
Lease Commitments and Purchase Obligations
At May 27, 2017, the Company had operating leases, expiring at various dates through March 2027, primarily for office premises, and
purchase obligations, primarily for property and equipment. At May 27, 2017, the Company had no capital leases. Future minimum rental commitments under operating leases and other known purchase obligations are as follows (in thousands):
|
|
|
|
|
|
|
|
|
Years Ending:
|
|
Operating
Leases
|
|
|
Purchase
Obligations
|
|
May 26, 2018
|
|
$
|
10,537
|
|
|
$
|
440
|
|
May 25, 2019
|
|
|
9,460
|
|
|
|
340
|
|
May 30, 2020
|
|
|
6,837
|
|
|
|
235
|
|
May 29, 2021
|
|
|
6,085
|
|
|
|
105
|
|
May 28, 2022
|
|
|
5,097
|
|
|
|
9
|
|
Thereafter
|
|
|
6,993
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
45,009
|
|
|
$
|
1,129
|
|
|
|
|
|
|
|
|
|
|
Rent expense for the years ended May 27, 2017, May 28, 2016 and May 30, 2015 totaled
$12.9 million, $13.1 million and $13.1 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 18,200 square feet of the approximately 56,200 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. Under the terms of these operating lease
agreements, rental income from such third party leases is expected to be $245,000, $201,000, $207,000, $213,000 and $219,000 in fiscal 2018 through 2022, respectively and $536,000 thereafter.
Employment Agreements
The Companys employment agreement with its president and chief executive officer, Kate W. Duchene, has an initial term of three years
ending on December 19, 2019 and renews for
one-year
periods commencing thereafter unless the Company or Ms. Duchene provides the other party written notice within 60 days of the then-current
expiration date that the agreement will not be extended. The employment agreement provides Ms. Duchene with a specified severance amount depending on whether her separation from the Company is with or without good cause as defined in the
agreement. The Company also has employment agreements with certain key members of management; these agreements automatically renew for additional one year periods unless the Company or the named executive provides the other party written notice no
later than 60 days prior to the then-current expiration date that the agreement will not be extended. These agreements provide those employees with a specified severance amount depending on whether the employee is terminated with or without
good cause as defined in the applicable agreement.
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 Companys financial position, cash flows or results of operations.
75
RESOURCES CONNECTION, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
14. 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 Companys domestic and international operations
is shown in the following table. Amounts are stated in thousands:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue for the For the Years Ended
|
|
|
Long-Lived Assets (1) as of
|
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
|
May 30,
2015
|
|
|
May 27,
2017
|
|
|
May 28,
2016
|
|
United States
|
|
$
|
469,846
|
|
|
$
|
489,035
|
|
|
$
|
479,972
|
|
|
$
|
173,781
|
|
|
$
|
172,155
|
|
The Netherlands
|
|
|
16,569
|
|
|
|
15,859
|
|
|
|
15,777
|
|
|
|
18,036
|
|
|
|
17,728
|
|
Other
|
|
|
96,996
|
|
|
|
93,627
|
|
|
|
94,840
|
|
|
|
2,625
|
|
|
|
2,574
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
583,411
|
|
|
$
|
598,521
|
|
|
$
|
590,589
|
|
|
$
|
194,442
|
|
|
$
|
192,457
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Long-lived assets are comprised of goodwill, intangible assets and property and equipment.
|
76