NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Three months ended August 24, 2019 and August 25, 2018
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 its clients, the Company specializes in solving today’s most pressing business problems across the enterprise in the areas of Business Strategy & Transformation, Finance & Accounting, Risk & Compliance and Technology & 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 last Saturday in May. The first quarters of fiscal 2020 and 2019 each consisted of 13 weeks. The Company’s fiscal 2020 will consist of 53 weeks.
2. Summary of Significant Accounting Policies
Interim Financial Information
The financial information as of and for the three months ended August 24, 2019 and August 25, 2018 is unaudited but includes all adjustments (consisting only of normal recurring adjustments) the Company considers necessary for a fair presentation of its financial position at such dates and the operating results and cash flows for those periods. The fiscal 2019 year-end balance sheet data was derived from audited financial statements, and certain information and note disclosures normally included in annual financial statements prepared in accordance with generally accepted accounting principles in the U.S. (“GAAP”) have been condensed or omitted pursuant to Securities and Exchange Commission (“SEC”) rules or regulations; however, the Company believes the disclosures made are adequate to make the information presented not misleading.
The results of operations for the interim periods presented are not necessarily indicative of the results of operations to be expected for the full fiscal year. These interim financial statements should be read in conjunction with the audited financial statements for the year ended May 25, 2019, which are included in the Company’s Annual Report on Form 10-K (“Fiscal Year 2019 Form 10-K”) which was filed with the SEC on July 19, 2019 (File No. 000-32113).
The Company's significant accounting policies are described in Note 2 to the consolidated financial statements included in the Fiscal Year 2019 Form 10-K. The Company has reviewed its accounting policies, identifying those that it believes to be critical to the preparation and understanding of its consolidated financial statements in the list set forth below. See the disclosure under the heading "Critical Accounting Policies" in Item 7 of Part II of the Fiscal Year 2019 Form 10-K for a detailed description of these policies and their potential effects on the Company’s results of operations and financial condition.
|
·
|
|
Allowance for doubtful accounts
|
|
·
|
|
Stock-based compensation
|
|
·
|
|
Valuation of long-lived assets
|
Except for the adoption of Accounting Standards Codification (“ASC”) 842 as described below, the Company did not adopt any changes in the fiscal quarter ended August 24, 2019 that had a material effect on these critical accounting policies.
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.
Net Income Per Share Information
The Company presents both basic and diluted earnings per common 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, assumed proceeds include the amount the employee must pay for exercising stock options and the amount of compensation cost for future services the Company has not yet recognized. 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 per common share over the period are anti-dilutive and are excluded from the calculation.
The following table summarizes the calculation of net income per common share for the periods indicated (in thousands, except per share amounts):
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
August 24,
|
|
August 25,
|
|
2019
|
|
2018
|
|
|
|
|
|
|
Net income
|
$
|
4,939
|
|
$
|
5,741
|
Basic:
|
|
|
|
|
|
Weighted average shares
|
|
31,788
|
|
|
31,742
|
Diluted:
|
|
|
|
|
|
Weighted average shares
|
|
31,788
|
|
|
31,742
|
Potentially dilutive shares
|
|
479
|
|
|
726
|
Total dilutive shares
|
|
32,267
|
|
|
32,468
|
Net income per common share:
|
|
|
|
|
|
Basic
|
$
|
0.16
|
|
$
|
0.18
|
Dilutive
|
$
|
0.15
|
|
$
|
0.18
|
Anti-dilutive shares not included above
|
|
3,345
|
|
|
2,975
|
Recent Accounting Pronouncements
Effective as of the beginning of fiscal year 2020, the Company adopted Accounting Standards Update (“ASU”) No. 2016-02, Leases, ASU No. 2018-10, Codification Improvements to Topic 842 (Leases) and ASU No. 2018-11, Targeted Improvements to Topic 842 (Leases). The guidance is intended to increase transparency and comparability among companies for leasing transactions, including a requirement for companies that lease assets to recognize on their balance sheets the assets and liabilities for the rights and obligations created by those leases. The guidance also provides for disclosures that allow the users of financial statements to assess the amount, timing, and uncertainty of cash flows arising from leases.
The Company adopted the guidance on May 26, 2019 using the modified retrospective method without restatement of comparative periods. As such, periods prior to the date of adoption are presented in accordance with ASC 840 - Leases. The Company utilized the available practical expedient that allowed the Company to not reassess whether existing contracts contain a lease under the new definition of a lease, the lease classification for existing leases, whether previously capitalized initial direct costs would qualify for capitalization under the new guidance and recognize leases with an initial term of 12 months or less on a straight-line basis without recognizing a ROU asset or operating lease liability.
The adoption of this guidance had a material impact on the Consolidated Balance Sheet as of August 24, 2019 due to the recognition of right-of-use assets and lease liabilities for the Company's portfolio of operating leases. The adoption of the guidance had an immaterial impact on the Consolidated Statements of Operations, Consolidated Statements of Comprehensive Income and Consolidated Statements of Cash Flows for the three months ended August 24, 2019.
Additional information and disclosures required by the new standard are contained in Note 5, Leases.
Other recent accounting pronouncements issued by the Financial Accounting Standards Board (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.
3. Acquisition and Divestiture
Acquisition of Veracity
On July 31, 2019, the Company acquired Veracity Consulting Group, LLC (“Veracity”), a fast-growing, digital transformation firm based in Richmond, Virginia, that delivers innovative solutions to the Fortune 500 and leading healthcare organizations. The acquisition of Veracity is a step in accelerating the Company’s stated objective to enhance its digital capabilities and allows the Company to offer comprehensive end-to-end solutions to its clients by combining Veracity’s customer-facing offerings with the Company’s depth of experience in transforming the back office. The Company paid initial cash consideration of $30.3 million (net of $2.1 million cash acquired). The initial consideration is subject to final adjustments for the impact of the Internal Revenue Code Section 338(h)(10) joint election between the Company and former owners of Veracity and working capital as defined in the purchase agreement.
In addition, the purchase agreement requires earn-out payments to be made based on performance after each of the first and second anniversary from the acquisition date. The Company is obligated to pay the former owners of Veracity contingent consideration if certain earnings before interest, taxes, depreciation and amortization (“EBITDA”) requirements are achieved. The Company determined the fair value of the contingent consideration as of the acquisition date using Monte Carlo simulation modeling and the application of an appropriate discount rate (Level 3 fair value). The current estimated fair value of the contractual obligation to pay the contingent consideration amounted to $10.4 million and was recorded in other current and long-term liabilities in the Consolidated Balance Sheet. 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 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.
Results of operations of Veracity are included in the Consolidated Statements of Operation from the date of acquisition. Veracity contributed $1.4 million to consolidated revenue and $0.3 million to income from operations in the first quarter of fiscal 2020. During the three months ended August 24, 2019, the Company incurred $0.6 million in acquisition costs that were recorded in selling, general and administrative expenses in the Consolidated Statement of Operations.
In accordance with ASC 805, the Company made an initial allocation of the purchase price for Veracity based on the fair value of the assets acquired and liabilities assumed, with the residual amount recorded as goodwill. The Company’s initial purchase price allocation considered a number of factors, including the valuation of identifiable intangible assets. In connection with this acquisition, the Company provisionally recorded total intangible assets consisting of $11.0 million for customer relationships (amortized over 7 years), $0.7 million for backlog (amortized over 17 months) and $0.6 million for tradenames (amortized over 3 years). The Company also provisionally recorded $25.8 million of goodwill.
The following table summarizes the consideration for the acquisition of Veracity and the provisional amounts of the identified assets acquired and liabilities assumed at the acquisition date:
Fair value of consideration transferred (in thousands):
|
|
|
Cash
|
$
|
32,349
|
Estimated initial contingent consideration
|
|
10,400
|
Total
|
$
|
42,749
|
Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands):
|
|
|
Cash and cash equivalents
|
$
|
2,056
|
Accounts receivable
|
|
3,413
|
Prepaid expenses and other current assets
|
|
116
|
Intangible assets
|
|
12,290
|
Property and equipment
|
|
121
|
Total identifiable assets
|
|
17,996
|
Accounts payable
|
|
316
|
Accrued expenses and other current liabilities
|
|
712
|
Total liabilities assumed
|
|
1,028
|
Net identifiable assets acquired
|
|
16,968
|
Goodwill
|
|
25,781
|
Net assets acquired
|
$
|
42,749
|
The purchase price allocation described above is preliminary, preliminary with respect to the valuation of intangible assets acquired, goodwill, tax related matters, and the amount of contingent consideration. A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ from the preliminary purchase price allocation. As of the acquisition date, the gross contractual amount of accounts receivable of $3.4 million was expected to be fully collected.
Divestiture and other exit activities
On August 20, 2019, the Company signed an agreement to divest its business (including certain assets and liabilities) in its foreign subsidiary, Resources Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK558,120 (approximately $57,000) in cash. The divestiture closed on September 2, 2019. In addition, the Company closed its office in Belgium during the three months ended August 24, 2019. Both the Company’s Sweden and Belgium offices were operated as non-strategic components of the Company’s European operations. Total divestiture and exit costs related to the Sweden and Belgium offices of $0.7 million were accrued in the Company’s Consolidated Balance Sheet as of August 24, 2019.
4. Intangible Assets and Goodwill
The following table summarizes details of the Company’s intangible assets and related accumulated amortization (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of August 24, 2019
|
|
As of May 25, 2019
|
|
|
|
|
Accumulated
|
|
|
|
|
|
Accumulated
|
|
|
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Gross
|
|
Amortization
|
|
Net
|
|
Customer contracts and relationships (3-8 years)
|
$
|
26,215
|
|
$
|
(4,121)
|
|
$
|
22,094
|
|
$
|
14,495
|
|
$
|
(3,439)
|
|
$
|
11,056
|
|
Tradenames (3-10 years)
|
|
4,956
|
|
|
(1,824)
|
|
|
3,132
|
|
|
4,407
|
|
|
(1,563)
|
|
|
2,844
|
|
Consultant list (3 years)
|
|
779
|
|
|
(525)
|
|
|
254
|
|
|
783
|
|
|
(462)
|
|
|
321
|
|
Non-compete agreements (3 years)
|
|
890
|
|
|
(600)
|
|
|
290
|
|
|
896
|
|
|
(528)
|
|
|
368
|
|
Total
|
$
|
32,840
|
|
$
|
(7,070)
|
|
$
|
25,770
|
|
$
|
20,581
|
|
$
|
(5,992)
|
|
$
|
14,589
|
|
The Company recorded amortization expense of $1.1 million and $1.0 million for the three months ended August 24, 2019 and August 25, 2018, respectively. The three-month period ended August 24, 2019 included approximately $151,000 representing three weeks of amortization of intangible assets acquired from Veracity. Future estimated intangible asset amortization expense (based on existing intangible assets) is $5.6 million, $4.5 million, $3.5 million, $3.4 million and $3.3 million for the years ending May 30, 2020, May 29, 2021, May 28, 2022, May 27, 2023 and May 25, 2024, respectively. The estimates of future intangible asset amortization expense do not incorporate the potential impact of future currency fluctuations when translating the financial results of the Company’s international operations that have amortizable intangible assets into U.S. dollars.
The following table summarizes the activity in the Company’s goodwill balance (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
August 24,
|
|
August 25,
|
|
2019
|
|
2018
|
Goodwill, beginning of year
|
$
|
190,815
|
|
$
|
191,950
|
Acquisitions-Veracity (see Note 3)
|
|
25,781
|
|
|
-
|
Impact of foreign currency exchange rate changes
|
|
(176)
|
|
|
(116)
|
Goodwill, end of period
|
$
|
216,420
|
|
$
|
191,834
|
5. Leases
The Company currently leases office space, vehicles and certain equipment under operating leases expiring through 2028. Operating leases include fixed payments plus, in some cases, scheduled base rent increases over the term of the lease. Certain leases require variable payments of common area maintenance, operating expenses and real estate taxes applicable to the property. Variable payments are excluded from the measurements of lease liabilities and are expensed as incurred. Any tenant improvement allowances received from the lessor are recorded as a reduction to rent expense over the term of the lease. No lease agreements contain any residual value guarantees or material restrictive covenants.
Certain of the Company's leases include one or more options to renew or terminate the lease at the Company’s discretion. Generally, the renewal and termination options are not included in the right-of-use assets and lease liabilities as they are not
reasonably certain of exercise. The Company regularly evaluates lease renewal and termination options and when they are reasonably certain of exercise, includes the renewal or termination option in the lease term.
The Company measures the lease liability for each leased asset at the present value of lease payments, as defined in ASC 842, discounted using an incremental borrowing rate. As most of the Company’s leases do not provide an implicit interest rate, the Company utilizes its incremental borrowing rate based on the information available at the commencement date of the lease in determining the present value of lease payments. The Company has a centrally managed treasury function; therefore, a portfolio approach is applied in determining the incremental borrowing rate. The incremental borrowing rate is the rate of interest that the Company would have to pay to borrow on a fully collateralized basis over a similar term in an amount equal to the total lease payments in a similar economic environment. The Company’s right-of-use assets are equal to the lease liabilities, adjusted for lease incentives received, including tenant improvement allowances, deferred rent, and prepayments made to the lessor.
Lease cost components included within selling, general and administrative expenses in the Consolidated Statement of Operations were as follows (in thousands):
|
|
|
|
|
|
Three months ended
|
|
|
August 24, 2019
|
Operating lease cost
|
|
$
|
3,080
|
Short-term lease cost
|
|
|
78
|
Variable lease cost
|
|
|
604
|
Sublease income
|
|
|
(121)
|
Total lease cost
|
|
$
|
3,641
|
Supplemental cash flow information related to the Company's operating leases were as follows (in thousands):
|
|
|
|
|
|
Three months ended
|
|
|
August 24, 2019
|
Cash paid for amounts included in the measurement of operating lease liabilities
|
|
$
|
3,329
|
Right-of-use assets obtained in exchange for lease obligations
|
|
$
|
1,460
|
The weighted average remaining lease term and weighted average discount rate for our operating leases were as follows:
|
|
|
|
|
|
As of
|
|
|
August 24, 2019
|
Weighted average remaining lease term
|
|
|
4.8 years
|
Weighted average discount rate
|
|
|
4.12%
|
The maturities of operating lease liabilities were as follows as of August 24, 2019 (in thousands):
|
|
|
|
|
|
Operating Lease Maturity
|
2020 (excluding the three months ended August 24, 2019)
|
|
$
|
9,837
|
2021
|
|
|
12,135
|
2022
|
|
|
10,331
|
2023
|
|
|
7,766
|
2024
|
|
|
6,305
|
Thereafter
|
|
|
5,912
|
Total lease payments
|
|
$
|
52,286
|
6. Income Taxes
The Company’s provision for income taxes was $2.6 million (effective tax rate of approximately 35%) and $3.5 million (effective tax rate of approximately 38%) for the three months ended August 24, 2019 and August 25, 2018, respectively. The Company records tax expense based upon an actual effective tax rate versus a forecasted tax rate because of the volatility in its international operations that span numerous tax jurisdictions.
The provision for income taxes in the three months ended August 24, 2019 and August 25, 2018 results from taxes on income in the U.S. and certain other foreign jurisdictions, no benefit for losses in jurisdictions in which a full valuation allowance on operating loss carryforwards had previously been established and a lower benefit for losses in certain foreign jurisdictions with tax rates lower than the U.S. statutory rates. The provision for income taxes decreased for the three months ended August 24, 2019 compared to the prior year quarter because of lower global income. The effective rate decreased for the three months ended August 24, 2019 compared to the prior year quarter because of fewer stock option expirations.
The Company recognized a tax benefit of approximately $0.4 million and a tax expense of $0.1 million during the first quarter of fiscal 2020 and fiscal 2019, respectively, related to stock-based compensation for nonqualified stock options expensed and for disqualifying dispositions under the Employee Stock Purchase Plan (“ESPP”).
7. Long-Term Debt
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 their respective 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 a 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 disposition 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. The Company was in compliance with all financial covenants under the Facility as of August 24, 2019.
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 $73.0 million as of August 24, 2019, all of which were under the Revolving Loan. In addition, the Company had $1.3 million of outstanding letters of credit issued under the Revolving Loan as of August 24, 2019. The Company has $15.7 million remaining to borrow under the Revolving Loan and $30.0 million remaining under the Reducing Revolving Loan as of August 24, 2019. As of August 24, 2019, the interest rate on the Company’s borrowings were as follows (amounts in thousands, except percentages):
|
|
|
|
|
|
Principal Balance
|
Base Rate
|
Libor Rate
|
Interest Rate
|
$
|
4,000
|
1.50%
|
3-month
|
2.33%
|
3.83%
|
|
10,000
|
1.50%
|
3-month
|
2.18%
|
3.68%
|
|
24,000
|
1.50%
|
6-month
|
2.21%
|
3.71%
|
|
35,000
|
1.50%
|
6-month
|
2.26%
|
3.76%
|
$
|
73,000
|
|
|
|
|
8. Stockholders’ Equity
Stock Repurchase Program
In July 2015, the Company’s board of directors approved a stock repurchase program (the “July 2015 program”), authorizing the repurchase, at the discretion of the Company’s senior executives, of the Company’s common stock for 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. The Company did not repurchase shares during the three months ended August 24, 2019. As of August 24, 2019, approximately $90.1 million remained available for future repurchases of the Company’s common stock under the July 2015 program.
9. Supplemental Disclosure of Cash Flow Information
The following table presents information regarding income taxes paid, interest paid and non-cash investing and financing activities (amounts in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months Ended
|
|
August 24,
|
|
August 25,
|
|
|
2019
|
|
2018
|
|
Income taxes paid
|
$
|
1,432
|
|
$
|
844
|
|
Interest paid
|
$
|
477
|
|
$
|
607
|
|
Non-cash investing and financing activities:
|
|
|
|
|
|
|
Capitalized leasehold improvements paid directly by landlord
|
$
|
-
|
|
$
|
203
|
|
Acquisition of Veracity:
|
|
|
|
|
|
|
Liability for contingent consideration
|
$
|
10,400
|
|
$
|
-
|
|
Dividends declared, not paid
|
$
|
4,476
|
|
$
|
4,095
|
|
|
|
|
|
|
|
|
10. Stock-Based Compensation Plans
Stock Options and Restricted Stock
The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the Company’s 2014 Performance Incentive Plan (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 Resources Connection, Inc. 2004 Performance Incentive Plan and the 1999 Long Term Incentive Plan (together 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, RSUs 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 August 24, 2019, 1,736,000 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.
Awards under the 2014 Plan may include, but are not limited to, stock options, RSUs and restricted stock grants, including restricted stock units under the Company’s Directors Deferred Compensation Plan. Stock option grants generally vest in equal annual installments over four years and terminate ten years from the date of grant. Restricted stock award vesting is determined on an individual grant basis. Awards of restricted stock under the 2014 Plan will be counted against the available share limit as two and a half shares for every one share actually issued in connection with the award. The Company’s policy is to issue shares from its authorized shares upon the exercise of stock options.
The following table summarizes the stock option activity for the three months ended August 24, 2019 (number of shares under option and aggregate intrinsic value in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of Shares Under Option
|
|
Weighted Average Exercise Price
|
|
Weighted Average Remaining Contractual Life
(in years)
|
|
Aggregate Intrinsic Value
|
Outstanding at May 25, 2019
|
6,029
|
|
$
|
15.95
|
|
6.06
|
|
$
|
5,482
|
Exercised
|
(172)
|
|
|
13.13
|
|
|
|
|
|
Forfeited
|
(103)
|
|
|
17.27
|
|
|
|
|
|
Expired
|
(25)
|
|
|
18.22
|
|
|
|
|
|
Outstanding at August 24, 2019
|
5,729
|
|
$
|
16.00
|
|
5.81
|
|
$
|
7,454
|
Exercisable at August 24, 2019
|
3,351
|
|
$
|
15.17
|
|
4.04
|
|
$
|
6,300
|
Vested and expected to vest at August 24, 2019
|
5,544
|
|
$
|
15.93
|
|
5.71
|
|
$
|
7,425
|
The aggregate intrinsic value in the table above represents the total pretax intrinsic value, which is the difference between the Company’s closing stock price on the last trading day of the first quarter of fiscal 2020 and the exercise price multiplied by the number of shares that would have been received by the option holders if they had exercised their “in the money” options on August 24, 2019. This amount will change based on changes in the fair market value of the Company’s common stock. The total pre-tax intrinsic value related to stock options exercised during the three months ended August 24, 2019 and August 25, 2018 was $0.6 million and $0.8 million, respectively. As of August 24, 2019, there was $7.0 million of total unrecognized compensation cost related to unvested employee stock options granted. That cost is expected to be recognized over a weighted-average period of 1.8 years.
The Company did not grant any shares of restricted stock during either the three months ended August 24, 2019 or August 25, 2018. As of August 24, 2019, there were 223,032 unvested restricted shares, including stock units under Directors Deferred Compensation Plan, with approximately $2.4 million of remaining unrecognized compensation cost.
Stock-Based Compensation Expense
Stock-based compensation expense included in selling, general and administrative expenses was $1.5 million and $1.4 million for the three months ended August 24, 2019 and August 25, 2018, respectively. These amounts consisted of stock-based compensation expense related to employee stock options, employee stock purchases made via the ESPP, restricted stock awards and stock units credited under the Directors Deferred Compensation Plan. The Company recognizes compensation expense for only the portion of stock options and restricted stock that is 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. There were no capitalized share-based compensation costs during the three months ended August 24, 2019 or August 25, 2018.
Employee Stock Purchase Plan
The 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 ESPP’s term expires October 16, 2024. A total of 5,900,000 shares of common stock may be issued under the ESPP. The Company issued 215,000 and 358,000 shares of common stock pursuant to the ESPP during the three months ended August 24, 2019 and the year ended May 25, 2019, respectively. There were 6,000 shares of common stock available for issuance under the ESPP as of August 24, 2019.
11. 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 in the Notes to Consolidated Financial Statements included in the Company’s Fiscal Year 2019 Form 10-K. Summarized information regarding the Company’s domestic and international operations is shown in the following table (amounts in thousands):
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|
|
|
Revenue for the
|
|
|
|
|
|
|
|
Three Months Ended
|
|
Long-Lived Assets (1) as of
|
|
August 24,
|
|
August 25,
|
|
August 24,
|
|
May 25,
|
|
2019
|
|
2018
|
|
2019
|
|
2019
|
United States
|
$
|
136,997
|
|
$
|
141,229
|
|
$
|
270,716
|
|
$
|
200,385
|
International
|
|
35,228
|
|
|
37,329
|
|
|
38,666
|
|
|
31,651
|
Total
|
$
|
172,225
|
|
$
|
178,558
|
|
$
|
309,382
|
|
$
|
232,036
|
(1)Long-lived assets are comprised of goodwill, intangible assets and property and equipment. Long-lived assets as of August 24, 2019 included the Company’s operating right-of-use assets which were added as a result of the Company’s adoption of ASC 842 Leases. See note 5 — Leases.
12. Legal Proceedings
The Company is involved in certain legal matters arising 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.