What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2020-07-27 compared with 2019-07-19 · 378 added, 208 removed, 524 unchanged (53% of the section changed)

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Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of May 25, 2019 and May 26, 2018

Consolidated Balance Sheets as of M ay 30, 2020 and May 25, 2019

Consolidated Statements of Operations for each of the three years in the period ended May 3 0 , 20 2 0

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Notes to Consolidated Financial Statements

See also “Quarterly Results”

in Part II, Item 7 “Management’s Discussion and Analysis of Financial Condition and Results of Operations,”

which is incorporated herein by reference.

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We have audited the accompanying consolidated balance sheets of Resources Connection, Inc.

and its subsidiaries (the Company) as of May 25, 2019 and May 26, 2018 , the related consolidated statements of operations, comprehensive income, stockholders' equity and cash flows for each of the three years in the period ended May 25, 2019 , and the related notes to the consolidated financial statements (collectively, the financial statements).

and its subsidiaries (the Company) as of May 30, 2020 and May 25, 2019, the related consolidated statements of operations, comprehensive income, stockholders’

equity and cash flows for each of the three years in the period ended May 30, 2020, and the related notes to the consolidated financial statements (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of May 30, 2020 and May 25, 2019, and the results of its operations and its cash flows for each of the three years in the period ended May 30, 2020, in conformity with accounting principles generally accepted in the United States of America.

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Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated July 27, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Change in Accounting Principle

As discussed in Note 2 to the consolidated financial statements, the Company has changed its method of accounting for leases as of May 26, 2019 due to the adoption of Financial Accounting Standards Board’s Accounting Standards Codification (ASC) Topic 842, Leases .

Basis for Opinion

These financial statements are the responsibility of the Company’s management.

Our responsibility is to express an opinion on the Company’s financial statements based on our audits.

These financial statements are the responsibility of the Company's management.

Our responsibility is to express an opinion on the Company's financial statements based on our audit.

We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with U.S.

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We conducted our audits in accordance with the standards of the PCAOB.

Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audits included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Those standards require that we plan and perform the audit s to obtain reasonable assurance about whether the financial statements are free of material misstatement, whether due to error or fraud.

Our audit s included performing procedures to assess the risks of material misstatement of the financial statements, whether due to error or fraud, and performing procedures that respond to those risks.

Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.

Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audits provide a reasonable basis for our opinion.

Our audit s also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements.

We believe that our audit s provide a reasonable basis for our opinion.

/s/ RSM US LLP

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Property and equipment, net

Operating right-of-use assets

Deferred income taxes

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Accrued salaries and related obligations

Operating lease liabilities, current

Other liabilities

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Long-term debt

Operating lease liabilities, noncurrent

Deferred income taxes

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per share amounts)

Direct cost of services, primarily payroll and related taxes for professional

services employees

Direct cost of services, primarily payroll and related taxes for

professional services employees

Selling, general and administrative expenses

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Income from operations

Interest expense

Interest expense, net

Income before provision for income taxes

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Stock-based compensation expense

Tax shortfall from stock-based

compensation arrangements

Issuance of common stock under Employee

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stock to board of director members

Forfeitures of restricted stock

Purchase of shares

Issuance of common stock for acquisition of Accretive

Issuance of common stock for acquisition of taskforce

Cash dividends declared ( $0.48 per share)

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Stock Purchase Plan

Issuance of restricted stock

Issuance of restricted stock out of treasury

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Purchase of shares

Issuance of common stock for acquisition of Accretive

Issuance of common stock for acquisition of taskforce

Cash dividends declared ( $0.52 per share)

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Stock Purchase Plan

Cancellation of restricted stock

Issuance of restricted stock

Issuance of restricted stock out of treasury

stock to board of director members

Purchase of shares

Repurchase of shares

Cash dividends declared ( $0.56 per share)

Issuance of common stock in connection with the

acquisition of Accretive

Currency translation adjustment

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Loss on disposal of assets

Impairment of operating right-of-use assets

Bad debt expense

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Purchase of short-term investments

Proceeds from sale of property and equipment

Proceeds from sale of assets

Acquisition of Expertence , net of cash acquired

Acquisition of Veracity , net of cash acquired

Acquisition of Accretive

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Purchase of property and equipment

Net cash (used in) provided by investing activities

Net cash used in investing activities

Cash flows from financing activities:

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Proceeds from Revolving Credit Facility

Repayment on Revolving Credit Facility

Debt issuance costs

Repayments on Revolving Credit Facility

Cash dividends paid

Net cash (used in) provided by financing activities

Net cash provided by (used in) financing activities

Effect of exchange rate changes on cash

Net decrease in cash

Net increase (decrease) in cash

Cash and cash equivalents at beginning of period

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RGP is a global consulting firm that enables rapid business outcomes by bringing together the right people to create transformative change.

As a human capital partner for our clients, the Company specialize s in solving today’s most pressing business problems across the enterprise in the areas of Business Transformation, Governance, Risk and Compliance and Technology and Digital Innovation.

As a human capital partner for our clients, the Company specialize s in solving today’s most pressing business problems across the enterprise in the areas of transactions, regulations and transformations .

The Company has offices in the United States (“U.S.”), Asia, Australia, Canada, Europe and Mexico.

The Company’s fiscal year consists of 52 or 53 weeks, ending on the Saturday in May closest to May 31.

Fiscal years 2019, 2018 and 2017 consisted of four 13 week quarters and a total of 52 weeks of activity for the fiscal year.

For fiscal years of 53 weeks (which next occurs for fiscal 2020), the first three quarters consist of 13 weeks each and the fourth quarter consists of 14 weeks.

Fiscal years 2019 and 2018 consisted of four 13 - week quarters and included a total of 52 weeks of activity in the fiscal year.

For fiscal year 2020, the first three quarters consist ed of 13 weeks each and the fourth quarter consist ed of 14 weeks , with a total of 53 weeks of activity in the fiscal year .

Summary of Significant Accounting Policies

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All significant intercompany accounts and transactions have been eliminated in consolidation.

Risk and Uncertainties

Since the start of 2020, the COVID-19 pandemic (the “Pandemic”) has spread to many of the countries in which the Company and its customers conduct businesses.

Governments throughout the world have implemented, and may continue to implement, stay-at-home orders, proclamations and directives aimed at minimizing the spread of the COVID-19 virus.

The impact of the Pandemic and the resulting restrictions have caused disruptions in the U.S.

and global economy and may continue to disrupt financial markets and global economic activities.

The Company has taken precautions and steps to prevent or reduce infection among its employees, including limiting business travel and mandating working from home in many of the countries in which it operates.

While overall productivity remained high through the end of fiscal 2020, these measures may disrupt the Company’s normal business operations and negatively impact its productivity and ability to efficiently serve its clients.

As events relating to COVID-19 continue to develop and evolve globally, there is significant uncertainty as to the full likely effects of the Pandemic which may, among other things, reduce demand for or delay client decisions to procure the Company’

services or result in cancellation of existing projects.

While the full impact from the Pandemic is not quantifiable, the Company’s results of operations and cash flows were adversely impacted in the latter half of fiscal 2020.

Although management does not expect the Pandemic to have a permanent impact on its business operations, the Company cannot estimate the length or the magnitude of the Pandemic and how this might affect its customers’

demand for services and the Company’s ability to continue to operate efficiently.

Management believes the Pandemic could continue to have an adverse impact on the Company’s results of operations and financial position in fiscal 2021.

Management is uncertain whether future effects of the Pandemic will be similar to what the Company has experienced in fiscal 2020.

Management continues to monitor relevant business metrics, such as daily and weekly revenue run rate, pipeline activities, rate of consultant attrition and days sales outstanding, and has implemented modifications to the Company’s normal operations.

Management believes the restructuring initiatives that the Company took in the fourth quarter of fiscal 2020 have better prepared the Company to operate with agility and resilience in this challenging economic environment.

The Company’s primary source of liquidity historically has been cash provided by its operations and its $120.0 million secured revolving credit facility (“Facility”) which expires on October 17, 2021.

As of May 30, 2020, the Company had cash and cash equivalents of $95.6 million, and additional availability under the Facility of $30.7 million.

Given its balance sheet and liquidity position, management believes that the Company has the financial flexibility and resources needed to operate in the current uncertain economic environment.

However, if global economic conditions worsen as a result of the Pandemic, it could materially impact the Company’s liquidity position and capital needs.

On March 27, 2020, the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) was enacted in the U.S.

in response to the Pandemic.

The CARES Act includes, among other things, direct financial assistance to Americans in the form of cash payments to individuals, aid to small businesses in the form of loans, and other tax incentives in an effort to stabilize the U.S.

economy and keep Americans employed.

The Company has not filed, and currently does not intend to file, for funding provided by the CARES Act.

The Company has deferred $2.9 million in payroll tax payments as of the end of fiscal 2020 in the U.S.

The Company does not believe the income tax provisions such as changes to the net operating loss rules included in the CARES Act will have a material impact on it.

The Company has not received, and does not expect to receive significant government-provided relief or stimulus funding in other parts of the world.

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.

Revenue Recognition

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These discounts or rebates are considered variable consideration.

Management evaluates the facts and circumstances of each contract and client relationship to estimate the variable consideration assessing the most likely amount to recognize and considering management’s expectation of the volume of services to be provided over the applicable period.

provided over the applicable period.

Rebates are the largest component of variable consideration and are estimated using the most likely amount method prescribed by ASC 606, contracts terms and estimates of revenue.

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Basic EPS is calculated by dividing net income by the weighted average number of common shares outstanding during the period.

Diluted EPS is based upon the weighted average number of common and common equivalent shares outstanding during the period, calculated using the treasury stock method for stock options.

Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options, the amount of compensation cost for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded when the award becomes deductible.

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.

Under the treasury stock method, exercise proceeds include the amount the employee must pay for exercising stock options, the amount of compensation cost related to stock awards for future services that the Company has not yet recognized and the amount of tax benefits that would be recorded when the award becomes deductible.

Common equivalent shares are excluded from the computation in periods in which they have an anti-dilutive effect.

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The Company had no investments with a maturity in excess of one year as of the end of either fiscal year 2020 or 2019.

The Company’s investments in commercial paper are measured using quoted prices in markets that are not active (Level 2).

There were no unrealized holding gains or losses as of May 25, 2019.

The contingent consideration liability in the table above is for estimated future contingent consideration payments related to the prior acquisition of taskforce .

The fair value measurement of this liability is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

The Company’s investments in commercial paper or money market account are measured using quoted prices in markets that are not active (Level 2).

There were no unrealized holding gains or losses as of May 30, 2020 and May 25, 2019 .

Contingent consideration liability presented in the table above is for estimated future contingent consideration cash payments related to the Company’s acquisitions.

Total contingent consideration liabilities were $7.9 million and $2.2 million as of May 30, 2020 and May 25, 2019, respectively.

The fair value measurement of the liability is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

The significant unobservable inputs used in the fair value measurement of the contingent consideration liability are the Company’s measures of the estimated payouts based on internally generated financial projections and discount rates.

The fair value of this contingent consideration liability is reassessed on a quarterly basis by the Company using additional information as it becomes available, and any change in the fair value estimates are recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.

The fair value of contingent consideration liability is remeasured on a quarterly basis by the Company using additional information as it becomes available, and any change in the fair value estimates are recorded in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.

See Note 3 –

Acquisitions.

The Company's financial instruments, including cash, accounts receivable, accounts payable, accrued expenses and long-term debt are carried at cost, which approximates their fair value because of the short ‑term maturity of these instruments or because their stated interest rates are indicative of market interest rates.

Acquisitions and Dispositions .

The Company’s financial instruments, including cash and cash equivalents, accounts receivable, accounts payable, accrued expenses and long-term debt are carried at cost, which approximates their fair value because of the short ‑term maturity of these instruments or because their stated interest rates are indicative of market interest rates.

Allowance for Doubtful Accounts

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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.

Long-lived Assets

The Company evaluates the recoverability of long ‑lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable.

The impairment test comprises two steps.

The first step compares the carrying amount of the asset to the sum of expected undiscounted future cash flows.

If the sum of expected undiscounted future cash flows exceeds the carrying amount of the asset, no impairment is taken.

If the sum of expected undiscounted future cash flows is less than the carrying amount of the asset, a second step is warranted and an impairment loss is measured as the amount by which the carrying amount of the asset exceeds its fair value calculated using the present value of estimated net future cash flows.

The Company recorded $0.

6 million right-of-use (“ROU”) assets impairment for the year ended May 30, 2020 associated with exiting certain real estate leases as part of its restructuring and business transformation initiative.

The impairment charge is included in selling, general and administrative expense in the Company’s Consolidated Statement s of Operations for the year ended May 30, 2020.

Goodwill and Intangible Assets

Goodwill is recorded at the time of an acquisition and is calculated as the difference between the aggregate consideration paid for an acquisition and the fair value of the net tangible and intangible assets acquired.

Goodwill is not subject to amortization but the carrying value is tested for impairment on an annual basis in the fourth quarter of our fiscal year, or more frequently if the Company believe s indicators of impairment exist.

Goodwill is not subject to amortization but the carrying value is tested for impairment on an annual basis in the fourth quarter of the fiscal year, or more frequently if the Company believes indicators of impairment exist.

Impairment evaluations involve management’s assessment of qualitative factors to determine whether it is more likely than not that goodwill is impaired.

If management concludes from its assessment of qualitative factors that it is more likely than not that impairment exists, then a quantitative impairment test will be performed involving management estimates of asset useful lives and future cash flows.

If management concludes from its assessment of qualitative factors that it is more likely than not that impairment exists, then a quantitative impairment test will be performed.

Significant management judgment is required in the forecasts of future operating results that are used in these evaluations.

For application of this methodology, the Company determined that it operates as a single reporting unit resulting from the combination of its practice offices.

The Company’s annual goodwill impairment analysis indicated that there was no related impairment for the fiscal years ended May 25, 2019, May 26, 2018, and May 27, 2017.

The Company’s identifiable intangible assets include customer contracts and relationships, tradenames, consultant list, and non-compete agreements.

These assets are amortized on a straight-line basis over lives ranging from three to ten years.

The Company’s annual goodwill impairment analysis indicated that there was no related impairment for the fiscal years ended May 30, 2020, May 25, 2019 and May 26, 2018, respectively.

The Company’s identifiable intangible assets include customer contracts and relationships, tradenames, backlog, consultant list, non-compete agreements and computer software.

These assets are amortized on a straight-line basis over lives ranging from 17 months to ten years.

See Note 4 —

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Stock-Based Compensation

The Company recognizes compensation expense for all share-based payment awards made to employees and directors, including employee stock options and employee stock purchases made via the Company’s Employee Stock Purchase Plan (the “ESPP”), based on estimated fair value at the date of grant.

The Company recognizes compensation expense for all share-based payment awards made to employees and directors, including restricted stock awards, employee stock options and employee stock purchases made via the Company’s Employee Stock Purchase Plan (the “ESPP”), based on estimated fair value at the date of grant.

The Company estimates the fair value of share-based payment awards on the date of grant using an option-pricing model.

The value of the portion of the award that is ultimately expected to vest is recognized as an expense over the requisite service periods.

If the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation expense may be required in future periods.

Excess income tax benefits and deficiencies from stock-based compensation are recognized as a discrete item within the provision for income taxes on the Company’s Consolidated Statements of Operations.

Stock options vest over four years and restricted stock award vesting is determined on an individual grant basis under the Company’s 2014 Performance Incentive Plan (“2014 Plan”).

The Company determines the estimated value of stock options using the Black-Scholes valuation model and the estimated value of restricted stock awards using the closing price of the Company’s common stock on the date of grant.

The Company recognizes stock-based compensation expense on a straight-line basis over the service period for options that are expected to vest and records adjustments to compensation expense at the end of the service period if actual forfeitures differ from original estimates.

The Company recognizes stock-based compensation expense on a straight-line basis over the service period for awards 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 13 —

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The provision for income taxes represents current taxes payable net of the change during the period in deferred tax assets and liabilities.

The Company also evaluates its uncertain tax positions and only recognizes the tax benefit from an uncertain tax position if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position.

The tax benefits recognized in the financial statements from such positions are measured based on the largest benefit that has a greater than 50 percentage likelihood of being realized upon settlement.

The Company records a liability for unrecognized tax benefits resulting from uncertain tax positions taken or expected to be taken in a tax return.

Any change in judgment related to the expected ultimate resolution of uncertain tax positions is recognized in earnings in the period in which such change occurs.

Recent Accounting Pronouncements

Accounting Pronouncements Adopted During Fiscal Year 2020

Effective the beginning of fiscal year 2019 (May 27, 2018), the Company adopted ASC 606, Revenue from Contracts with Customers , using the modified retrospective method.

The adoption of ASC 606 did not have a significant impact on the Company’

revenue recognition;

therefore, the Company did not have an opening retained earnings adjustment for the year ended May 25, 2019.

See Note 2—

Summary of Significant Accounting Policies for additional information.

Intangibles —

Goodwill and Other —

Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract.

In August 2018, the Financial Accounting Standards Board (“

FASB ”) issued ASU 2018-15, which aligns the requirements for capitalizing implementation costs incurred in a hosting arrangement that is a service contract with the requirements for capitalizing implementation costs incurred to develop or obtain internal-use software (and hosting arrangements that include an internal-use software license).

An entity in a hosting arrangement that is a service contract must determine which implementation costs to capitalize as an asset related to the service contract and which costs to expense.

Costs that cannot be capitalized include training costs, certain data conversion costs, costs incurred during preliminary project and post implementation stages.

Costs that are subject to evaluation for potential capitalization are incurred during the application development stage.

The guidance also specifies factors to consider when developing the period over which to amortize the capitalized costs once the arrangement is deployed for usage by the entity and elements to consider in analyzing potential impairment of the asset.

The guidance is effective for financial statements for annual periods beginning after December 15, 2019 (for the Company, fiscal 2021) and for interim periods within those fiscal years.

However, early adoption is permitted.

The Company adopted this guidance prospectively in the first quarter of fiscal 2019 as the Company has an initiative involving a cloud computing arrangement.

The initiative is now complete and the amount capitalized during fiscal 2019 was approximately $0.8 million and is accounted for in Other Assets in the Company’s Consolidated Balance Sheet.

Accounting Pronouncements Pending Adoption

Leases (Topic 842):

In February 2016, the FASB issued ASU 2016-02, which amends the existing guidance to require lessees to recognize operating lease obligations on their balance sheets by recording the rights and obligations created by those leases.

ASU 2016-02 w as effective for the Company beginning May 26, 2019.

The Company will adopt this standard utilizing the optional transition method by recognizing a cumulative-effect adjustment to the opening balance of retained earnings on the adoption date without retrospective application to comparative periods.

The Company will elect the package of practical expedients permitted under the transition guidance within the new standard.

The Company will also elect the practical expedient to keep leases with an initial term of 12 months or less off of the balance sheet.

While we are currently finalizing our implementation of new policies, processes and internal controls to comply with the new rules, we anticipate that the adoption of the new standard will result in the recognition of right of use assets and lease liabilities on our consolidated balance sheet of between $4 5 million and $50 million as of the beginning of the first quarter of fiscal 2020.

The adoption of the new standard will not have a material impact on the Company’s consolidated statement of operations or consolidated statement of cash flows.

Other recent accounting pronouncements issued by the FASB (including its Emerging Issues Task Force), the American Institute of Certified Public Accountants and the SEC did not, or are not expected to, have a material effect on the Company’s results of operations, financial position or cash flows.

Use of Estimates

Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions used.

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, the first day of its fiscal 2020, using the modified retrospective approach through a cumulative-effect adjustment, which after completing the implementation analysis, resulted in no adjustment to the Company’s May 26, 2019 beginning retained earnings balance .

Periods prior to the date of adoption are presented in accordance with ASC 840, Leases .

As part of the adoption, the Company elected the package of practical expedients, which among other things, permits the Company to not reassess whether any expired or existing contracts are or contain leases, the lease classification for any expired or existing leases, and the initial direct costs for any existing leases.

The Company also elected the practical expedient to not assess whether existing land easements that were not previously accounted for as leases are or contain a lease under the new guidance.

The Company did not elect the hindsight practice expedient to use hindsight when determining lease term and assessing impairment of ROU lease assets .

On May 26, 2019, the Company recognized $43.2 million of ROU assets and $51.0 million of operating lease liabilities, including noncurrent operating lease liabilities of $38.5 million, as a result of the adoption.

The difference between the ROU assets and the operating lease liabilities was primarily due to previously accrued rent expense relating to periods prior to May 26, 2019, and the remaining prepaid rent balance as of May 25, 2019.

The adoption did not have an impact on the Company’s consolidated results of operations or cash flows.

Additional information and disclosures required by the new standard are contained in Note 6—

In January 2017, the Financial Accounting Standards Board issued ASU No.

2017-04 Intangibles-Goodwill and Other (Topic 350):

Simplifying the Test for Goodwill Impairment (“ASU 2017-04”).

ASU 2017-04 eliminates step two of the goodwill impairment test and specifies that goodwill impairment should be measured by comparing the fair value of a reporting unit with its carrying amount.

Additionally, the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets should be disclosed.

ASU 2017-04 is effective for annual or interim goodwill impairment tests performed in fiscal years beginning after December 15, 2019;

early adoption is permitted.

The Company early adopted ASU 2017-04 as of the beginning of fiscal 2020.

The adoption of ASU 2017-04 did not have a material impact on the Company’s Consolidated Financial Statements.

Acquisitions and Dispositions

Acquisition of Expertence

On November 30, 2019, the Company acquired Expertforce Interim Projects GmbH, LLC (“Expertence”), a leading provider of professional interim management services, based in Munich, Germany.

With the acquisition of Expertence, the Company is able to offer a full range of project and management consulting services in the German market.

The Company paid an initial cash consideration of $0.4 million.

The initial consideration is subject to final adjustments for the impact of working capital as defined in the purchase agreement.

In addition, the purchase agreement requires earn-out payments to be made based on performance over an 18 -month period ending on May 31, 2021.

The Company is obligated to pay the former owners of Expertence contingent consideration if certain revenue targets are achieved, up to a maximum of $0.3 million.

In determining the fair value of the contingent consideration liability, the Company used an estimate based on a number of possible projections over the earnout period and applied a probability to each possible outcome.

Given the short duration of the earnout period, the fair value of contingent liability was measured on an undiscounted basis.

The Company remeasures the fair value of the contingent consideration at each reporting period, and any change in fair value is recognized in the Company’s results of operations in the applicable period.

The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of various potential revenue results.

The Company does not expect future revisions to these assumptions to materially change the estimate of the fair value of contingent consideration and the Company’s future operating results.

Fair value of consideration transferred (in thousands):

Estimated initial contingent consideration

Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Intangible assets:

Computer software ( 24 months useful life)

Total identifiable assets

Accounts payable

Accrued expenses and other current liabilities

Deferred tax liability

Total liabilities assumed

Net identifiable assets acquired

Net assets acquired

Results of operations of Expertence are included in the Consolidated Statements of Operations from the date of acquisition and were not material to the Company’s consolidated results of operations.

The amount of the acquisition costs incurred as included in the Consolidated Statements of Operations for the year ended May 30, 2020 was immaterial.

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 critical 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 an 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 in cash based on performance after each of the first and second anniversary of 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.

In determining the fair value of the contingent consideration liability, the Company used the Monte Carlo simulation modeling which included the application of an appropriate discount rate (Level 3 fair value).

The Company remeasures the fair value of the contingent consideration at each reporting period, and any change in fair value is be recognized in the Company’s results of operations in the applicable period.

The estimate of fair value of contingent consideration requires very subjective assumptions to be made , including 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.

During the quarter ended August 24, 2019, the Company made an initial provisional 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, in accordance with ASC 805 , Business Combinations .

The Company’s initial purchase price allocation considered a number of factors, including the valuation of identifiable intangible assets and contingent consideration.

During the three months ended November 23, 2019, the Company adjusted the previously reported provisional allocation of the purchase price to reflect new information obtained during the quarter, which resulted in changes in expected future performance and cash flows as of the acquisition date.

There were no additional adjustments to the provisional purchase price allocation during the remaining periods in fiscal year ended May 30 , 2020.

The following table provides a summary of the adjusted provisional purchase price allocation.

Fair value of consideration transferred (in thousands):

Estimated initial contingent consideration

Recognized provisional amounts of identifiable assets acquired and liabilities assumed (in thousands):

Cash and cash equivalents

Accounts receivable

Prepaid expenses and other current assets

Intangible assets:

Backlog ( 17 months useful life)

Customer relationships ( 7 years useful life)

Trademarks ( 3 years useful life)

Property and equipment

Total identifiable assets

Accounts payable

Accrued expenses and other current liabilities

Total liabilities assumed

Net identifiable assets acquired

Net assets acquired

The remeasured purchase price allocation above may be subject to further adjustments during the measurement period if new information is obtained about facts and circumstances that existed as of the acquisition date.

A final determination of fair value of assets acquired and liabilities assumed relating to the acquisition could differ from the stated purchase price allocation.

During fiscal 2020, the fair value of the Veracity contingent consideration increased by $1.3 million .

Such amounts were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations.

As of May 30, 2020, this contingent consideration liability was $7.6 million , of which $5.0 million was included in Other current liabilities and $2.6 million was included in Other long-term liabilities in the Consolidated Balance Sheet.

Results of operations of Veracity are included in the Consolidated Statements of Operations from the date of acquisition.

Veracity contributed $18.8 million to consolidated revenue and $4.1 million to income from operations during fiscal 2020.

T he Company incurred $0.6 million in acquisition costs which were recorded in selling, general and administrative expenses in the Consolidated Statements of Operations during fiscal 2020.

Prior Year Acquisitions

During fiscal 2018, the Company completed two acquisitions .

The first acquisition, completed August 31, 2017 (the second quarter of fiscal 2018), was of taskforce –

Management on Demand AG (“taskforce”) , a German based professional services firm founded in 2007, that provided clients with senior interim management and project management expertise.

Management on Demand AG (“

taskforce ”) , a German based professional services firm founded in 2007, that provided clients with senior interim management and project management expertise.

Subsequent to the acquisition, taskforce continues to operate as a separate brand.

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Net assets acquired

In addition, the purchase agreement for taskforce requires additional earn-out payments to be made based on performance in calendar years 2017, 2018 and 2019.

In addition, the purchase agreement for taskforce required additional earn-out payments to be made based on performance in calendar years 2017, 2018 and 2019.

Under accounting rules for business combinations, obligations that are contingently payable to the sellers based upon the occurrence of one or more future events are recorded as a discounted liability on the Company’s balance sheet.

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(Adjusted EBITDA is calculated as defined in the purchase agreement).

The payment for calendar year 2017 of €2.1 million (approximately $2.6 million) was made on March 28, 2018.

The payment for calendar year 2018 of €1.6 million (approximately $1.9 million) was made on March 27, 2019.

The Company estimated the fair value of the obligation to pay the remaining contingent consideration for calendar year 2019 based on a number of different projections of the estimated Adjusted EBITDA for the year.

The Company recorded this future obligation using a discount rate of

approximately 11.0% , representing the Company’s weighted average cost of capital.

The current estimated fair value of the contractual obligation to pay the contingent consideration for calendar year 2019 totals €2.0 million (approximately $2.2 million based on the exchange rate on the last day of fiscal 2019) as of May 25, 2019 .

Each reporting period, the Company will estimate changes in the fair value of contingent consideration and any change in fair value will be recognized in the Company’s Consolidated Statements of Operations.

The Company estimated the fair value of the obligation to pay the remaining contingent consideration based on a number of different projections of the estimated Adjusted EBITDA for the year.

Each reporting period, the Company estimates changes in the fair value of contingent consideration and any change in fair value is recognized in the Company’s Consolidated Statements of Operations.

The estimate of fair value of contingent consideration requires very subjective assumptions to be made of various potential Adjusted EBITDA results and discount rates.

During the year ended May 25, 2019, the Company decreased the remaining estimated contingent consideration for calendar year 2019 by €523,000 ( $590,000 ) and also recognized accretion expense on the discounted liability.

These amounts are included in S, G & A for the respective periods.

These amounts are included in SG&A for the respective periods.

During the year ended May 30, 2020, the Company did not have any material adjustment to the contingent consideration liability relating to t askforce .

Results of operations of taskforce are included in the Consolidated Statements of Operations from the date of acquisition.

The payment for calendar year 2017 of €2.1 million (approximately $2.6 million) was made on March 28, 2018.

The payment for calendar year 2018 of €1.6 million (approximately $1.9 million) was made on March 27, 2019.

A final contingent consideration payment of €1.6 million ( $1.8 million) was made on March 30, 2020.

The second acquisition occurred December 4, 2017 (the third quarter of fiscal 2018) when the Company acquired substantially all of the assets and assumed certain liabilities of Accretive Solutions, Inc.

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common stock restricted for sale for four years.

additional cash and shares of Company common stock will be due after settlement of working capital adjustments.

Further , additional amounts may be paid to the sellers at the end of a certain period of time if there are no claims or may be used to satisfy any preacquisition claims in favor of the buyers.

As of the end of fiscal 2019, the amounts due based on initial estimates of the resolution of these items are $0.1 million in cash and 108,000 in additional shares of common stock and are accrued as a liability on the balance sheet as of May 25, 2019.

The following table summarizes the consideration paid for Accretive and the amounts of the identified assets acquired and liabilities assumed at the acquisition date:

The following table summarizes the consideration paid for Accretive and the amounts of the identified assets acquired and liabilities assumed at the acquisition date (in thousands, except number of shares and per share amount):

Common stock - 1,072,474 shares @ $10.96 (closing price on acquisition date discounted for restriction on sale)

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Net assets acquired

O n October 14, 2019, the Company reached a final settlement on a pre-acquisition claim with the seller of Accretive.

As a part of the settlement, the Company issued 82,762 shares of common stock to the seller and received $0.6 million in cash from the escrow.

The resulting gain of $0.5 million was included in Other income in the Consolidated Statements of Operations for the year ended May 30, 2020.

On September 2, 2019, the Company completed the sale of certain assets and liabilities of its foreign subsidiary, Resources Global Professionals Sweden AB, to Capacent Holding AB (publ), a Swedish public company, for SEK1,016,862 (approximately $105,000 ) in cash , resulting in a loss on sale of assets of approximately $38,000 .

As a part the sale, the Company transferred the majority of its local customer contracts, the existing office lease as well as all its employee consultants.

As a result of the sale, the nearby Denmark and Norway markets also discontinued serving local Sweden customer contracts.

The Company expects to continue to serve its global client base and to a lesser extent, its remaining local client contracts, in Sweden and Denmark.

In addition, during the fourth quarter of fiscal 2020, the Company discontinued its operations in Belgium, Luxembourg and Norway.

All three legal entities were dissolved as of the end of fiscal 2020.

In connection with the foregoing sale of assets and exit activities, the Company incurred costs of approximately $0.7 million primarily related to employee termination benefits.

Such expenses were included in selling, general and administrative expenses in the Consolidated Statements of Operations for the year ended May 30 , 2020.

None of the markets sold or exited are considered strategic components of the Company’s operations.

In connection with exiting the above-mentioned entities, the Company analyzed the facts and circumstances regarding its historical and current investments, along with its associated accounting and tax positions.

Based on the analysis, the Company recorded a tax benefit related to the worthless stock loss in the investment in its wholly owned subsidiaries as well as worthless loans to these subsidiaries.

See Note 8 –

Income taxes .

Intangible Assets and Goodwill

The following table presents details of our intangible assets, estimated lives and related accumulated amortization (in thousands):

The following table presents details of the Company’s intangible assets, estimated lives and related accumulated amortization (in thousands):

As of May 30, 2020

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Tradenames ( 3-10 years)

Backlog ( 17 months)

Consultant list ( 3 years)

Non-compete agreements ( 3 years)

The weighted-average useful lives of the customer contracts and relationships and other are approximately 5.2 and 1.5 years, respectively.

Computer software ( 2 years)

The weighted-average useful lives of the customer contracts and relationships, tradenames and backlog are approximatel y 7.2 years, 5.7 years, and 1.4 years , respectively.

The weighted-average useful life of all of the Company’s intangible assets is 6.5 years.

The following table summarizes amortization expense for the years stated (in thousands):

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Amortization expense

The following table presents future estimated amortization expense based on existing intangible assets for the years presented (in thousands):

Fiscal Years Ending

The following table presents future estimated amortization expense based on existing intangible assets (in thousands):

Expected amortization expense

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Goodwill, beginning of year

Acquisitions- taskforce (see Note 3)

Acquisitions-Accretive (see Note 3)

Acquisitions (see Note 3)

Impact of foreign currency exchange rate changes

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Less accumulated depreciation and amortization

The Company currently leases office space, vehicles and certain equipment under operating leases expiring through 2028.

At May 30, 2020, the Company had no finance leases.

The Company’s operating leases are primarily for real estates, which 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.

None of the Company’s lease agreements contained residual value guarantees or material restrictive covenants.

The Company has not entered into any real estate lease arrangements where it occupies the entire building.

As such, the Company does not have any separate land lease components embedded within any of its real estate leases.

The Company determines if an arrangement is a lease at the inception of the contract.

Specially, the Company considers whether it can control the underlying asset and have the right to obtain substantially all of the economic benefits or outputs from the assets.

The ROU assets represent the right to use the underlying assets for the lease term and the lease liabilities represent the Company’s obligation to make lease payments arising from the leases.

The Company’s lease liability is recognized as of the lease commencement date at the present value of the lease payments over the lease term.

The Company’s ROU asset is recognized as of the lease commencement date at the amount of the corresponding lease liability, adjusted for prepaid lease payments, lease incentives received, and initial direct costs

The Company evaluates its ROU assets for impairment consistent with its impairment of long-lived assets policy.

See Note 2 –

Summary of Significant Accounting Policies .

ROU assets are presented as operating right-of-use assets in the Company’s Consolidated Balance Sheet as of May 30, 2020.

Operating lease liabilities are presented as operating lease liabilities, current or operating lease liabilities, noncurrent in the Company’s Consolidated Balance Sheet based on their contractual due dates.

Operating lease expense is recognized on a straight-line basis over the lease term, and is recognized in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.

Most of the Company’s leases do not provide an implicit rate that can be readily determined.

Therefore, the Company uses a discount rate based on its incremental borrowing rate and the information available at the commencement date .

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 has a centrally managed treasury function;

therefore, the portfolio approach is applied in determining the incremental borrowing rate.

Application at the portfolio level is not materially different from applying guidance at the individual lease level.

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 ROU 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.

In some instances, the Company subleases excess office space to third party tenants.

The Company, as sublessor, continues to account for the head lease under the provisions of the adopted lease accounting standard described in Note 2 –

Summary of Significant Accounting Policies .

If the lease cost for the term of the sublease exceeds the Company’s anticipated sublease income for the same period, this indicates that the right-of-use asset associated with the head lease should be assessed for impairment under the long-lived asset impairment provisions.

Sublease income is included in selling, general and administrative expenses in the Company’s Consolidated Statements of Operations.

The Company has elected the practical expedient that allows lessees to choose to not separate lease and non-lease components by class of underlying asset and is applying this expedient to all real estate asset classes.

Additionally, the Company has also made an accounting policy election to recognize the lease payments under short-term leases as an expense on a straight-line basis over the lease term without recognizing the lease liability and the ROU asset.

Lease cost components are included within selling, general and administrative expenses in the Consolidated Statements of Operations were as follows (in thousands):

For the Year Ended

Operating lease cost

Short-term lease cost

Variable lease cost

Sublease income

Total lease cost

The weighted average lease terms and discount rates for operating leases at May 30, 2020 are presented in the following table:

Weighted average remaining lease term

Weighted average discount rate

Cash flow and other information related to operating leases is included in the following table for the year ended May 30, 2020 (in thousands) :

For the Year Ended

Cash paid for amounts included in the measurement of operating lease liabilities

ROU assets obtained in exchange for new operating lease obligations

Future maturities of operating lease liabilities at May 30, 2020 are presented in the following table (in thousands):

Years Ending:

Operating Lease Maturity

Total minimum payments

Present value of operating lease liabilities

The Company leases approximately 13,000 square feet of the approximately 57,000 square f ee t of a 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 .

Rental income received for the years ended May 30, 2020, May 25, 2019 and May 26, 2018 totaled $210,000, $240,000 and $305,000, respectively.

Under the terms of these operating lease agreements, rental income from such third-party leases is expected to be $204,000, $219,000, $225,000 , $232,000 and $78,000 in fiscal 2021 through 2025, respectively .

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.

In October 2016, the Company entered into the $120.0 million Facility with Bank of America, consisting of (i) a $90.0 million revolving loan facility (“Revolving Loan”), which includes a $5.0 million sublimit for the issuance of standby letters of credit, and (ii) a $30.0 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 domestic subsidiaries, subject to certain customary exclusions.

Borrowings under the Facility bear interest at a rate per annum of either, at the Company’s option, (i) a London Interbank Offered Rate (“LIBOR”) defined in the Facility plus a margin of 1.25% or 1.50% or (ii) an alternate base rate, plus margin of 0.25% or 0.50% with the applicable margin depending on the Company’s consolidated leverage ratio.

The 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 a 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 expires on October 17, 2021 .

The Facility contains both affirmative and negative covenants.

Covenants include, but are not limited to, limitations on the Company’s and its subsidiaries ability to incur liens, incur additional indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets.

Covenants include, but are not limited to, limitations on the Company’s and its subsidiaries’

ability to incur liens, incur additional indebtedness, make certain restricted payments, merge or consolidate and make dispositions of assets.

In addition, the Facility requires the Company to comply with financial covenants limiting the Company’s total funded debt, minimum interest coverage ratio and maximum leverage ratio.

The Company was compliant with all financial covenants under the Facility as of May 30, 2020 .

Upon the occurrence of an event of default under the Facility, the lender may cease making loans, terminate the Facility and declare all amounts outstanding to be immediately due and payable.

The Facility specifies a number of events of default (some of which are subject to applicable grace or cure periods), including, among other things, non-payment defaults, covenant defaults, cross-defaults to other material indebtedness, bankruptcy and insolvency defaults and material judgment defaults.

The Company’s borrowings on the Facility were $43.0 million and $6 3 .0 million as of May 25, 2019 and May 26, 2018, respectively.

In addition, the Company has $1.3 million and $1.0 million of outstanding letters of credit issued under the Facility as of May 25, 2019 and May 26, 2018, respectively.

There was $47.0 million remaining to borrow under the Revolving Loan and $30.0 million remaining under the Reducing Revolving Loan as of May 25, 2019 .

As of May 25, 2019 , the interest rates on the Company’s borrowings w ere 4.1% on each of the three tranche s of the Company’s borrowings of $24.0 million , $10.0 million and $ 9 .0 million, respectively, based on a 3 -month LIBOR plus 1.5% .

Subsequent to year end, on June 28, 2019, the Company made a $5.0 million principal payment on the Facility.

The Company’s borrowings under the Facility were $88.0 million and $43.0 million as of May 30, 2020 and May 25, 2019 , respectively.

In addition, the Company had $1.3 million of outstanding letters of credit issued under the Facility as of both May 30, 2020 and May 25, 2019.

There was $0.7 million remaining capacity under the Revolving Loan and $30.0 million remaining capacity under the Reducing Revolving Loan as of May 30, 2020.

As of May 30, 2020, the interest rates on the Company’s borrowings under the Facility ranged from 2.14% to 2.25% .

The following table represents the current and deferred income tax provision for federal, state and foreign income taxes attributable to operations (in thousands):

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Global Intangible Low-Taxed Income ("GILTI")

Worthless Stock Deduction

Worthless Debt Deduction

Permanent items, primarily meals and entertainment

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Net operating losses

Property and equipment

Gross deferred tax asset

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Property and equipment

Outside basis difference - Sweden investment

Goodwill and intangibles

Net deferred tax asset (liability)

The Company had a net income tax receivable of $1.0 million and income tax payable of $3.3 million as of May 25, 2019 and May 26, 2018 , respectively.

Net deferred tax liability

The Company had a net income tax receivable of $3.5 million and $1.0 million as of May 30, 2020 and May 25, 2019, respectively.

The tax benefit associated with the exercise of nonqualified stock options and the disqualifying dispositions by employees of incentive stock options, restricted stock awards and shares issued under the Company’s ESPP reduced income taxes payable by $0.9 million and $1.8 million for the years ended May 30, 2020 and May 25, 2019, respectively.

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Deferred income taxes have not been provided on the undistributed earnings of approximately $21.1 million from the Company’s foreign subsidiaries as of May 30, 2020 since these amounts are intended to be indefinitely reinvested in foreign operations.

If the earnings of the Company’s foreign subsidiaries were to be distributed, management estimates that the income tax impact would

be immaterial as a result of the transition tax and federal dividends received deduction for foreign source earnings provided under the US Tax Cuts and Jobs Act of 2017 .

If the earnings of the Company’s foreign subsidiaries were to be distributed, management estimates that the income tax impact would be immaterial as a result of the transition tax and federal dividends received deduction for foreign source earnings provided under the US Tax Cuts and Jobs Act of 2017.

The following table summarizes the activity related to the gross unrecognized tax benefits (in thousands):

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Unrecognized tax benefits, beginning of year

Gross increases-tax positions in prior period

Gross decreases-tax positions in prior period

Gross increases-current period tax positions

Lapse of statute of limitations

Unrecognized tax benefits, end of year

T he Company’s total liability for unrecognized gross tax benefits was $42,000 as of both May 25, 2019 and May 26, 2018 , which, if ultimately recognized , would impact the effective tax rate in future periods.

The unrecognized tax benefits include long-term liabilities of $42,000 as of both May 25, 2019 and May 26, 2018 ;

none of the unrecognized tax benefits are short-term liabilities due to the closing of the statute of limitations.

The Company’s major income tax jurisdiction is the U.S., with federal statute of limitations remaining open for fiscal 201 6 and thereafter.

The Company’s total liability for unrecognized gross tax benefits was $848,000 and $42,000 as of May 30, 2020 and May 25, 2019 , respectively;

which, if ultimately recognized, would impact the effective tax rate in future periods.

The unrecognized tax benefits are include d in long-term liabilities in the Consolidated Balance Sheets.

N one of the unrecognized tax benefits are short-term liabilities due to the closing of the statute of limitations.

The Company’s major income tax jurisdiction is the U.S., with federal statute s of limitations remaining open for fiscal 201 7 and thereafter.

For states within the U.S.

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Major foreign jurisdictions in Europe remain open for fiscal years ended 201 5 and thereafter.

The Company continues to recognize interest expense and penalties related to income tax as a part of its provision for income taxes.

During the current fiscal year, the Company did not accrue for any interest and penalties as a component of the liability for unrecognized tax benefits.

The Company recognize s interest and penalties related to unrecognized tax benefits as a part of its provision for income taxes.

During the fiscal year ended May 30, 2020 , the Company did not accrue for any interest and penalties as a component of the liability for unrecognized tax benefits.

Accrued Salaries and Related Obligations

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Concentrations of Credit Risk

The Company currently maintains cash , cash equivalent s and short-term investments in commercial paper .

The Company currently maintains cash and cash equivalent s in commercial paper or money market accounts.

Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade receivables.

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No single customer accounted for more than 10% of r evenue for the years ended May 30, 2020 , May 25, 2019 and May 26, 2018 .

No single customer accounted for more than 10% of trade accounts receivable as of May 30, 2020 and May 25, 2019.

Stockholders’

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Repurchases under the program may take place in the open market or in privately negotiated transactions and may be made pursuant to a Rule 10b5-1 plan.

During the years ended May 25, 2019 and May 26, 2018 , the Company purchased on the open market approximately 1 .

8 million and 0.

3 million shares of its common stock, respectively, at an average price of $1 6 .

17 and $15.9 5 per share, respectively, for approximately $ 29.9 million and $ 5 .

1 million, respectively.

As of May 25, 2019 , approximately $ 9 0.

1 million remains available for future repurchases of the Company’s common stock under the July 2015 program.

During the years ended May 30, 2020 and May 25, 2019, the Company purchased on the open market approximately 0.3 million and 1.8 million shares of its common stock, respectively, at an average price of $15.70 and $16.17 per share, respectively, for approximately $5.0 million and $29.9 million , respectively.

As of May 30, 2020 , approximately $85.1 million remain ed available for future repurchases of the Company’s common stock under the July 2015 program.

Quarterly Dividend

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On April 15 , 20 20 , the board of directors declared a regular quarterly dividend of $0.14 per share of the Company’s common stock.

The dividend, paid on June 1 3 , 201 9 , was accrued in the Consolidated Balance Sheet as of May 25, 2019 for approximately $ 4.1 million.

The dividend, paid on June 1 0 , 20 20 , was accrued in the Company’s Consolidated Balance Sheet as of May 30, 2020 for $4.5 million.

Continuation of the quarterly dividend is at the discretion of the board of directors and depend s upon the Company’s financial condition, results of operations, capital requirements, general business condition, contractual restrictions contained in the Company’s current credit agreements and other agreements, and other factors deemed relevant by the board of directors.

Restructuring Activities

On February 27, 2020, the Company’s management and board of directors committed to a global restructuring and business transformation plan (the “Plan”) centered on strengthening the business for greater agility and resilience in anticipation of macroeconomic volatility.

The Plan consists of two key components:

an effort to streamline the management structure and eliminate non-essential positions to focus on core solution offerings, improve efficiency and enhance the employee experience;

and a strategic

rationalization of the Company’s physical geographic footprint and real estate spend to focus investment dollars in high growth core markets for greater impact.

As part of the Plan, the Company completed a reduction in force (the “RIF”) in early March in North America and Asia Pacific whereby it eliminated 73 positions.

In connection with the RIF, the Company incurred $3.9 million of employee termination costs in the fourth quarter of fiscal 2020, of which $2.0 million was paid at the end of fiscal 2020.

An additional $1.7 million is expected to be paid in fiscal 2021.

The majority of employees impacted by the RIF exited the Company before the end of fiscal 2020, with the remainder expected to exit in the first half of fiscal 2021.

The Company expects to incur and pay an additional $1.4 million of employee termination costs in fiscal 2021.

The real estate component of the Plan is specifically targeted to shrink the Company’s real estate footprint by 26% globally through either lease termination or subleasing.

The Company exited from a number of leases during the fourth quarter resulting in $1.1 million of non-cash charges relating to lease terminations and other costs associated with exiting the facilities, of which $0.6 million was related to impairment of operating right-of-use assets and $0.5 million was related to loss on disposal of fixed assets.

The Company currently expects to incur additional restructuring charges in fiscal 2021 as it continues to exit certain real estate leases in accordance with the Plan.

The exact amount and timing will depend on a number of variables, including market conditions.

Given the current macro environment, particularly the current shift away from commercial real estate occupancy, accelerated by the Pandemic, management believes it could take longer and be more costly to terminate and sublet the Company’s leases, therefore taking longer to realize the expected savings.

All of the employee termination costs and the facility exit costs associated with the Company’s restructuring initiatives are recorded in selling, general and administrative expenses in the Company’s Consolidated Statement of Operations for the year ended May 30, 2020.

At May 30, 2020, unpaid employee termination benefits were included in accounts payable and accrued expenses in the Company’s Consolidated Balance She et.

During the first quarter of fiscal 2021, the Company started the strategic business review in Europe, and currently expects to substantially complete the review and restructuring in Europe in fiscal 2021 .

Stock - Based Compensation Plans

2014 Performance Incentive Plan

On October 23, 2014, the Company’s stockholders approved the 2014 Plan.

The 2014 Plan replaced the Resources Connection, Inc.

2004 Performance Incentive Plan and the 1999 Long Term Incentive Plan (the “Prior Stock Plans”).

The effective date of the 2014 Plan is September 3, 2014 and, unless terminated earlier by the b oard of d irectors, will terminate on September 2, 2024.

Under the terms of the 2014 Plan, the Company’s board of directors or one or more committees appointed by the board of directors will administer the 2014 Plan.

The board of directors has delegated general administrative authority for the 2014 Plan to the Compensation Committee of the board of directors.

The administrator of the 2014 Plan has broad authority to, among other things, select participants and determine the type(s) of award(s) that they are to receive, and determine the number of shares that are to be subject to awards and the terms and conditions of awards, including the price (if any) to be paid for the shares or the award.

Persons eligible to receive awards under the 2014 Plan include officers or employees of the Company or any of its subsidiaries, directors of the Company, and certain consultants and advisors to the Company or any of its subsidiaries.

The maximum number of shares of the Company’s common stock that may be issued or transferred pursuant to awards under the 2014 Plan equals the sum of:

(1) 2,400,000 shares, plus (2) the number of shares subject to stock options granted under the Prior Stock Plans and outstanding as of September 3, 2014 (the date at which the Prior Stock Plans terminated), which expire, or for any reason are cancelled or terminated, after that date without being exercised, plus (3) the number of shares subject to restricted stock, restricted stock units and other full-value awards granted under the Prior Stock Plans that were outstanding and unvested as of September 3, 2014, which are forfeited, terminated, cancelled, or otherwise reacquired after that date without having become vested.

As of May 2 5 , 201 9 , 1,59 5 ,000 shares were available for award grant purposes under the 2014 Plan, subject to future increases as described in (2) and (3) above and subject to increase as then-outstanding awards expire or terminate without having become vested or exercised, as applicable.

The types of awards that may be granted under the 2014 Plan include stock options, restricted stock, stock bonuses, performance stock, stock units, phantom stock and other forms of awards granted or denominated in the Company’s common stock or units of the Company’s common stock, as well as certain cash bonus awards.

Under the terms of the 2014 Plan, the option price for the incentive stock options (“ISOs”) and nonqualified stock options (“NQSO”) may not be less than the fair market value of the shares of the Company’s stock on the date of the grant.

For ISOs, the exercise price per share may not be less than 110% of the fair market value of a share of common stock on the grant date for any individual possessing more than 10% of the total outstanding stock of the Company.

Stock options granted under the 2014 Plan and the Prior Stock Plans generally become exercisable over periods of one to four years and expire not more than ten years from the date of grant.

The Company predominantly grants NQSOs to employees in the U.S.

The Company granted 21 ,5 37 and 1 1 7, 588 shares of restricted stock during the fiscal years ended May 2 5 , 201 9 and May 2 6 , 201 8 , respectively.

On January 1, 2018, the Company adopted the Directors Deferred Compensation Plan, which provides the members of the Company’s board of directors who are not officers or employees of the Company the opportunity to defer certain compensation and equity awards paid or granted for their service in the form of stock units (“Stock Units”).

The Stock Units are used solely as a device for determining the amount of cash benefit to eventually be paid to the director.

Each has the same value as one share of Resources Connection, Inc.

common stock.

Stock Units must be retained until the director leaves the board of directors, at which time the cash value of the Stock Units are paid out.

Additional Stock Units are credited to reflect dividends paid on shares of Resources Connection, Inc.

common stock.

Stock Units credited to a director pursuant to an election to defer compensation (and any dividend equivalents credited thereon) are fully vested at all times.

Stock Units credited to a director pursuant to an election to defer an equity award are subject to the vesting conditions applicable to the equity award, except that dividend equivalents credited to a director with respect to such Stock Units are vested at all times.

These liability classified awards are re-measured at each reporting date and on settlement using the closing price of the Company’s common stock on that date.

Any change in fair value is recorded as stock-based compensation expense in the period.

We recognize stock-based compensation on these Stock Units using the straight-line method over the requisite service period.

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):

Executive officers and employees, as well as non-employee directors of the Company and certain c onsultants and advisors to the Company, are eligible to participate in the 2014 Plan.

The 2014 Plan was approved by stockholders on October 23, 2014 and replaced and succeeded in its entirety the Resources Connection, Inc.

2004 Performance Incentive Plan and the 1999 Long Term Incentive Plan (together, the “Prior Stock Plans”) .

As of May 30, 2020, there were 1,453,000 shares available for award grant purposes under the 2014 Plan, subject to future increases as described in the 2014 Plan .

Awards under the 2014 Plan may include, but are not limited to, stock options, restricted stock units 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.

A summary of the share-based award activity during fiscal 2020 under the 2014 Plan and the Prior Stock Plans follows (amounts in thousands, except weighted average exercise price):

Weighted Average

Contractual Life

Options outstanding at May 26, 2018

Awards outstanding at May 25, 2019

Granted, at fair market value

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Forfeited (2)

Options outstanding at May 25, 2019

Awards outstanding at May 30, 2020

Exercisable at May 30, 2020

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(2) Amounts represent both stock options and restricted share awards forfeited.

For stock options, represent one share for each stock option forfeited.

For restricted share awards, represents 2.5 shares for each restricted share award forfeited .

(3) The expected to vest options are the result of applying the pre-vesting forfeiture rate assumptions to options not yet vested of 2,391,052 and 2,481,959 as of May 30, 2020 and May 25, 2019, respectively.

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $1 5 .

56 as of May 2 4 , 201 9 (the last actual trading day of fiscal 201 9 ), 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 2 5 , 201 9 , May 2 6 , 201 8 and May 2 7 , 201 7 was $ 5 .

2 million, $1.

7 million and $1.

1 million , respectively.

The total estimated fair value of stock options that vested during the years ended May 2 5 , 201 9 , May 2 6 , 201 8 and May 2 7 , 201 7 was $5.

4 million, $ 5 .

1 million and $ 3 .

6 million, respectively.

The aggregate intrinsic value in the preceding table represents the total pre-tax intrinsic value, based on the Company’s closing stock price of $10.99 as of May 29 , 20 20 (the last actual trading day of fiscal 20 20 ), 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 30, 2020, May 25, 2019 and May 26, 2018 was $1.2 million, $5.2 million and $1.7 million , respectively.

The total estimated fair value of stock options that vested during the years ended May 30, 2020, May 25, 2019 and May 2 6, 2018 was $3.5 million, $5.4 million and $5.1 million, respectively .

Valuation and Expense Information for Stock Based Compensation Plans

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Net income per share:

The weighted average estimated fair value per share of employee stock options granted during the years ended May 2 5 , 201 9 , May 2 6 , 201 8 and May 2 7 , 201 7 was $ 4 .

74 , $3.61 and $ 3 .

61 , respectively, using the Black-Scholes model with the following assumptions:

Stock-based compensation expense in the table above includes compensation for restricted shares of $1.1 million, $1.7 million and $1.4 million for the years ended May 30 , 20 20, May 25, 2019 and May 26, 2018 , respectively.

The weighted average estimated fair value per share of employee stock options granted during the years ended May 30 , 20 20, May 25, 2019 and May 26, 2018 was $3.88 , $4.74 and $3.61 , respectively , using the Black-Scholes model with the following assumptions:

For the Years Ended

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5.7 - 8.2 years

As of May 2 5 , 201 9 , there was $ 8 .

3 million of total unrecognized compensation cost related to non-vested employee stock options granted.

That cost is expected to be recognized over a weighted-average period of 1.83 years .

The following table summarizes the activity for restricted stock during fiscal 2020:

Total Number of Shares

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Unvested restricted shares outstanding at May 30, 2020

Stock-based compensation expense in the tables above includes compensation for restricted shares of $1.

7 million, $ 1 .

4 million and $0.

8 million for the years ended May 2 5 , 201 9 , May 2 6 , 201 8 and May 2 7 , 201 7 respectively.

At May 2 5 , 201 9 , the re was approximately $ 2 .

9 million of total unrecognized compensation cost related to restricted shares, which is expected to be recognized over a weighted-average period of 1.59 years .

The Company recognizes compensation expense for only the portion of stock options and restricted shares that are expected to vest, rather than recording forfeitures when they occur.

If the actual number of forfeitures differs from that estimated by management, additional adjustments to compensation expense may be required in future periods.

Excess income tax benefits and deficiencies from stock-based compensation are now recognized as a discrete item within the provision for income taxes in the Consolidated Statement of Operations rather than additional paid-in capital in the Consolidated Balance Sheets.

As of May 30, 2020 , there was $7.6 million of total unrecognized compensation cost related to non-vested employee stock options granted.

That cost is expected to be recognized over a weighted-average period of 1.76 years.

At May 30 , 20 20 , there was approximately $1.9 million of total unrecognized compensation cost related to restricted shares, which is expected to be recognized over a weighted-average period of 1.70 years.

Employee Stock Purchase Plan

On October 23, 2014, the Company’s stockholders approved an amendment to the ESPP to extend the term of the ESPP through October 16, 2024, and to increase the maximum number of shares of the Company’s common stock authorized for issuance under the ESPP by an additional 1.5 million shares to a total of 5.9 million shares .

On October 15, 2019, the Company’s stockholders approved the 2019 Employee Stock Purchase Plan (the “2019 ESPP”

or the “ESPP”) which supersedes the 2014 Employee Stock Purchase Plan (the “2014 ESPP”

or the “ESPP”).

The maximum number of shares of the Company’s common stock authorized for issuance under the 2019 ESPP is 1,825,000 .

The remaining 6,000 unissued shares under the 2014 ESPP are no longer available for issuance.

The Company’s ESPP allows qualified employees (as defined in the ESPP) to purchase designated shares of the Company’s common stock at a price equal to 85% of the lesser of the fair market value of common stock at the beginning or end of each semi-annual stock purchase period.

The Company issued 400,000 , 358,000 and 339,000 shares of common stock pursuant to the ESPP for the years ended May 30 , 20 20, May 25, 2019 and May 26, 2018, respectively.

There are 22 1 ,000 shares of common stock available for issuance under the ESPP as of May 2 5 , 201 9 .

There were 1,641,000 shares of common stock available for issuance under the 2019 ESPP as of May 30 , 20 20 .

The Company has a defined contribution 401(k) plan (“the plan”) which covers all employees in the U.S.

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To receive matching contributions, the employee must be employed on the last business day of the fiscal quarter.

For the years ended May 25, 2019, May 26, 2018 and May 27, 2017 , the Company contributed approximately $6 .

4 m illion , $5.6 million and $5.1 million, respectively, to the plan as Company matching contributions.

For the years ended May 30, 2020, May 25, 2019 and May 26, 2018, the Company contributed $6.5 million, $6.4 million and $5.6 mil lion, respectively, to the plan as Company matching contributions.

Supplemental Disclosure of Cash Flow Information

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Capitalized leasehold improvements paid directly by landlord

Acquisition of Veracity:

Liability for contingent consideration

Acquisition of Expertence:

Liability for contingent consideration

Acquisition of taskforce:

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Commitments and Contingencies

Lease Commitments

At May 25, 2019 , the Company had operating leases, expiring at various dates through March 202 8 , primarily for office premises , vehicle s and equipment .

At May 25, 2019 , the Company had no capital leases.

Future minimum rental commitments under operating leases as follows (in thousands):

Years Ending:

Rent expense for the years ended May 25, 2019, May 26, 2018 and May 27, 2017 totaled $1 5.5 million, $13.7 million and $12.9 million, respectively.

Rent expense is recognized on a straight-line basis over the term of the lease, including during any rent holiday periods.

The Company leases approximately 1 3 ,000 square feet of the approximately 5 7,0 00 square foot Company owned building located in Irvine, California to independent third parties and has operating lease agreements for sub-let space with independent third parties expiring through fiscal 2025.

Rent incom e for the years ended May 25, 2019, May 26, 2018 and May 27, 2017 totaled $240,0 0 0 , $305,000 and $332,000 million, respectively.

Under the terms of these operating lease agreements, rental income from such third - party leases is expected to be $ 414 ,000 , $3 6 8,000 , $30 6 ,000 , $2 26 ,000 and $ 232 ,000 in fiscal 20 20 through 202 4 , respectively , and $ 78 ,000 thereafter.

Legal Proceedings

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Amounts are stated in thousands:

Revenue for the

Revenue for the Years Ended

Long-Lived Assets (1) as of

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International

(1) Long-lived assets are comprised of goodwill, intangible assets and property and equipment.

(1) Long-lived assets are comprised of goodwill, intangible assets , property and equipment , and ROU assets .

CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data