In this Report on Form 10-K, “Resources,” “Resources Connection,” “Resources Global Professionals”, “Resources Global,” “company,” “we,” “us” and “our” refer to the business of Resources Connection, Inc. and its subsidiaries. References in this Report on Form 10-K to “fiscal,” “year” or “fiscal year” refer to our fiscal years that consist of the 52- or 53-week period ending on the Saturday in May closest to May 31. The fiscal year ended May 31, 2008 consisted of 53 weeks. The fiscal years ended May 26, 2007 and May 27, 2006 consisted of 52 weeks.

 

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

 

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

 

 

Overview

 

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

 

 

We were founded in June 1996 by a team at Deloitte & Touche LLP (“Deloitte & Touche”), led by our executive chairman, Donald B. Murray, who was then a senior partner with Deloitte & Touche and Karen M. Ferguson, president of our North American operations, among others. Our founders created Resources Connection to capitalize on the increasing demand for high quality outsourced professional services. We operated as a part of Deloitte & Touche from our inception in June 1996 until April 1999. In April 1999, we completed a management-led buyout.

 

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

 

As of May 31, 2008, we employed 3,490 professional service associates on assignment. Our associates have professional experience in a wide range of industries and functional areas. Based upon an internal survey conducted in June 2008, and completed by 64% of our active associates, 46% of our active associates are CPAs (including 45% of our associates in the United States), 41% have advanced professional degrees, and the average years of professional experience is approximately 24. We offer our associates careers that combine the flexibility of project-based work with many of the advantages of working for a traditional professional services firm.

 

We served a diverse base of more than 2,400 clients during fiscal 2008, ranging from large corporations to mid-sized companies to small entrepreneurial entities, in a broad range of industries. For example, our clients have included more than eighty-four of the companies that have been in the Fortune 100. We have grown revenues from

$202.0 million in fiscal 2003 to $840.3 million in fiscal 2008, a five-year compound annual growth rate, or CAGR, of 33.0%, and our income from operations over the same period has increased from $20.2 million to $84.5 million, a five-year CAGR of 33.1%. We have been profitable every year since inception. As of May 31, 2008, we served our clients through 56 offices in the United States and 33 offices abroad.

 

During our first three years of operations, our offices were located only in the United States. As the Company evolved, we have increased our presence in other regions around the world. During fiscal 2008, we acquired two companies with operations in Europe: Compliance Solutions, a United Kingdom-based provider of regulatory compliance services to investment advisors, hedge funds, private equity and venture capital firms, insurance companies and other financial institutions; and Domenica B.V. (“Domenica”), a Netherlands based provider of actuarial services to pension and life insurance companies. In Germany, we closed our temporary office in Düsseldorf and opened an office in Frankfurt. We also opened offices in the United States in Tulsa, Oklahoma; Raleigh, North Carolina; and Richmond, Virginia, while consolidating our office in Grand Rapids, Michigan into our Detroit, Michigan operation. During fiscal 2007, we opened our first two offices in Mexico (Mexico City and Tijuana); our first office in Germany (Düsseldorf); our first office in Italy (Milan); and additional offices in Japan (Nagoya); Canada (Montreal); United Kingdom (Edinburgh); People’s Republic of China (Shanghai); and the United States (Glenview, Illinois). While much of our growth in countries outside of the United States has resulted from the establishment of new Resources Global offices, we also completed a number of acquisitions prior to fiscal 2008 to build our presence and to serve our multinational clients around the world (including acquisitions prior to fiscal 2008 in the Netherlands, Australia, Sweden and India).

 

We are a multi-national company with offices in twenty countries. Revenue for the Company’s major practice areas was as follows (in thousands):

 

 

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

 

Industry Background

 

Demand for Project Professional Services

 

Resources Global’s services cover a range of professional areas, with over 50% of revenues derived from accounting and finance-related services. The market for professional services is broad and fragmented and independent data on the size of the market is not readily available. Because of the corporate scandals documented in the media over the last several years, we believe the market for professional services is changing rapidly and that companies may be more willing to choose alternatives to traditional professional service providers. We believe Resources Global is a viable alternative to traditional accounting and consulting firms in numerous instances because, by using project professionals, companies can:

 

 

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

 

Supply of Project Professionals

 

Concurrent with the growth in demand for outsourced professional services, we believe, based on demographic trends in the U.S. and discussions with our associates, that the number of professionals seeking to work on a project basis has increased due to a desire for:

 

 

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

 

Resources Global Professionals’ Solution

 

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

 

 

Resources Global Professionals’ Strategy

 

Our Business Strategy

 

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

 

 

 

Our Growth Strategy

 

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

 

 

 

Associates

 

We believe that an important component of our success has been our highly qualified and experienced associates. As of May 31, 2008, we employed or contracted with 3,490 associates on assignment. Our associates have professional experience in a wide range of industries and functional areas. We provide our associates with challenging work assignments, competitive compensation and benefits, and continuing education and training opportunities, while offering choice concerning work schedules and more control over choosing client engagements.

 

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

 

Internationally, our associates are a mix between employees and independent contractors. Independent contractor arrangements are more common abroad than in the United States due to the labor laws, tax regulations and customs of the international markets we serve.

 

Clients

 

We provide our services to a diverse client base in a broad range of industries. In fiscal 2008, we served more than 2,400 clients. Our revenues are not concentrated with any particular client or clients, or within any particular industry. In fiscal 2008, our largest client accounted for less than 3% of our revenue and our 10 largest clients accounted for approximately 14% of our revenues.

 

The clients listed below represent the geographic and industry diversity of our client base in fiscal 2008.

 

Services and Products

 

Resources Global was founded with a business model and operating philosophy rooted in the support of client-led projects and initiatives. Partnering with business leaders, we help clients implement internal initiatives. Often, we deliver our services to clients across multiple service lines: Finance and Accounting, Human Capital, Information Management, Legal Services, Internal Audit and Risk Management, Actuarial Services and Supply Chain Management. We also provide content management through our web-based application, policyIQ^®.

 

Finance and Accounting

 

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

 

Project examples include:

 

 

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

 

 

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

 

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

 

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

Sample Engagement — Large-Scale Restatement:  We provided 20 professionals to assist one of the nation’s largest mortgage and real estate corporations with a multi-year accounting restatement, helping to analyze, document and improve core areas of the organization’s accounting. Our professionals assisted by:

 

 

Sample Engagement — Stock Option Accounting:  We provided more than 20 professionals to assist a software company with a review of its historical stock option accounting. Two of the four project teams were led by Resources associates, who had responsibility for delivery of our services as well as interfacing with both the client’s external auditors and forensic auditors appointed by the Board of Director’s Special Committee. In addition, subsequent to filing its restated Form 10-K, the client was acquired by a Fortune 50 company and one of our professionals served as the lead on the finance team integration. Our professionals also assisted this client by:

 

 

Human Capital

 

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

 

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

 

More specifically, our professionals help our clients via:

 

 

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

 

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

 

Organizational Development

 

 

Human Resources Information Systems (“HRIS”)

 

 

HR Operations

 

 

Sample Engagement- Restructuring Assistance:  Subsequent to assisting a global advertising company with their large restatement project, we evaluated the human resource challenges related to the reorganization of its international controllers group and presented our observations and recommendations during the client’s controllers meeting. We helped improve the quality of the client’s international controller organization by addressing the human resource aspects of the restructuring, leading to a stronger, cross divisional controllers’ organization. Specifically, we supported the client’s restructuring initiative in the following ways:

 

 

Sample Engagement — Assistance with Managing Growth:  A large education company embarked on a steady acquisition and growth path to maintain its position as the leading provider of educational solutions, services and products for schools, libraries and colleges. As part of its leadership and acquisition strategy, the company needed to develop an internal and external communication plan, create a new enterprise-wide compensation structure, and adopt a leading edge, consumer-driven health care program for all employees. Our Human Capital professionals helped by managing and executing the company’s changes.

 

Our project managers and technical professionals helped execute a multi-phased implementation plan, assisted with market pricing, helped realign roles and responsibilities, and redesigned the company’s compensation strategy. In addition, we helped the client transition to a consumer-driven healthcare-focused company by providing guidance regarding plan design, internal communications, and a training plan rollout. We worked directly with the CEO on all internal and external corporate communications.

 

Sample Engagement — Process Improvement:  A multi-billion health benefits company was impacted by operational challenges as it progressed through the first year of a Medicare enrollment project. During year two, the company launched an initiative to make operational improvements in enrollment, training, communication, error handling and customer service.

 

We were engaged to provide project management oversight, document processes for the central and western regions, develop training for customer service representatives, build business continuity plans and quality control processes for enrollment and customer service related processes, and identify root causes for rejected transactions. Our team, consisting of four project managers and nine professionals with process improvement and training backgrounds, partnered with the client and another third party consulting firm in strategy design and execution. Working with the overall client project manager, our team established detailed project plans for each of the eight sub-initiatives, set milestone dates, and developed a project-tracking mechanism.

 

We helped by co-developing and facilitating training programs for our client’s employees on project management tools and techniques. We also developed training documentation and reference manuals for the customer service representatives’ use when handling calls from Medicare members, ensuring consistent service.

 

Information Management

 

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

 

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

 

 

Sample Engagement — Large Scale SAP Implementation:  An aerospace and defense industry contractor required assistance in installing and implementing various modules using the SAP business suite for more than 4,400 employees in multiple locations across the United. States. Resources provided a team of functional experts who assisted with the planning, design and roll-out of the SAP system. In addition, our Information Management professionals helped cleanse and transform data, trained users, performed financial analyses, documented the control environment for Sarbanes compliance and backfilled various positions in accounting, finance, procurement and human resource departments.

 

Sample Engagement — Improvement of IT projects success rate:  A Fortune 500 multinational corporation undertook an initiative to improve the success rate of its enterprise-wide and business unit specific IT related projects by applying effective project management and business analysis best practices. Resources’ experienced Information Management professionals helped develop and implement a consistent approach to plan and execute projects, including:

 

 

Sample Engagement — Financial System Integration:  A Fortune 100 global manufacturing company completed an acquisition of another global company and needed to rapidly develop and execute a plan to integrate financial systems. We provided a team with a unique balance of technical and functional information management experience, knowledge of a specific financial system, and finance and accounting expertise. Our team included a project lead, software application experts, data reconciliation resources and an internal auditor with Sarbanes compliance experience.

 

Our associates assisted by:

 

 

Legal Services

 

Our Legal Services practice helps clients drive and execute their legal, risk management and regulatory initiatives. Many of the legal professionals in this group have significant experience working at international law firms, as well as in-house legal departments. Our legal professionals operate under our clients’ direction as members of clients’ legal teams and work on legal projects related to, among other things:

 

 

Sample Engagement — Assistance with Divestiture:  A publicly traded pharmaceutical company shifted its core product strategy from developing treatments for a wide range of chronic diseases to concentrating on a small core suite of products. The shift necessitated a significant change in the company’s senior management team and

business plan, including termination of the research, development and marketing of a commercial drug and divestiture of a national sales and distribution business and sales force. The company previously used outside counsel to perform various “one-time” legal functions.

 

We provided a Legal Services professional who was a former public company general counsel with significant experience in corporate restructurings and business turnarounds, including divesting assets and downsizing companies. Leveraging his experience, our professional assisted outside counsel in selling one of the company’s commercial drug products and its related national sales force. Our professional also provided assistance in subleasing the company’s research and development facilities, resolving various vendor and supplier disputes and resolving royalty and other disputes under license and supply agreements.

 

Sample Engagement — Acquisition Preparation Assistance:  Having recently consolidated over twenty separate private businesses, a private company needed help preparing a multi-billion dollar bid for an acquisition involving private equity investors. In order to meet the strict time schedule established by the potential buyers, the client had to complete pre-acquisition due diligence and corporate clean-up, as well as prepare disclosures on the legal aspects of its recent consolidation. In addition, the client had to manage the simultaneous due diligence efforts of nine separate bidders.

 

Our Legal Services professional assisted by managing significant elements of the due diligence and acquisition process, leaving our client’s General Counsel free to manage the interaction with bidders and to counsel the board of directors and senior executives. Our client was able to complete the due diligence process, successfully coordinate the disclosure process with multiple law firms representing the investors and the lenders and meet the deadlines set forth by the bidders.

 

Sample Engagement — Legal Department Support:  A client faced an unexpected employee reorganization, leading to reductions in legal department personnel and possible delinquencies in its SEC reporting requirements. Our Legal Services professional helped by: