2.2.0.7 false Acquisitions 0205 - Disclosure - Acquisitions true false false false 1 USD false false USD Standard http://www.xbrl.org/2003/iso4217 USD iso4217 0 USDEPS Divide http://www.xbrl.org/2003/iso4217 USD iso4217 http://www.xbrl.org/2003/instance shares xbrli 0 Shares Standard http://www.xbrl.org/2003/instance shares xbrli 0 $ 2 Acquisitions [Abstract] 0 recn_AcquisitionsAbstract recn false na duration Acquisitions. false false false false false true false false false false false false 1 false false false false 0 0 false false false xbrli:stringItemType string Acquisitions. false 3 Acquisitions 1 us-gaap_BusinessCombinationDisclosureTextBlock us-gaap true na duration No definition available. false false false false false false false false false false false verboselabel false 1 false false false false 0 0   <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><b>5. Acquisitions</b> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt"><i>Acquisition of Sitrick Brincko Group</i> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">On November 20, 2009, the Company acquired certain assets of Sitrick And Company (“Sitrick Co”), a strategic communications firm, and Brincko Associates, Inc. (“Brincko”), a corporate advisory and restructuring firm, through the purchase of all of the outstanding membership interests in Sitrick Brincko Group, a Delaware limited liability company, formed for the purpose of the acquisition, pursuant to a Membership Interest Purchase Agreement by and among the Company, Sitrick Co, Michael S. Sitrick, an individual, Brincko and John P. Brincko, an individual. Prior to the acquisition date, Mr. Sitrick and Nancy Sitrick were the sole shareholders of Sitrick Co and Mr. Brincko was the sole shareholder of Brincko. Also on November 20, 2009, the Company acquired the personal goodwill of Mr. Sitrick pursuant to a Goodwill Purchase Agreement by and between the Company and Mr. Sitrick (collectively with the Membership Interest Purchase Agreement, the “Acquisition Agreements”). Sitrick Brincko Group is now a wholly-owned subsidiary of the Company. By combining the specialized skill sets of the Sitrick Brincko Group with the Company’s existing consultant capabilities, geographic footprint and client base, the Company believes it will increase its ability to assist clients during challenging periods, particularly in the areas of corporate advisory, strategic communications and restructuring services. This expected synergy gives rise to goodwill being recorded as part of the purchase price of Sitrick Brincko Group. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The Company paid cash aggregating approximately $28.8 million and issued an aggregate of 822,060 shares of restricted common stock valued at approximately $16.1 million to Sitrick Co, Brincko and Mr. Sitrick (collectively, the “Sellers”) in connection with the acquisition. In addition, contingent consideration will be payable to the Sellers in a lump sum following the fourth anniversary of the acquisition only if the average (calculated from each of the four one-year periods following the acquisition date) earnings before interest, taxes, depreciation and amortization (“EBITDA”) of Sitrick Brincko Group exceed $11.3 million. At the end of the four-year earn-out period, the Company will determine if the average annual EBITDA exceeded $11.3 million; if so, the contingent consideration payable is determined by multiplying the average annual EBITDA by 3.15 (representing the agreed upon multiple to be paid by the Company as specified in the Acquisition Agreements). </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Under accounting rules for business combinations effective for the Company at the beginning of fiscal 2010, obligations that are contingently payable to the Sellers based upon the occurrence of one or more future events are to be estimated and recorded as a discounted liability on the Company’s balance sheet even though the consideration is based on future events. The Company estimated the fair value of the obligation to pay contingent consideration based on a number of different projections of the average EBITDA during the four-year earn-out measurement period and then assigned a probability weight to each scenario. The resultant probability-weighted average EBITDA amounts were then multiplied by 3.15 (the agreed upon multiple to be paid by the Company as specified in the Acquisition Agreements). The Company recorded this potential future obligation using an original discount rate of 1.9%, representing the time value of money over the four-year period. The Company may, in its sole discretion, pay up to 50% of any earn-out payment in restricted stock of the Company. Because the contingent consideration is not subject to a ceiling and future EBITDA of Sitrick Brincko Group is theoretically unlimited, the range of the undiscounted amounts the Company could be obligated to pay as contingent consideration under the earn-out arrangement is between $0 and an unlimited amount. The estimated fair value of the contractual obligation to pay the contingent consideration recognized as of August 28, 2010 was $61.1 million. Each reporting period, the Company will estimate changes in this estimated fair value of contingent consideration and any change in this estimate will be recognized in the Company’s Consolidated Statements of Operations. For the three months ended August 28, 2010, the Company recognized approximately $1.3 million of expense related to the change in the estimated value of contingent consideration. The estimated change is attributable to accretion and a slight change in the discount rate. The estimate of the fair value of contingent consideration requires very subjective assumptions to be made of various potential operating result scenarios and discount rates. Future revisions to these assumptions could materially change the estimate of the fair value of contingent consideration and therefore materially affect the Company’s future financial results. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In addition, under the terms of the Acquisition Agreements, up to 20% of the contingent consideration is payable to the employees of Sitrick Brincko Group at the end of the measurement period to the extent certain EBITDA growth targets for Sitrick Brincko Group are met. The Company records the estimated amount of the contractual obligation to pay the employee portion of contingent consideration as compensation expense over the service period as it is deemed probable that the growth targets will be achieved. For the three months ended August 28, 2010, the Company determined that the growth targets were not achieved and recorded no estimate of the employee portion of the contingent consideration earned during the period. The estimate of the amount of the employee portion of contingent consideration payable requires very subjective assumptions to be made of future operating results. Future revisions to these assumptions could materially change the estimate of the amount of the employee portion of contingent consideration and therefore materially affect the Company’s future financial results. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Sitrick Brincko Group contributed approximately $6.2 million to revenue and approximately $945,000 to pre-tax earnings for the three months ended August 28, 2010. Pre-tax earnings include approximately $968,000 of amortization expense in the quarter for amortizable intangible assets of Sitrick Brincko Group. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table presents unaudited pro forma revenue and net income for the three months ended August 29, 2009 as if the acquisition of Sitrick Brincko Group and the personal goodwill of Michael Sitrick had occurred on June 1, 2008. The pro forma financial information presented in the following table is for informational purposes only and is not indicative of the results of operations that would have been achieved if the acquisition had taken place on June 1, 2008, nor does it intend to be a projection of future results (in thousands). </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="86%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Pro Forma Three</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2"><b>Months Ended</b></td> <td> </td> </tr> <tr style="font-size: 10pt" valign="bottom"> <td> </td> <td> </td> <td nowrap="nowrap" align="center" colspan="2" style="border-bottom: 1px solid #000000"><b>August 29, 2009</b></td> <td> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Revenue </div></td> <td> </td> <td align="left">$</td> <td align="right">124,868</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net loss </div></td> <td> </td> <td nowrap="nowrap" align="left">$</td> <td align="right">(6,563</td> <td nowrap="nowrap">)</td> </tr>  </table> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Due to differences in the reporting periods of the Company, Sitrick Co and Brincko, the preceding unaudited pro forma financial information for the three months ended August 29, 2009 combines the Company’s financial results for the three months ended August 29, 2009 with the combined financial results of Sitrick Co and Brincko for the three months ended September 30, 2009. Certain of the assets and liabilities of Sitrick Co and Brincko were retained by Sitrick Co and Brincko and not contributed to Sitrick Brincko Group. These assets and liabilities include 1) certain property and equipment of Sitrick Co and Brincko; 2) debt related to certain property and equipment or due to the CEO of Sitrick Co; and 3) pension liabilities of Brincko. The pro forma financial information presented above has been reported after applying the Company’s accounting policies and adjusting the results of Sitrick Co and Brincko to reflect the elimination of these assets and liabilities and related expenses. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">In accordance with GAAP, the Company allocated the purchase price based on the fair value of the assets acquired and liabilities assumed, with the residual recorded as goodwill. As a result of the contingent consideration, the Company recorded a deferred tax asset on the temporary difference between the book and tax treatment of the contingent consideration. The total intangible assets acquired include approximately $64.5 million of goodwill, $23.7 million of long-term deferred tax asset, $5.6 million for customer relationships, $1.2 million for trade names, $3.0 million for non-competition agreements and $250,000 for customer backlog. The backlog will be amortized over 13 months, the customer relationships over two years, and the trade names and non-competition agreements over five years. The goodwill related to this transaction is expected to be deductible for tax purposes over 15 years, except any contingent consideration payable at the end of the four-year earn-out will be deductible for tax purposes from the date of payment over 15 years. </div>   </div>  <div style="font-family: 'Times New Roman',Times,serif; margin-left: 0in; "> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the consideration transferred to acquire Sitrick Brincko Group and the amounts of the identified assets acquired and liabilities assumed, after adjustment, at the acquisition date: </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt">Fair Value of Consideration Transferred (in thousands, except share amounts): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="86%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cash </div></td> <td> </td> <td align="left">$</td> <td align="right">28,750</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Common stock — 822,060 shares @ $19.63 (closing price on acquisition date) </div></td> <td> </td> <td> </td> <td align="right">16,137</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Estimated contingent consideration, net of amount allocable to Sitrick Brincko Group employees </div></td> <td> </td> <td> </td> <td align="right">57,820</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Total </div></td> <td> </td> <td align="left">$</td> <td align="right">102,707</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt">Recognized amounts of identifiable assets acquired and liabilities assumed (in thousands): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="86%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cash and cash equivalents </div></td> <td> </td> <td align="left">$</td> <td align="right">302</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts receivable </div></td> <td> </td> <td> </td> <td align="right">6,232</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Prepaid expenses and other current assets </div></td> <td> </td> <td> </td> <td align="right">281</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Intangible assets </div></td> <td> </td> <td> </td> <td align="right">10,050</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Property and equipment, net </div></td> <td> </td> <td> </td> <td align="right">120</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other assets </div></td> <td> </td> <td> </td> <td align="right">124</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total identifiable assets </div></td> <td> </td> <td> </td> <td align="right">17,109</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Accounts payable and accrued expenses </div></td> <td> </td> <td> </td> <td align="right">199</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Accrued salaries and related obligations </div></td> <td> </td> <td> </td> <td align="right">1,638</td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Other current liabilities </div></td> <td> </td> <td> </td> <td align="right">755</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:30px; text-indent:-15px">Total liabilities assumed </div></td> <td> </td> <td> </td> <td align="right">2,592</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net identifiable assets acquired </div></td> <td> </td> <td> </td> <td align="right">14,517</td> <td> </td> </tr> <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Goodwill ($64,490) and deferred tax assets ($23,700) </div></td> <td> </td> <td> </td> <td align="right">88,190</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 1px solid #000000"> </td> <td> </td> </tr> <tr valign="bottom"> <td> <div style="margin-left:15px; text-indent:-15px">Net assets acquired </div></td> <td> </td> <td align="left">$</td> <td align="right">102,707</td> <td> </td> </tr> <tr style="font-size: 1px"> <td> <div style="margin-left:15px; text-indent:-15px">  </div></td> <td> </td> <td nowrap="nowrap" colspan="2" align="right" style="border-top: 3px double #000000"> </td> <td> </td> </tr>  </table> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%"><i>Contingent consideration related to acquisitions in fiscal 2009</i> </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The purchase agreements for acquisitions completed by the Company in fiscal 2009 require possible contingent consideration payments which are not recorded as liabilities in these financial statements. For Xperianz, an Ohio-based provider of professional services acquired on May 12, 2009, the Company is required to pay up to $1.1 million in additional cash in fiscal years 2011 and 2012, provided certain revenue and gross margin milestones are met. For Kompetensslussen X-tern Personalfunktion AB, a Sweden-based provider of human capital services, the Company is required to make earn-out payments based on the achievement of certain financial results for calendar year 2010. The earn-out is two-tiered, and is subject to gross margin goals. The first tier earn-out may be up to 8.0 million Swedish Krona (SEK) and is payable equally in cash and stock of the Company; the second tier earn-out may be up to 3.0 million SEK, payable in cash. If earned, payments are to be made no later than March 31, 2011. </div> </div>  <!-- Begin Block Tagged Note false false false us-types:textBlockItemType textblock Description of a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. This element may be used as a single block of text to encapsulate the entire disclosure (including data and tables) regarding business combinations, including leverage buyout transactions (as applicable). Reference 1: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141 -Paragraph 51, 52 Reference 2: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Emerging Issues Task Force (EITF) -Number 88-16 Reference 3: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph 67-73 Reference 4: http://www.xbrl.org/2003/role/presentationRef -Publisher FASB -Name Statement of Financial Accounting Standard (FAS) -Number 141R -Paragraph F4 -Subparagraph e -Appendix F false 1 2 false UnKnown UnKnown UnKnown false true