2.2.0.25falsefalse0205 - Disclosure - Acquisitionstruefalsefalse1falsefalseUSDfalsefalse5/30/2010 - 11/27/2010
USD ($)
USD ($) / shares
$May-30-2010_Nov-27-2010http://www.sec.gov/CIK0001084765duration2010-05-30T00:00:002010-11-27T00:00:00USDStandardhttp://www.xbrl.org/2003/iso4217USDiso42170SharesStandardhttp://www.xbrl.org/2003/instancesharesxbrli0USDEPSDividehttp://www.xbrl.org/2003/iso4217USDiso4217http://www.xbrl.org/2003/instancesharesxbrli0USDUSD$2true0recn_AcquisitionsAbstractrecnfalsenadurationAcquisitions.falsefalsefalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00falsefalsefalsefalsefalseOtherxbrli:stringItemTypestringAcquisitions.falsefalse3false0us-gaap_BusinessCombinationDisclosureTextBlockus-gaaptruenadurationNo definition available.falsefalsefalsefalsefalsefalsefalsefalsefalsefalseverboselabel1falsefalsefalse00<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged Note 5 - us-gaap:BusinessCombinationDisclosureTextBlock-->
<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; text-indent: 4%"><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 management consulting 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 earnings before interest, taxes,
depreciation and amortization (“EBITDA”) of Sitrick Brincko Group exceed $11.3 million, calculated
from each of the four one-year periods following the acquisition date. 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, 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 at November 28, 2009 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). 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.
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<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%">Each reporting period, the Company reviews its estimates of the fair value of contingent
consideration and any change in the estimate will be recognized in the Company’s Consolidated
Statements of Operations. Sitrick Brincko Group’s EBITDA for the first annual measurement period
was $8.9 million, approximately $2.4 million below the required base. Based upon the first year
actual results and the Company’s updated probability weighted assessment of various projected
EBITDA scenarios for the three years remaining in the earn-out period, the Company estimated the
current fair value of the contingent consideration payable to Sitrick and Brincko to be $46.2
million (inclusive of the portion potentially payable to employees discussed below), representing a
non-cash decrease of $23.7 million from the previous estimate and reflected in the Company’s
Consolidated Statements of Operations. On an after tax basis, the fair value adjustment increased
net income by $14.0 million or $0.30 per share. If Sitrick Brincko Group’s annual average EBITDA
during the four-year earn-out period exceeds $11.3 million, the Company may, in its sole
discretion, pay up to 50% of any earn-out payment in restricted stock of the Company.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">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. A future
increase in the estimated contingent consideration liability is an additional expense in the
Consolidated Statement of Operations or a future decrease in the estimated contingent liability is
a reduction in expense in the Consolidated Statement of Operations.
</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 fair value of
contingent consideration (currently estimated to be $46.2 million) 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 six months ended November 27, 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 $12.9 million to revenue and approximately
$1.9 million to pre-tax earnings for the six months ended November 27, 2010. Pre-tax earnings
include approximately $1.9 million of amortization expense in the six month period for amortizable
intangible assets of Sitrick Brincko Group.
</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 original 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 $250,000 for customer backlog. The backlog will be amortized over 13
months, the customer relationships over two years, and the trade names and non-competition
agreements over five years. The goodwill related to this transaction is expected to be deductible
for tax purposes over 15 years, except any contingent consideration payable at the end of the
four-year earn-out will be deductible for tax purposes from the date of payment over 15 years.
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the consideration transferred to acquire Sitrick Brincko Group
and the amounts of the identified assets acquired and liabilities assumed, after adjustment, at the
acquisition date:
</div>
<div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Fair Value of Consideration Transferred (in thousands, except share amounts):
</div>
<div align="center">
<table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<tr valign="bottom" style="background: #cceeff">
<td>
<div style="margin-left:15px; text-indent:-15px">Cash
</div></td>
<td> </td>
<td align="left">$</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>
<!-- End Table Body -->
</table>
</div>
<!-- Folio -->
<!-- /Folio -->
</div>
<!-- PAGEBREAK -->
<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%">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%">
<!-- Begin Table Head -->
<tr valign="bottom">
<td width="86%"> </td>
<td width="3%"> </td>
<td width="1%"> </td>
<td width="9%"> </td>
<td width="1%"> </td>
</tr>
<!-- End Table Head -->
<!-- Begin Table Body -->
<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>
<!-- End Table Body -->
</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>
<!--DOCTYPE html PUBLIC "-//W3C//DTD XHTML 1.0 Transitional//EN" "http://www.w3.org/TR/xhtml1/DTD/xhtml1-transitional.dtd" -->
<!-- Begin Block Tagged NotefalsefalsefalsefalsefalseOtherus-types:textBlockItemTypestringDescription 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
falsefalse12AcquisitionsUnKnownUnKnownUnKnownUnKnownfalsetrue