2.2.0.25falsefalse0205 - Disclosure - Acquisitionstruefalsefalse1falsefalseUSDfalsefalse5/30/2010 - 2/26/2011 USD ($) USD ($) / shares $May-30-2010_Feb-26-2011http://www.sec.gov/CIK0001084765duration2010-05-30T00:00:002011-02-26T00:00:00USDStandardhttp://www.xbrl.org/2003/iso4217USDiso42170SharesStandardhttp://www.xbrl.org/2003/instancesharesxbrli0USDEPSDividehttp://www.xbrl.org/2003/iso4217USDiso4217http://www.xbrl.org/2003/instancesharesxbrli0USDUSD$2true0recn_AcquisitionsAbstractrecnfalsenadurationAcquisitions.falsefalsefalsefalsefalsefalsefalsefalsefalsefalse1falsefalsefalse00falsefalsefalsefalsefalseOtherxbrli:stringItemTypestringAcquisitions.falsefalseAcquisitions [Abstract]3false0us-gaap_BusinessCombinationDisclosureTextBlockus-gaaptruenadurationNo definition available.falsefalsefalsefalsefalsefalsefalsefalsefalsefalseverboselabel1falsefalsefalse00  <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 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). 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%">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>   </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%">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. During the three months ended November 27, 2010, the Company determined that based upon the first year actual results and updated probability weighted assessment of various projected EBITDA scenarios for the three years remaining in the earn-out period, that the estimated current fair value of the contingent consideration payable to Sitrick and Brincko was $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 recorded in the second quarter of fiscal 2011 increased net income by $14.0 million or $0.30 per share. During the quarter ended February 26, 2011, the Company recorded a reduction in the estimated fair value of the contingent consideration liability of $239,000, resulting from an increase in the risk-free interest rate, which is used in determining the appropriate discount factor for time value of money purposes. </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 nine months ended February 26, 2011, 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 $18.8 million to revenue and approximately $2.4 million to pre-tax earnings for the nine months ended February 26, 2011, compared to approximately $5.6 million to revenue and approximately $330,000 to pre-tax earnings for the nine months ended February 27, 2010 (Sitrick Brincko Group was acquired November 20, 2009). Pre-tax earnings include approximately $2.9 million and $1.0 million of amortization expense in the nine month periods ended February 26, 2011 and February 27, 2010, respectively, 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 at the acquisition date 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 $250,000 for customer backlog. From the acquisition date, the backlog was amortized over 13 months, the customer relationships over two years, and the trade names and non-competition agreements over five years. The goodwill related to this transaction is expected to be deductible for tax purposes over 15 years, except any contingent consideration payable at the end of the four-year earn-out will be deductible for tax purposes from the date of payment over 15 years. </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">The following table summarizes the consideration transferred to acquire Sitrick Brincko Group and the amounts of the identified assets acquired and liabilities assumed, after adjustment, at the acquisition date: </div> <div align="justify" style="font-size: 10pt; margin-top: 10pt; text-indent: 4%">Fair Value of Consideration Transferred (in thousands, except share amounts): </div> <div align="center"> <table style="font-size: 10pt; text-align: left" cellspacing="0" border="0" cellpadding="0" width="100%">  <tr valign="bottom"> <td width="86%"> </td> <td width="3%"> </td> <td width="1%"> </td> <td width="9%"> </td> <td width="1%"> </td> </tr>   <tr valign="bottom" style="background: #cceeff"> <td> <div style="margin-left:15px; text-indent:-15px">Cash </div></td> <td> </td> <td align="left">$</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>  <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%">  <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. For Kompetensslussen X-tern Personalfunktion AB, a Sweden-based provider of human capital services, the Company was required to make earn-out payments based on the achievement of certain financial results for calendar year 2010. During the third quarter of fiscal 2011, the Company determined that the revenue and gross margin criteria were met for the first tier earn-out payment and recorded a liability of approximately 3.4 million Swedish Krona (SEK), or approximately $535,000, in “accounts payable and accrued expenses” with a corresponding increase in “goodwill” in the Company’s Consolidated Balance Sheet. Subsequent to February 26, 2011, the Company paid the earn-out 50% in cash and 50% in restricted stock (approximately 14,500 shares). The criterion for the second tier earn-out payment of up to 3.0 million SEK was not met. 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. The Company currently believes it is unlikely these milestones will be achieved and no liability is recorded in these financial statements for the Xperianz earn-out. </div> </div>  <!-- 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 falsefalseAcquisitions12AcquisitionsUnKnownUnKnownUnKnownUnKnownfalsetrue