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RESOURCES CONNECTION INC - 10-Q - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.(Edgar Glimpses Via Acquire Media NewsEdge) The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our consolidated financial statements and accompanying notes. This discussion and analysis 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," "remain," "should," or "will" or the negative of these terms or other comparable terminology. These statements, and all phases of our operations, are subject to known and unknown risks, uncertainties and other factors that could cause our actual results, levels of activity, performance or achievements and those of our industry to differ materially from those expressed or implied by these forward-looking statements. You are urged to carefully review the disclosures we make concerning risks, uncertainties and other factors that may affect our business or operating results, including those identified in Part II, Item 1A.- Risk Factors below and in our Annual Report on Form 10-K for the year ended May 31, 2014 (File No. 0-32113). Additional risks and uncertainties not presently known to us or that we currently deem immaterial may also affect our business or operating results. Readers are cautioned not to place undue reliance on the forward-looking statements included herein, which speak only as the date of this filing. 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 filing or to reflect the occurrence of unanticipated events, unless required by law to do so. References in this filing to "Resources Connection," "RGP," "Resources Global Professionals," "Resources Global," the "Company," "we," "us," and "our" refer to Resources Connection, Inc. and its subsidiaries. Overview Resources Global Professionals ("RGP") is a multinational consulting firm that provides consulting and business initiative support services to its global client base in the areas of accounting; finance; corporate governance, risk and compliance management; corporate advisory, strategic communications and restructuring; information management; human capital; supply chain management; healthcare solutions; and legal and regulatory services. We assist our clients with projects requiring specialized expertise in: • Finance and accounting services including process transformation and improvement; financial reporting and analysis; technical and operational accounting; merger and acquisition due diligence; audit response; implementation of new accounting standards such as the new revenue recognition pronouncement; and remediation support; • Information management services including strategy development; program and project management; business and technology integration; data strategy, including data security and privacy; and business performance management; • Corporate advisory, strategic communications and restructuring services; • Corporate governance, risk and compliance management services including contract and regulatory compliance efforts under, for example, the Dodd-Frank Wall Street Reform and Consumer Protection Act and the Sarbanes Oxley Act of 2002 ("Sarbanes"); Enterprise Risk Management; internal controls management; and operation and IT audits; • Supply chain management services including supply chain strategy development; procurement and supplier management; logistics and materials management; supply chain planning and forecasting; and Conflict Minerals and Unique Device Identification compliance; • Human capital services including change management; organization development and effectiveness; and optimization of human resources technology and operations; and • Legal and regulatory services with projects, secondments or major events needs including commercial transactions; compliance initiatives; law department operations and business strategy; and litigation support. We were founded in June 1996 by a team at Deloitte, led by our executive chairman, Donald B. Murray, who was then a senior partner with Deloitte. Our founders created Resources Connection to capitalize on the increasing demand for high quality outsourced professional services. We operated as a part of Deloitte from our inception in June 1996 until April 1999. In April 1999, we completed a management-led buyout in partnership with several investors. In December 2000, we completed our initial public offering of common stock and began trading on the NASDAQ Stock Market. We currently trade on the NASDAQ Global Select Market. In January 2005, we announced the change of our operating entity name to Resources Global Professionals to better reflect the Company's multinational capabilities, and during fiscal 2013, we redesigned our logo and adopted the acronym RGP for branding and marketing purposes. We operated solely in the United States until fiscal year 2000, when we opened our first three international offices and began to expand geographically to meet the demand for project professional services across the world. As of August 30, 2014, we served clients from offices in 20 countries, including 24 international offices and 45 offices in the United States. 15-------------------------------------------------------------------------------- Table of Contents Critical Accounting Policies The following discussion and analysis of our financial condition and results of operations are based upon our Consolidated Financial Statements, which have been prepared in accordance with generally accepted accounting principles in the United States ("GAAP"). The preparation of these financial statements requires us to make estimates and judgments 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. The following represents a summary of our critical accounting policies, defined as those policies that we believe: (a) are the most important to the portrayal of our financial condition and results of operations and (b) involve inherently uncertain issues that require management's most difficult, subjective or complex judgments. There have been no material changes in our critical accounting policies, or in the estimates and assumptions underlying those policies, from those described in our Annual Report on Form 10-K for the year ended May 31, 2014, except that we have discontinued the disclosures related to contingent consideration as we currently have no obligations related to contingent purchase price consideration. Valuation of long-lived assets - We assess the potential impairment of long-lived tangible and intangible assets periodically or whenever events or changes in circumstances indicate that the carrying value may not be recoverable. Our goodwill and certain other intangible assets are not subject to periodic amortization. These assets are considered to have an indefinite life and their carrying values are required to be assessed by us for impairment at least annually. Depending on future market values of our stock, our operating performance and other factors, these assessments could potentially result in impairment reductions of these intangible assets in the future and this adjustment may materially affect the Company's future financial results and financial condition. Allowance for doubtful accounts - We maintain an allowance for doubtful accounts for estimated losses resulting from our clients failing to make required payments for services rendered. We estimate this allowance based upon our knowledge of the financial condition of our clients (which may not include knowledge of all significant events), review of historical receivable and reserve trends and other pertinent information. While such losses have historically been within our expectations and the provisions established, we cannot guarantee that we will continue to experience the same credit loss rates that we have in the past. A significant change in the liquidity or financial position of our clients could cause unfavorable trends in receivable collections and additional allowances may be required. These additional allowances could materially affect the Company's future financial results. Income taxes - In order to prepare our Consolidated Financial Statements, we are required to make estimates of income taxes, if applicable, in each jurisdiction in which we operate. The process incorporates an assessment of any current tax exposure together with temporary differences resulting from different treatment of transactions for tax and financial statement purposes. These differences result in deferred tax assets and liabilities that are included in our Consolidated Balance Sheets. The recovery of deferred tax assets from future taxable income must be assessed and, to the extent recovery is not likely, we will establish a valuation allowance. An increase in the valuation allowance results in recording additional tax expense and any such adjustment may materially affect the Company's future financial result. If the ultimate tax liability differs from the amount of tax expense we have reflected in the Consolidated Statements of Operations, an adjustment of tax expense may need to be recorded and this adjustment may materially affect the Company's future financial results and financial condition. Revenue recognition - We primarily charge our clients on an hourly basis for the professional services of our consultants. We recognize revenue once services have been rendered and invoice the majority of our clients in the United States on a weekly basis. Some of our clients served by our international operations are billed on a monthly basis. Our clients are contractually obligated to pay us for all hours billed. To a much lesser extent, we also earn revenue if a client hires one of our consultants. This type of contractually non-refundable revenue is recognized at the time our client completes the hiring process. Stock-based compensation - Under our 2004 Performance Incentive Plan, officers, employees, and outside directors have received grants of restricted stock, stock units, options to purchase common stock or other stock or stock-based awards. Under our Employee Stock Purchase Plan ("ESPP"), eligible officers and employees may purchase our common stock in accordance with the terms of the plan. The Company estimates a value for employee stock options on the date of grant using an option-pricing model. We have elected to use the Black-Scholes valuation option-pricing model which takes into account assumptions regarding a number of highly complex and subjective variables. These variables include the expected stock price volatility over the term of the awards and actual and projected employee stock option exercise behaviors. Additional variables to be considered are the expected term, expected dividends and the risk-free interest rate over the expected term of our employee stock options. In addition, because stock-based compensation expense recognized in the Consolidated Statements of Operations is based on awards ultimately expected to vest, it is reduced for estimated forfeitures. Forfeitures must be estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from those estimates. Forfeitures are estimated based on historical experience. If facts and circumstances change and we employ different assumptions in future periods, the compensation expense recorded may differ materially from the amount recorded in the current period. 16-------------------------------------------------------------------------------- Table of Contents The Company uses its historical volatility over the expected life of the stock option award to estimate the expected volatility of the price of its common stock. The risk-free interest rate assumption is based upon observed interest rates appropriate for the term of our employee stock options. The impact of expected dividends ($0.08 per share for the first quarter of fiscal 2015 and $0.07 per share for each quarter of fiscal 2014) is also incorporated in determining the estimated value per share of employee stock option grants. Such dividends are subject to quarterly declaration by our board of directors. The Company's historical expected life of stock option grants is 5.5 years for non-officers and 7.5 years for officers. The Company reviews the underlying assumptions related to stock-based compensation at least annually. We base our estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities. Actual results may differ from these estimates under different assumptions or conditions. Results of Operations The following tables set forth, for the periods indicated, our Consolidated Statements of Operations data. These historical results are not necessarily indicative of future results. Three Months Ended August 30, August 24, 2014 2013 (Amounts in thousands) Revenue $ 143,447 $ 131,704 Direct cost of services 87,222 81,994 Gross margin 56,225 49,710 Selling, general and administrative expenses 44,279 41,612 Amortization of intangible assets 424 417 Depreciation expense 854 961 Income from operations 10,668 6,720 Interest income (38 ) (39 ) Income before provision for income taxes 10,706 6,759 Provision for income taxes 5,311 3,106 Net income $ 5,395 $ 3,653 We also assess the results of our operations using EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin. EBITDA is defined as our earnings before interest, taxes, depreciation and amortization. We define Adjusted EBITDA as EBITDA plus stock-based compensation expense and contingent consideration adjustments (if any). Adjusted EBITDA Margin is calculated by dividing Adjusted EBITDA by revenue. These measures assist management in assessing our core operating performance. The following table presents EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin for the periods indicated and includes a reconciliation of such measures to net income, the most directly comparable GAAP financial measure: Three Months Ended August 30, August 24, 2014 2013 (Amounts in thousands) Net income $ 5,395 $ 3,653 Adjustments: Amortization of intangible assets 424 417 Depreciation expense 854 961 Interest income (38 ) (39 ) Provision for income taxes 5,311 3,106 EBITDA 11,946 8,098 Stock-based compensation expense 1,546 1,654 Adjusted EBITDA $ 13,492 $ 9,752 Revenue $ 143,447 $ 131,704 Adjusted EBITDA Margin 9.4 % 7.4 % 17 -------------------------------------------------------------------------------- Table of Contents The financial measures and key performance indicators we use to assess our financial and operating performance above are not defined by, or calculated in accordance with, GAAP. A non-GAAP financial measure is defined as a numerical measure of a company's financial performance that (i) excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the comparable measure calculated and presented in accordance with GAAP in the Consolidated Statements of Operations; or (ii) includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the comparable measure so calculated and presented. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are non-GAAP financial measures. We believe that EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin provide useful information to our investors because they are financial measures used by management to assess the core performance of the Company. EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin are not measurements of financial performance or liquidity under GAAP and should not be considered in isolation or construed as substitutes for net income or other cash flow data prepared in accordance with GAAP for purposes of analyzing our profitability or liquidity. These measures should be considered in addition to, and not as a substitute for, net income, earnings per share, cash flows or other measures of financial performance prepared in conformity with GAAP. Further, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin have the following limitations: • Although depreciation and amortization are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future and EBITDA and Adjusted EBITDA do not reflect any cash requirements for such replacements; • Equity based compensation is an element of our long-term incentive compensation program, although we exclude it as an expense from Adjusted EBITDA when evaluating our ongoing operating performance for a particular period; and • Other companies in our industry may calculate Adjusted EBITDA and Adjusted EBITDA Margin differently than we do, limiting their usefulness as comparative measures. Due to these limitations, EBITDA, Adjusted EBITDA and Adjusted EBITDA Margin should not be considered a substitute for performance measures calculated in accordance with GAAP. Three Months Ended August 30, 2014 Compared to Three Months Ended August 24, 2013 Computations of percentage change period over period are based upon our results, as rounded and presented herein. Revenue. Revenue increased $11.7 million, or 8.9%, to $143.4 million for the three months ended August 30, 2014 from $131.7 million for the three months ended August 24, 2013. We deliver our services to clients in a similar fashion across the globe; however, in the first quarter of fiscal 2015 as compared to the same period of fiscal 2014, revenue increased in North America by 13.3% and Asia Pacific by 1.5% but declined in Europe by 12.9%. In light of continuing global economic uncertainty, we believe that our global clients and prospects are initiating operational improvement projects cautiously, resulting in reduced levels of consulting spending, particularly in certain European markets. The number of hours worked in the first quarter of fiscal 2015 increased approximately 11.3% compared with the prior year first quarter while average bill rates were down 2.4%. Average bill rates (as well as pay rates) were partially impacted this quarter by the commencement of a significant client engagement in the Philippines where bill/pay rates are lower than most metropolitan areas. The number of consultants on assignment as of August 30, 2014 was 2,434 compared to 2,237 consultants engaged as of August 24, 2013. We operated 69 (24 abroad) and 73 (26 abroad) offices as of August 30, 2014 and August 24, 2013, respectively; the decrease quarter-over-quarter is a result of consolidating certain offices. Our clients do not sign long-term contracts with us. As such, there can be no assurance as to future demand levels for the services that we provide or that future results can be reliably predicted by considering past trends. Revenue for the Company's practice areas across the globe consisted of the following (amounts in thousands): Revenue for the Three Months Ended % of Total August 30, August 24, August 30, August 24, 2014 2013 % Change 2014 2013 North America $ 118,511 $ 104,621 13.3 % 82.6 % 79.4 % Europe 15,500 17,791 (12.9 )% 10.8 13.5 Asia Pacific 9,436 9,292 1.5 % 6.6 7.1 Total $ 143,447 $ 131,704 8.9 % 100.0 % 100.0 % 18 -------------------------------------------------------------------------------- Table of Contents Our financial results are subject to fluctuations in the exchange rates of foreign currencies in relation to the United States dollar. Revenues denominated in foreign currencies are translated into United States dollars at the monthly average exchange rates in effect during each quarter. Thus, as the value of the United States dollar fluctuates relative to the currencies of our non-United States based operations, our revenue can be impacted. Using the comparable first quarter fiscal 2014 conversion rates, international revenues would have been lower than reported under GAAP by $466,000 in the first quarter of fiscal 2015. Direct Cost of Services. Direct cost of services increased $5.2 million, or 6.3%, to $87.2 million for the three months ended August 30, 2014 from $82.0 million for the three months ended August 24, 2013. The increase in the amount of direct cost of services was attributable to an 11.3% increase in the number of hours worked in the first quarter of fiscal 2015 as compared to the same period of fiscal 2014, partially offset by a 3.1% decrease in the average pay rate per hour between the two quarters. The direct cost of services percentage of revenue was 60.8% and 62.3% for the three months ended August 30, 2014 and August 24, 2013, respectively. The decrease in the direct cost of services percentage of revenue between the quarters resulted primarily from one paid holiday in the first quarter of fiscal 2015 compared to two paid holidays in the first quarter of fiscal 2014, a favorable change in the bill rate/pay rate ratio in the first quarter of fiscal 2015 and lower healthcare costs. Our target direct cost of services percentage is 60% for all of our offices. Selling, General and Administrative Expenses. Selling, general and administrative expense ("S, G & A") as a percentage of revenue was 30.9% and 31.6% for the quarters ended August 30, 2014 and August 24, 2013, respectively. S, G & A increased to $44.3 million for the first quarter of fiscal 2015 from $41.6 million for the same period in the prior year. The increase in S, G & A was primarily attributable to an increase in marketing costs, including a global client service meeting in June, headcount additions in offices experiencing growth and severance charges of $700,000 related to our European operations. Management and administrative headcount increased from 712 at the end of the first quarter of fiscal 2014 to 731 at the end of the first quarter of fiscal 2015. Sequential Operations. On a sequential quarter basis, fiscal 2015 first quarter revenues decreased approximately 8.5%, from $156.8 million to $143.4 million, primarily attributable to a decrease in billable hours between the two periods. Billable hours worked decreased 7.1%, while bill rates were down 1.6%. The decrease in hours worked is primarily attributable to the 14 weeks of activity in the fourth quarter of fiscal 2014 as compared to the 13 weeks of activity in the first quarter of fiscal 2015. Excluding the 14th week of revenues, the decrease in total revenue on a sequential quarter basis was 2.4%. Revenue during the extra week was approximately $9.8 million, including the Memorial Day holiday. The Company's sequential revenue decreased in North America (7.1%), Europe (18.4%) and Asia Pacific (6.9%). The direct cost of services percentage of revenue increased from 61.1% in the fourth quarter of fiscal 2014 to 60.8% in the first quarter of fiscal 2015. The improvement in the first quarter of fiscal 2015 was primarily the result of decreasing amounts of employer payroll taxes as the calendar year progresses and an improvement in the bill rate/pay rate ratio. In addition, the fourth quarter direct cost of services included approximately $331,000 related to the European headcount reductions that affected consultants; there were no consultant severance costs that affected direct cost of services in the first quarter of fiscal 2015. The ratio of S, G & A to revenue increased from 29.5% for the quarter ended May 31, 2014 to 30.9% for the quarter ended August 30, 2014, due to reduced leverage as a result of lower revenue in the first quarter of fiscal 2015. Total S, G & A spending decreased primarily due to 13 weeks of activity in the first quarter of fiscal 2015 as compared to 14 weeks in the fourth quarter of fiscal 2014 and approximately $900,000 less in severance related expenses. Amortization and Depreciation Expense. Amortization of intangible assets was relatively flat at $424,000 for the three months ended August 30, 2014 compared to $417,000 for the three months ended August 24, 2013. The slight change is the result of exchange rate fluctuations related to amortization of intangible assets denominated in a foreign currency. Based upon identified intangible assets recorded at August 30, 2014, the Company anticipates amortization expense related to identified intangible assets to be approximately $407,000 during the quarter ending November 29, 2014; the amount may fluctuate depending upon foreign currency translation rates in effect during the quarter. Depreciation expense was $854,000 for the three months ended August 30, 2014 compared to $961,000 for the three months ended August 24, 2013. Depreciation expense decreased as a number of assets were fully depreciated during fiscal 2014 and the Company reduced the amount invested in new property and equipment purchases in recent years. Interest Income. Interest income was $38,000 in the first quarter of fiscal 2015 compared to $39,000 in the first quarter of fiscal 2014. The Company has invested available cash in certificates of deposit, money market investments and commercial paper that have been classified as cash equivalents due to the short maturities of these investments. As of August 30, 2014, the Company also has $25.0 million of investments in commercial paper and certificates of deposit with maturity dates between three months and one year from the balance sheet date classified as short-term investments and considered "held-to-maturity" securities. 19-------------------------------------------------------------------------------- Table of Contents Income Taxes. The Company's provision for income taxes was $5.3 million (effective tax rate of approximately 50%) and $3.1 million (effective tax rate of approximately 46%) for the three months ended August 30, 2014 and August 24, 2013, respectively. The Company records tax expense based upon an actual effective tax rate versus a forecasted tax rate because of the volatility in its international operations which span numerous tax jurisdictions. The provision for income taxes in the first quarter of fiscal 2015 and 2014 results from taxes on income in the United States and certain other foreign jurisdictions, no benefit for losses in jurisdictions in which a full valuation allowance on operating loss carryforwards had previously been established and a lower benefit for losses in certain foreign jurisdictions with tax rates lower than the United States statutory rates. In addition, the inability to benefit from losses in jurisdictions with a full valuation allowance and the unpredictability of the timing and amount of eligible disqualifying incentive stock option ("ISO") exercises impact the Company's effective tax rate. The period to period increase in the effective tax rate resulted primarily from the increased foreign losses, including severance charges, without any tax benefit because of the valuation allowances. In addition, the period to period increase also results from the reversal of $350,000 of uncertain international tax accruals during the first quarter ended August 24, 2013. Periodically, the Company reviews the components of both book and taxable income to analyze the adequacy of the tax provision. Due to lower benefit from the United States statutory rate for losses in certain foreign jurisdictions, the limitation on the benefit for losses in jurisdictions in which a valuation allowance for operating loss carryforwards has previously been established, and the unpredictability of timing and the amount of eligible disqualifying ISO exercises, there can be no assurance that the Company's effective tax rate will remain constant in the future. The Company cannot recognize a tax benefit for the stock compensation expense related to certain ISO grants unless and until the holder exercises his or her option and then sells the shares within a certain period of time. In addition, the Company can only recognize a potential tax benefit for employees' acquisition and subsequent sale of shares purchased through the ESPP if the sale occurs within a certain defined period. As a result, the Company's provision for income taxes is likely to fluctuate from these factors for the foreseeable future. Further, those tax benefits associated with ISO grants fully vested at the date of adoption of the current accounting rules governing stock awards will be recognized as additions to paid-in capital when and if those options are exercised and not as a reduction to the Company's tax provision. The Company recognized a benefit of approximately $586,000 and $590,000 related to stock-based compensation for nonqualified stock options expensed and for eligible disqualifying ISO exercises during the first quarter of fiscal 2015 and 2014, respectively. The proportion of expense related to non-qualified stock option grants (for which the Company may recognize a tax benefit in the same quarter as the related compensation expense in most instances) is significant as compared to expense related to ISOs (including ESPPs). However, the timing and amount of eligible disqualifying ISO exercises cannot be predicted. The Company predominantly grants nonqualified stock options to employees in the United States. Comparability of Quarterly Results. Our quarterly results have fluctuated in the past and we believe they will continue to do so in the future. Certain factors that could affect our quarterly operating results are described in Part II, Item 1A.-Risk Factors. Due to these and other factors, we believe that quarter-to-quarter comparisons of our results of operations may not be meaningful indicators of future performance. Liquidity and Capital Resources Our primary source of liquidity is cash provided by our operations and, historically, to a lesser extent, stock option exercises and ESPP purchases. On an annual basis, we have generated positive cash flows from operations since inception. Our ability to continue to increase positive cash flow from operations in the future will be, at least in part, dependent on improvement in global economic conditions. As of August 30, 2014, the Company had $100.1 million of cash, cash equivalents and short-term investments. The Company has a $3.0 million unsecured revolving credit facility with Bank of America (the "Credit Agreement"). The Credit Agreement allows the Company to choose the interest rate applicable to advances. The interest rate options are Bank of America's prime rate and a London Inter-Bank Offered Rate plus 2.25%. Interest, if any, is payable monthly. The Credit Agreement expires November 30, 2014. The Company currently intends to renew the agreement following its expiration. As of August 30, 2014, the Company had approximately $1.6 million available for borrowing under the terms of the Credit Agreement as we have directed Bank of America to issue approximately $1.4 million of outstanding letters of credit for the benefit of third parties related to operating leases and guarantees. 20-------------------------------------------------------------------------------- Table of Contents Operating activities used $8.7 million in cash for the three months ended August 30, 2014 compared to being a source of cash of $5.3 million for the three months ended August 24, 2013. Cash used in operations in the first three months of fiscal 2015 resulted from net income of $5.4 million and non-cash items of $2.6 million, offset by net unfavorable changes in operating assets and liabilities of $16.7 million. In the first three months of fiscal 2014, cash provided by operations resulted from net income of $3.7 million and non-cash items of $2.6 million, offset by net unfavorable changes in operating assets and liabilities of $1.0 million. Non-cash items in both years include depreciation and amortization (which decreased between the two periods as certain property and equipment was fully depreciated by the end of fiscal 2014) and stock-based compensation expense (which decreased between the two periods); these charges do not reflect an actual cash outflow from the Company. The primary operating asset/liability change between the two periods was the change in accrued salaries and related obligations as of August 30, 2014 compared to the May 31, 2014 balances versus the change in the same classifications in the previous year. This is primarily the result of the change in timing of bi-weekly compensation when the fourth quarter of fiscal 2014 contained the extra fourteenth week and an increase in payments under the Company's bonus incentive plan. Net cash provided by investing activities was $8.6 million for the first three months of fiscal 2015, while net cash used in investing activities was $1.4 million in the comparable prior year period. Cash used in purchases of short-term investments (primarily commercial paper) was less than cash received from redemption of short-term investments in the first three months of fiscal 2015 by approximately $9.0 million; the amount of investments and purchases were equal in the first three months of fiscal 2014. Purchases of property and equipment decreased approximately $1.0 million between the two periods. Net cash used in financing activities totaled $4.9 million for the three months ended August 30, 2014, compared to $1.6 million for the three months ended August 24, 2013. Proceeds from the exercise of employee stock options and issuance of shares via the Company's ESPP were approximately $1.5 million less in fiscal 2015 compared to the same period in fiscal 2014. In addition, the Company used approximately $1.5 million more on purchases of its common stock in fiscal 2015 as compared to fiscal 2014. The Company used $5.7 million in the first three months of fiscal 2015 to purchase approximately 383,000 shares of its common stock on the open market versus $4.2 million in the first three months of the prior fiscal year to purchase approximately 312,000 shares of its common stock. The Company also paid dividends on its common stock of $2.7 million in the first three months of fiscal 2015, approximately $300,000 higher than the year before; this change is due to the increase in the Company's dividend rate to $0.07 per common share in fiscal 2014 (final payment at that rate made in first quarter of fiscal 2015), as compared to $0.06 per common share in the previous quarters of fiscal 2013. The Company's board of directors declared a quarterly cash dividend of $0.08 per common share on August 5, 2014. The dividend of approximately $3.0 million, paid on September 25, 2014, is accrued in the Company's Consolidated Balance Sheet as of August 30, 2014. Our ongoing operations and anticipated growth in the geographic markets we currently serve will require us to continue to make investments in office premises and capital equipment, primarily technology hardware and software. In addition, we may consider making strategic acquisitions. We anticipate that our current cash and the ongoing cash flows from our operations will be adequate to meet our working capital and capital expenditure needs for at least the next 12 months. If we require additional capital resources to grow our business, either internally or through acquisition, we may seek to sell additional equity securities or to secure debt financing. The sale of additional equity securities or certain forms of debt financing could result in additional dilution to our stockholders. We may not be able to obtain financing arrangements in amounts or on terms acceptable to us in the future. In the event we are unable to obtain additional financing when needed, we may be compelled to delay or curtail our plans to develop our business or to pay dividends on our capital stock, which could have a material adverse effect on our operations, market position and competitiveness. Recent Accounting Pronouncements Information regarding recent accounting pronouncements is contained in Note 10 to the Consolidated Financial Statements included in Part I, Item 1 of this Quarterly Report on Form 10-Q. Off-Balance Sheet Arrangements The Company has no off-balance sheet arrangements. 21-------------------------------------------------------------------------------- Table of Contents |