##### Table of Contents

---

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



---



FORM 10-K



FOR ANNUAL AND TRANSITION REPORTS

PURSUANT TO SECTIONS 13 OR 15(d) OF THE

SECURITIES EXCHANGE ACT OF 1934



(Mark One)

|x | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ------------------------------------------------------------------------------------



For the fiscal year ended May 31, 2004



OR



| ̈ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
|- | ----------------------------------------------------------------------------------------



For the transition period from
 to



Commission File Number: 0-32113



---



RESOURCES CONNECTION, INC.

(Exact Name of Registrant as Specified in Its Charter)



---



|                                                               |  |                                     
|-------------------------------------------------------------- |  | ------------------------------------
|Delaware                                                       |  | 33-0832424                          
|(State or Other Jurisdiction of Incorporation or Organization) |  | (I.R.S. Employer Identification No.)



695 Town Center
Drive, Suite 600, Costa Mesa, California 92626

(Address of principal executive offices) (Zip Code)



Registrants telephone number, including area code: (714) 430-6400



Securities registered pursuant to Section 12(b) of the
Act:

None.



Securities registered pursuant to Section 12(g) of the Act:



Title of each class

Common Stock, $0.01 par value



---



Indicate by check mark whether the Registrant: (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes x No ̈



Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrants knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ̈



Indicate by check mark whether the Registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes x No ̈



As of November 28, 2003, the
approximate aggregate market value of common stock held by non-affiliates of the Registrant was $571,635,000 (based upon the closing price for shares of the Registrants common stock as reported by The Nasdaq National Market). As of August 5,
2004, there were approximately 23,320,698 shares of common stock, $.01 par value, outstanding.



DOCUMENTS INCORPORATED BY REFERENCE



The Registrants definitive Proxy Statement for the 2004 Annual Meeting of Stockholders, is incorporated by reference in Part III of this Form 10-K to the extent stated herein.



---



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



TABLE OF
CONTENTS



|         |  |                                                                                                             |  |         
|-------- |  | ----------------------------------------------------------------------------------------------------------- |  | --------
|         |  |                                                                                                             |  | Page No.
|         |  | PART I                                                                                                      |  |         
|         |  |                                                                                                            
|ITEM 1.  |  | BUSINESS                                                                                                    |  | 1       
|         |  |                                                                                                            
|ITEM 2.  |  | PROPERTIES                                                                                                  |  | 13      
|         |  |                                                                                                            
|ITEM 3.  |  | LEGAL PROCEEDINGS                                                                                           |  | 14      
|         |  |                                                                                                            
|ITEM 4.  |  | SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS                                                         |  | 14      
|         |  |                                                                                                            
|         |  | PART II                                                                                                     |  |         
|         |  |                                                                                                            
|ITEM 5.  |  | MARKET FOR REGISTRANTS COMMON EQUITY, RELATEDSTOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES |  | 14      
|         |  |                                                                                                            
|ITEM 6.  |  | SELECTED FINANCIAL DATA                                                                                     |  | 16      
|         |  |                                                                                                            
|ITEM 7.  |  | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS                       |  | 17      
|         |  |                                                                                                            
|ITEM 7A. |  | QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK                                                  |  | 33      
|         |  |                                                                                                            
|ITEM 8.  |  | FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA                                                                 |  | 34      
|         |  |                                                                                                            
|ITEM 9.  |  | CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE                        |  | 55      
|         |  |                                                                                                            
|ITEM 9A. |  | CONTROLS AND PROCEDURES                                                                                     |  | 55      
|         |  |                                                                                                            
|         |  | PART III                                                                                                    |  |         
|         |  |                                                                                                            
|ITEM 10. |  | DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT                                                          |  | 55      
|         |  |                                                                                                            
|ITEM 11. |  | EXECUTIVE COMPENSATION                                                                                      |  | 55      
|         |  |                                                                                                            
|ITEM 12. |  | SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS ANDMANAGEMENT AND RELATED STOCKHOLDER MATTERS               |  | 56      
|         |  |                                                                                                            
|ITEM 13. |  | CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS                                                              |  | 56      
|         |  |                                                                                                            
|ITEM 14. |  | PRINCIPAL ACCOUNTANT FEES AND SERVICES                                                                      |  | 56      
|         |  |                                                                                                            
|         |  | PART IV                                                                                                     |  |         
|         |  |                                                                                                            
|ITEM 15. |  | EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K                                             |  | 57      



In this Report on Form
10-K, Resources Connection, company, we, us and our refer to the business of Resources Connection, Inc. and its subsidiaries. References in this Report on Form 10-K to fiscal,
year or fiscal year refer to our fiscal years that consist of the 52- or 53-week period ending on the Saturday in May closest to May 31.



i



---



---

##### Table of Contents

This Report on Form 10-K, including information incorporated herein by reference, contains
forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements relate to expectations concerning matters
that are not historical facts. Such forward-looking statements may be identified by words such as anticipates, believes, can, continue, could, estimates, expects,
intends, may, plans, potential, predicts, should, or will or the negative of these terms or other comparable terminology. These statements and all phases of our
operations are subject to known and unknown risks, uncertainties and other factors, some of which are identified herein. Readers are cautioned not to place undue reliance on these forward-looking statements. Our actual results, levels of activity,
performance or achievements and those of our industry may be materially different from any future results, levels of activity, performance or achievements expressed or implied by these forward-looking statements. We undertake no obligation to update
the forward-looking statements in this filing.



ii



---



---

##### Table of Contents

PART I



ITEM 1.    BUSINESS



Overview



Resources Connection is an
international professional services firm that provides experienced accounting and finance, risk management and internal audit, information technology, human resources and supply chain management professionals to clients on a project basis. We assist
our clients with discrete projects requiring specialized expertise in accounting and finance, such as mergers and acquisitions due diligence, financial analyses (e.g., product costing and margin analyses), corporate reorganizations and tax-related
projects. In addition, we provide human resources management services, such as compensation program design and implementation, information technology services, such as transitions of management information systems, and internal audit services, such
as documenting internal controls. We also assist our clients with periodic needs such as budgeting and forecasting, audit preparation, public reporting and with their compliance efforts under the Sarbanes-Oxley Act of 2002 (Sarbanes).



We were founded in June 1996 by a team at Deloitte &
Touche LLP (Deloitte & Touche), led by our current chief executive officer, Donald B. Murray, who was then a senior partner with Deloitte & Touche. Additional founding members include our current chief financial officer, Stephen
J. Giusto, then also a Deloitte & Touche partner, and Karen M. Ferguson, the current regional managing director of our Northeast practice offices. Our founders created Resources Connection to capitalize on the increasing demand for high
quality outsourced professional services. We operated as a division of Deloitte & Touche from our inception in June 1996 until January 1997. From January 1997 until April 1999, we operated as a subsidiary of Deloitte & Touche. In April 1999,
we completed a management-led buyout. Prior to the management-led buyout, we were unable to provide certain accounting services to audit clients of Deloitte & Touche due to regulatory constraints applicable to us as a part of a Big Four
accounting firm. Subsequent to the management-led buyout, we were able to expand the scope of services we provide to our clients. The Company is an independent company which is no longer affiliated with Deloitte & Touche.



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



As of May 31, 2004, we employed approximately 2,100 professional service associates on assignment. Our associates have professional experience in a wide
range of industries and functional areas. Based upon an internal, annual survey conducted in late calendar year 2003, to which approximately 47% of all then active associates responded, 49% of respondents were CPAs, 37% had advanced professional
degrees, and the average years of professional experience was about 18. We offer our associates careers that combine the flexibility of project-based work with many of the advantages of working for a traditional professional services firm.



We have served a diverse client base of over 1,600 clients
during fiscal 2004, ranging from large corporations to mid-sized companies to small entrepreneurial entities, in a broad range of industries. For example, our clients include approximately half of the Fortune 100, which accounted for approximately
11.1% and 15.2% of our revenues in fiscal 2004 and 2003, respectively, and all of the Big Four accounting firms. We have grown revenues from $71.4 million in fiscal 1999 to $328.3 million in fiscal 2004, a five-year compounded annual growth rate, or
CAGR, of 35.7% and our income from operations over the same period has increased from



1



---



---

##### Table of Contents

$9.1 million to $40.5 million, a five-year CAGR of 34.8%. We have been profitable every year since our inception. As of May 31, 2004, we served our clients
through 49 offices in the United States and 15 offices abroad. During fiscal 2004, we completed three transactions that increased our ability to serve clients throughout the world. In fiscal 2004, $265.3 million, $43.8 million and $19.2 million of
our revenues were generated in the United States, in the Netherlands and in other countries, respectively, compared with fiscal 2003 revenue of $194.0 million and $8.0 million generated in the United States and other countries, respectively.



The three transactions completed in the first quarter of
fiscal 2004 enhance our international presence as well as our ability to assist clients with the compliance efforts under Sarbanes. The largest of the three was the all cash acquisition for $29.8 million of the outstanding capital shares of Ernst
& Youngs subsidiary, Executive Temporary Management BV (ETM) in the Netherlands on July 15, 2003. ETM, renamed Resources Connection.NL BV (RC.NL), is considered a market leader in the interim management industry in
the Netherlands. We believe this acquisition provides a foundation in continental Europe and allows us to market to our current and prospective multinational clients seeking an alternative to Big Four firms, particularly in light of concerns about
auditor independence. RC.NL has seven offices in the Netherlands and contracted with, or employed, over 240 professional service associates as of May 31, 2004.



In addition to the international expansion driven by the acquisition of RC.NL, we also acquired the operations of Deloitte Re:sources Pty Ltd. from
Deloitte Touche Tohmatsu Australia in an all cash deal for $1 million on June 1, 2003. We originally launched the subsidiary, now renamed Resources Connection Australia Pty. Ltd., in 1998 on behalf of the Deloitte Touche Tohmatsu Australia firm. The
acquisition presented the opportunity to expand our Asia Pacific presence.



Finally, in July 2003, we acquired for $2 million the company that developed policyIQTM, a web-based solution for internal controls documentation and content management. The purchase included upfront cash and provision for contingent payments based on sales volume. policyIQ is a tool that our clients can use to assist
in complying with Sarbanes, among other initiatives.



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



Industry Background



Demand for Project Professional Services



Resources Connections services address a range of professional areas,
with a majority of revenues derived from accounting and finance related services. The market for professional services is broad, and independent data on the size of the market is fragmented. For instance, a recent study published by Staffing
Industry Analysts, Inc. estimates the size of the professional sector of the U.S. staffing market at $81.8 billion in 2004, but this is just a measure of the staffing component of professional services. Other components include, but are not limited
to, CPA services and consulting services, each of which address multibillion dollar markets. Because of the corporate scandals documented in the media over the last few years, we believe the market for professional services is changing rapidly and
that companies may be willing to choose alternatives to traditional professional service providers. We believe Resources Connection is a viable alternative to traditional accounting and consulting firms in numerous instances because, by using
project professionals, companies can:



| |  | strategically access specialized skills and expertise;
| | - | ------------------------------------------------------



| |  | effectively supplement internal resources;
| | - | ------------------------------------------



2



---



---

##### Table of Contents

| |  | increase labor flexibility; and
| | - | -------------------------------



| |  | reduce their overall hiring and training costs.
| | - | -----------------------------------------------



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



Supply of Project Professionals



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



| |  | more flexible hours and work arrangements, coupled with competitive wages and benefits and a professional culture;
| | - | ------------------------------------------------------------------------------------------------------------------



| |  | challenging engagements that advance their careers, develop their skills and add to their experience base; and
| | - | --------------------------------------------------------------------------------------------------------------



| |  | a work environment that provides a diversity of, and more control over, client engagements.
| | - | -------------------------------------------------------------------------------------------



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



Resources Connection Solution



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



| |  | a relationship-oriented approach to assess our clients project needs;
| | - | ----------------------------------------------------------------------



| |  | highly qualified professionals with the requisite skills and experience;
| | - | ------------------------------------------------------------------------



| |  | competitive rates on an hourly, instead of a per project, basis; and
| | - | --------------------------------------------------------------------



| |  | significant client control of their projects.
| | - | ---------------------------------------------



3



---



---

##### Table of Contents

Resources Connection Strategy



Our Business Strategy



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



| |  | Maintain our distinctive culture. Our corporate culture is central to our business strategy and we believe has been a significant component of our success. Our senior management,
virtually all of whom are Big Four alumni, has created a culture that combines the commitment to quality and the client service focus of a Big Four firm with the entrepreneurial energy of an innovative, high-growth company. We seek associates and
management with talent, integrity, enthusiasm and loyalty (TIEL) to strengthen our team and support our ability to provide clients with high-quality services. We believe that our culture has been instrumental to our success in hiring and
retaining highly qualified associates and, in turn, attracting clients.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Hire and retain highly qualified, experienced associates. We believe our highly qualified, experienced associates provide us with a distinct competitive advantage. Therefore, one of
our priorities is to continue to attract and retain high-caliber associates. We believe we have been successful in attracting and retaining qualified professionals by providing challenging work assignments, competitive compensation and benefits, and
continuing education and training opportunities, while offering flexible work schedules and more control over choosing client engagements.
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Build consultative relationships with clients. We emphasize a relationship-oriented approach to business rather than a transaction-oriented or assignment-oriented approach. We
believe the professional services experience of our management and associates enables us to understand the needs of our clients and to deliver an integrated, relationship-oriented approach to meeting their professional services needs. We regularly
meet with our existing and prospective clients to understand their business issues and help them define their project needs. Once a project is defined, we identify associates with the appropriate skills and experience to meet the clients
needs. We believe that by establishing relationships with our clients to solve their professional services needs, we are more likely to generate new opportunities to serve them. The strength of our client relationships is demonstrated by the fact
that all of our largest 50 clients in fiscal 2003 remained clients in fiscal 2004.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Build the Resources Connection brand. Our objective is to build Resources Connections reputation as the premier provider of project-based professional services. Our primary
means of building our brand is by consistently providing high-quality, value-added services to our clients. We have also focused on building a significant referral network through our approximately 2,100 associates on assignment as of May 31, 2004
and over 450 management employees, most of whom have established relationships with a number of potential clients. In addition, we have ongoing national and local marketing efforts that reinforce the Resources Connection brand. These efforts include
continuing our advertising campaign that commenced in the fourth quarter of fiscal 2002 in targeted business publications.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Our Growth Strategy



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



| |  | Expanding work from existing clients. A principal component of our strategy is to secure additional project work from the clients we have served. We believe, based
on discussions with our clients, that the amount of revenue we currently receive from most of our clients represents a relatively small percentage
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



4



---



---

##### Table of Contents

| | of the amount they spend on professional services, and that, consistent with industry trends, they may continue to increase the amount they spend on these
services. We believe that by continuing to deliver high-quality services and by further developing our relationships with our clients, we will capture a significantly larger share of our clients expenditures for professional services.
| | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Growing our client base. We will continue to focus on attracting new clients. We plan to develop new client relationships primarily by leveraging the significant contact networks of
our management and associates and through referrals from existing clients. In addition, we believe we will attract new clients by building our brand name and reputation and through our national and local marketing efforts. During this past year, we
have seen more revenue growth within larger, existing clients, though we also experienced the addition of new middle market clients. The total number of clients served in 2004 was over 1,600 versus 1,200 in 2003. We anticipate that our growth
efforts this year will continue to focus on identifying strategic target accounts that tend to be large companies.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Expanding geographically. We plan to expand geographically to meet the demand for project professional services. We believe that there are significant opportunities to grow our
business internationally and, consequently, we intend to continue to expand our international presence on a strategic and opportunistic basis. We also expect to add to our existing domestic office network with a few new offices strategically located
to meet the needs of our existing clients and to create additional new client opportunities.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | Providing additional professional services lines. We will continue to explore, and consider entry into, new professional services lines. Since fiscal 1999, we have diversified our
professional services lines by entering into the areas of human resources management, information technology, internal audit and supply chain management. Our considerations when evaluating new professional services lines include growth potential,
profitability, cross-marketing opportunities and competition.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Associates



We believe that an important
component of our success has been our highly qualified and experienced associates. As of May 31, 2004, we employed approximately 2,100 associates on assignment. Our associates have professional experience in a wide range of industries and functional
areas. We provide our associates with challenging work assignments, competitive compensation and benefits, and continuing education and training opportunities, while offering flexible work schedules and more control over choosing client engagements.



Our associates in the United States are primarily employees of
Resources Connection. We typically pay each associate an hourly rate, overtime premiums as required by law, and offer benefits, including paid vacation and holidays; referral bonus programs; group medical, dental and vision programs, each with an
approximate 50% contribution by the associate; a basic term life insurance program; a matching 401(k) retirement plan; and professional development and career training. Typically, an associate must work a threshold number of hours to be eligible for
all of the benefits. We also have a long-term incentive plan for our associates, that provides the opportunity to earn an annual cash bonus vesting over time. In addition, we offer our associates the ability to participate in the Companys
Employee Stock Purchase Plan. We intend to maintain competitive compensation and benefit programs.



Internationally, our associates are a mix between employees and independent contractors. Such arrangements are more common due to the laws and customs of
the international markets we serve.



Clients



We provide our services to a diverse client base in a broad range of
industries. In fiscal 2004, we served over 1,600 clients. Our revenues are not concentrated with any particular client or clients, or within any particular industry. In fiscal 2004, no single client accounted for more than 6% of our revenue and our
10 largest clients accounted for approximately 25% of our revenues.



5



---



---

##### Table of Contents

The clients listed below represent the geographic and industry diversity of our client base in fiscal
2004.



|                                       |  |                                                   
|-------------------------------------- |  | --------------------------------------------------
|American Honda Financial Corporation   |  | El Paso Corporation                               
|Blue Shield of California              |  | Exelon Corporation                                
|C&H Sugar                              |  | Great West Life and Annuity Life Insurance Company
|CB Richard Ellis                       |  | PepsiCo Inc.                                      
|Conoco Phillips                        |  | Siemens Corporation                               
|Credit Suisse First Boston Corporation |  | Southwest Airlines                                
|Dolby Laboratories, Inc                |  | Toshiba America Electronic Components, Inc.       



Services



Our current professional services capabilities include accounting and
finance, risk management and internal audit, information technology, human resources and supply chain management. In fiscal 2004, our revenue from providing accounting and finance services accounted for a majority of our revenue. Our engagements are
project-based and often last three months or longer.



Accounting and Finance



Our accounting and finance services include:



Special Projects:Our accounting and finance associates
work on a variety of special projects including:



| |  | financial analyses, such as product costing and margin analyses;
| | - | ----------------------------------------------------------------



| |  | tax-related projects, such as tax compliance and analysis of tax liabilities resulting from acquisitions; and
| | - | -------------------------------------------------------------------------------------------------------------



| |  | resolving complex accounting problems, such as large out-of-balance accounts and unreconciled balances.
| | - | -------------------------------------------------------------------------------------------------------



Sample Engagement:We provided five associates over a 12-month period to assist a large non-profit health
plan in creating a uniform chart of accounts in preparation for an ERP financial system implementation. Our associates were responsible for:



| |  | acting as a liaison between functional and technical user groups;
| | - | -----------------------------------------------------------------



| |  | managing project plans for the respective areas affected by the chart of accounts changes including all financial systems, human resources groups and supply chain departments; and
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | developing the change management plan.
| | - | --------------------------------------



MD&A - Divestitures and Carve Outs:  Our accounting and finance associates assist with the following functions for clients involved
in divestitures and carve outs:



| |  | preparation of public filings related to the transactions;
| | - | ----------------------------------------------------------



| |  | preparation for carve out audits; and
| | - | -------------------------------------



| |  | providing subject matter experts to perform technical research of complex accounting transactions, implementations and interpretations of pronouncements of the Financial Accounting
Standards Board (FASB).
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



6



---



---

##### Table of Contents

Sample Engagement:We have provided more than 20 associates to assist a large energy
client with the divestiture of a business unit and the sale of other significant assets. The project included three project teams each led by a seasoned project manager assigned to oversee the delivery of our services and provide subject matter
expertise. Our associates were responsible for:



| |  | preparing financial statements in accordance with generally accepted accounting principles (GAAP) and related footnotes for carve out businesses;
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------



| |  | performing net book value calculations for assets sold and subsequent reconciliation and retirement of sold assets;
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | preparing Securities and Exchange Commission (SEC) and other regulatory filings associated with the transactions;
| | - | -------------------------------------------------------------------------------------------------------------------



| |  | performing research of technical GAAP accounting issues related to the transaction;
| | - | -----------------------------------------------------------------------------------



| |  | project management of the Sarbanes implementation for the divested business unit; and
| | - | -------------------------------------------------------------------------------------



| |  | pre and post divestiture integration balance sheet cleanup.
| | - | -----------------------------------------------------------



ERP Implementations and Conversions:  Our accounting and finance associates work on a variety of projects that arise when a company
implements or converts to a new system including:



| |  | project management;
| | - | -------------------



| |  | assisting with technical support;
| | - | ---------------------------------



| |  | performing ERP implementations;
| | - | -------------------------------



| |  | developing and executing training programs;
| | - | -------------------------------------------



| |  | change management; and
| | - | ----------------------



| |  | maintaining daily operations during the implementation.
| | - | -------------------------------------------------------



Sample Engagement:  We provided 11 associates over a two-year period to assist a leading producer, marketer and distributor of refined
sugar products in the western United States in a SAP implementation. The system conversion impacted accounting and finance, human resources, customer service, planning, warehouse management, production and operations. Our associates were responsible
for:



| |  | developing, documenting and evaluating business requirements;
| | - | -------------------------------------------------------------



| |  | leading the vendor selection process, including vendor negotiations and management;
| | - | -----------------------------------------------------------------------------------



| |  | project management of the ERP implementation;
| | - | ---------------------------------------------



| |  | providing technical support and guidance to the implementation team;
| | - | --------------------------------------------------------------------



| |  | assisting with change management, leadership and communication;
| | - | ---------------------------------------------------------------



| |  | performing pre and post conversion tests;
| | - | -----------------------------------------



| |  | designing training programs and managing the training function;
| | - | ---------------------------------------------------------------



| |  | management of system optimization; and
| | - | --------------------------------------



| |  | maintaining daily accounting and finance operations during the implementation and conversion process in order to minimize disruption to the organization.
| | - | ---------------------------------------------------------------------------------------------------------------------------------------------------------



7



---



---

##### Table of Contents

Human Resources Management



Our human resources management professional services group was formed in June 1999. Our human resources management services
include:



| |  | supporting day-to-day human resources (HR) operations;
| | - | --------------------------------------------------------



| |  | selecting, implementing and optimizing HR Technology;
| | - | -----------------------------------------------------



| |  | assisting with optimizing a companys workforce; and
| | - | ----------------------------------------------------



| |  | providing interim human resources management.
| | - | ---------------------------------------------



Sample Engagement:  A client that needed to restate its financials identified that it was necessary to reorganize and optimize its
financial and accounting team. Our HR associates assisted by:



| |  | helping to create a new, centralized organizational chart;
| | - | ----------------------------------------------------------



| |  | writing job descriptions;
| | - | -------------------------



| |  | integrating the new jobs with the companys compensation structure;
| | - | -------------------------------------------------------------------



| |  | mapping the employees to the new roles; and
| | - | -------------------------------------------



| |  | designing and implementing programs to train the employees or to help them exit the company.
| | - | --------------------------------------------------------------------------------------------



Sample Engagement:  As a client neared the end of an update of its internal control documentation, it
identified the need to communicate the changes to the diverse workforce. Our HR associates assisted by:



| |  | creating a change management and communication plan;
| | - | ----------------------------------------------------



| |  | facilitating seminars; and
| | - | --------------------------



| |  | developing a feedback mechanism to collect responses to the training.
| | - | ---------------------------------------------------------------------



As that company began to implement its shared services organization, we provided a training expert to help with team development and change management.



Information Technology



Our information technology professional services group was formed in June
1998. Our information management services include:



| |  | financial system/enterprise resource planning implementation and post implementation optimization;
| | - | --------------------------------------------------------------------------------------------------



| |  | human resource information system (HRIS) implementation and integration; and
| | - | ------------------------------------------------------------------------------



| |  | supporting analytical systems such as consolidation and budgeting and planning tools.
| | - | -------------------------------------------------------------------------------------



Sample Engagement:  We provided four associates over a six-month period to redesign the reporting process
and re-implement an enterprise-wide software application for a diversified international manufacturing corporation. The challenge included managing the complexities of balancing United States financial accounting reporting, international financial
accounting reporting and internal operational reporting while creating as little disruption as possible to the users. Our team included a project manager, a technical expert and report writing specialists. Our associates were responsible for:



| |  | creating new reports to satisfy statutory and operational requirements and streamlining and rationalizing 400 existing reports;
| | - | -------------------------------------------------------------------------------------------------------------------------------



8



---



---

##### Table of Contents

| |  | re-implementing a chart of accounts to support reporting requirements of diverse operational segments;
| | - | ------------------------------------------------------------------------------------------------------



| |  | executing a communication plan to educate and create buy-in with the users; and
| | - | -------------------------------------------------------------------------------



| |  | completing other special projects such as legal entity rationalization.
| | - | -----------------------------------------------------------------------



Sample Engagement:  A highly decentralized banking client was challenged to shorten its close process and improve the accuracy of its
financial reporting and needed assistance in selecting a system to meet these objectives. Resources associates:



| |  | assisted with creating system selection criteria which would encompass Sarbanes section 404 and 409 requirements;
| | - | -----------------------------------------------------------------------------------------------------------------



| |  | managed the system selection process;
| | - | -------------------------------------



| |  | provided project management through the implementation phase; and
| | - | -----------------------------------------------------------------



| |  | assisted with follow up documentation to ensure ongoing compliance with federal regulations.
| | - | --------------------------------------------------------------------------------------------



Resources Audit Solutions (RAS): Internal Audit, Internal Controls and Sarbanes-Oxley Services



Our RAS subsidiary was formed in June 2002 to assist our clients with a
variety of governance-related projects, including:



| |  | assisting internal audit departments with the execution of audit plans, assessing risk management practices and special projects;
| | - | ---------------------------------------------------------------------------------------------------------------------------------



| |  | assisting clients with the development of a process designed to more effectively and efficiently distribute, monitor and manage financial reportingrelated policies utilizing
policyIQ, our proprietary web-based solution for enterprise-wide policy development and management. policyIQ is a
tool that clients can use to assist with policy management and compliance programs, including regulations associated with Sarbanes; and
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | assisting clients around the world with compliance efforts related to Sarbanes, including: project management support; documenting existing business processes, practices, workflows
and identifying internal controls; testing internal controls; remediation of deficiencies, including changes to policies and procedures; and planning and implementation of an ongoing Sarbanes compliance process for subsequent years.
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Sample Engagement:  We provided
42 associates, covering eight countries over a two-month period, to assist a global conglomerate with the execution of its global internal audit plan. Our associates were responsible for:



| |  | working under the direction of the corporate internal audit function; and
| | - | -------------------------------------------------------------------------



| |  | executing audit testing of selected business units around the world.
| | - | --------------------------------------------------------------------



Sample Engagement:  We are supporting an initiative to automate the financial reporting policy distribution and management process for a
Fortune 500 conglomerate, implementing policyIQ.



Sample
Engagement:  Serving as one of two external service providers (the other is a Big Four firm), we provided 30 associates to assist a Fortune 500 financial services company with their Sarbanes compliance efforts. Our associates worked
with eight business units in ten global locations to assist client teams with various elements of Sarbanes compliance, including:



| |  | documenting existing business processes, practices, and workflows;
| | - | ------------------------------------------------------------------



9



---



---

##### Table of Contents

| |  | testing selected internal controls within those processes;
| | - | ----------------------------------------------------------



| |  | performing selected elements of project management within the clients project management office;
| | - | -------------------------------------------------------------------------------------------------



| |  | executing remediation efforts; and
| | - | ----------------------------------



| |  | planning for the following year compliance documentation and testing.
| | - | ---------------------------------------------------------------------



Supply Chain Management



We purchased The Procurement Centre in October 2002. The practice was renamed Resources Connection Supply Chain Management in fiscal year 2004. Our supply
chain management services include:



| |  | providing qualified supply chain professionals with a variety of skill-sets and backgrounds including: working as sourcing team members, leading strategic sourcing efforts,
negotiating contracts, serving as commodity/category experts, developing strategies and performing tactical purchasing;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | performing evaluation and execution of processes, procedures, policies and organizational design in the supply chain management and procurement functions of large corporations;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | offering a variety of supply chain management solutions, including strategic sourcing, inventory rationalization, supplier diversity assistance, ERP implementations and procurement
card programs; and
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | presenting a variety of onsite training and education seminars to keep customers updated on the latest trends in purchasing and supply chain management.
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------



Sample Engagement:  For a global chemical manufacturer, our
associate reviewed the current organization, supply chain processes, tools and methods utilized by each of six chemical plants located in North America. Our associate produced the following:



| |  | plant comparison matrix;
| | - | ------------------------



| |  | listing of major issues and risks;
| | - | ----------------------------------



| |  | as-is process maps by plant;
| | - | ------------------------------



| |  | proposed high-level to-be process maps; and
| | - | ---------------------------------------------



| |  | proposed organization structure, metrics, reports and transition plan.
| | - | ----------------------------------------------------------------------



Sample Engagement:  Over the past year, we have provided associates who have assisted a Fortune 500 transportation company by:



| |  | serving as subject matter experts for strategic sourcing initiatives in the freight and print spend areas; and
| | - | --------------------------------------------------------------------------------------------------------------



| |  | leading strategic sourcing initiatives for information technology and other critical spend areas.
| | - | -------------------------------------------------------------------------------------------------



Sample Engagement:  Over a six-month period, we provided an entire curriculum of supply chain management
training and education courses for a Fortune 500 retailer, training approximately 70 client professionals. Courses included:



| |  | contract writing;
| | - | -----------------



| |  | strategic planning;
| | - | -------------------



| |  | analytical methods and strategic sourcing;
| | - | ------------------------------------------



10



---



---

##### Table of Contents

| |  | advanced purchasing and supply chain management techniques; and
| | - | ---------------------------------------------------------------



| |  | negotiation skills.
| | - | -------------------



Operations



We generally
provide our professional services to clients at a local level, with the oversight and consultation of our corporate management team, located in our corporate service center, and our regional managing directors. The managing director, client service
director(s) and recruiting director(s) in each office are responsible for initiating client relationships, identifying associates specifically skilled to perform client projects, ensuring client and associate satisfaction throughout engagements and
maintaining client relationships post-engagement. Throughout this process, the corporate management team and regional managing directors are available to consult with the managing director with respect to client services.



Our offices are operated in a decentralized, entrepreneurial manner. The
managing directors of our offices are given significant autonomy in the daily operations of their respective offices, and with respect to such offices, are responsible for overall guidance and supervision, budgeting and forecasting, sales and
marketing, pricing and hiring. We believe that a substantial portion of the buying decisions made by our clients are made on a local or regional basis and that our offices most often compete with other professional services providers on a local or
regional basis. Because our managing directors are in the best position to understand the local and regional outsourced professional services market and because clients often prefer local relationships, we believe that a decentralized operating
environment maximizes operating performance and contributes to employee and client satisfaction.



We believe that our ability to successfully deliver professional services to clients is dependent on our managing directors working together as a
collegial and collaborative team, at times working jointly on client projects. To build a sense of team effort and increase camaraderie among our managing directors, we have an incentive program for our office management that awards annual bonuses
based on both the performance of the company and the performance of the directors particular office. In addition, most members of our office management own equity in our company. We also have a managing director program whereby new managing
directors attend a regularly scheduled series of seminars led by experienced managing directors. This program allows the veteran managing directors to share their success stories, foster the culture of the Company with the new managing directors and
review specific client and associate development programs. We believe these team-based practices enable us to better serve clients who prefer a centrally organized service approach.



From our corporate headquarters in Costa Mesa, California, we provide our domestic and some international offices with
centralized administrative, human resources, marketing, finance and legal support. Our corporate service center handles billing, accounts payable and accounts receivable, and administers human resources including employee compensation and benefits.
In addition, we have a corporate networked information technology platform with centralized financial reporting capabilities and a front office client management system. These centralized functions minimize the administrative burdens on our office
management and allow them to spend more time focused on client and associate development. Our practice in the Netherlands provides its own administrative, marketing, finance and legal support and some of our other international practices subcontract
these services.



Business Development



Our business development initiatives are composed of:



| |  | local sales initiatives focused on existing clients and target companies;
| | - | -------------------------------------------------------------------------



| |  | brand marketing activities; and
| | - | -------------------------------



| |  | national and local direct mail programs.
| | - | ----------------------------------------



11



---



---

##### Table of Contents

Our business development efforts are driven by the networking and sales efforts of our management. The
managing directors and client service directors in our offices develop a list of potential clients and key existing clients. In addition, the directors are assisted by management professionals focused on business development efforts on a national
basis. These business development professionals, teamed with the managing directors and client service group, are responsible for initiating and fostering relationships with the senior management of our targeted client companies. These local efforts
are supplemented with national marketing assistance. We believe that these efforts have been effective in generating incremental revenues from existing clients and developing new client relationships.



Our brand marketing initiatives help develop Resources Connections
image in the markets we serve. Our brand is reinforced by our professionally designed website, brochures and pamphlets, direct mail, public relations efforts and advertising materials. We believe that our branding initiatives coupled with our
high-quality client service differentiate us from our competitors and establish Resources Connection as a credible and reputable professional services firm.



Our national marketing group develops our direct mail campaigns to focus on our targeted client and associate populations. These campaigns are intended to
support our branding, sales and marketing, and associate hiring initiatives.



Competition



We operate in a competitive,
fragmented market and compete for clients and associates with a variety of organizations that offer similar services. Our principal competitors include:



| |  | consulting firms;
| | - | -----------------



| |  | independent contractors;
| | - | ------------------------



| |  | loaned employees of the Big Four firms;
| | - | ---------------------------------------



| |  | traditional and Internet-based staffing firms and their specialized divisions; and
| | - | ----------------------------------------------------------------------------------



| |  | the in-house resources of our clients.
| | - | --------------------------------------



We compete for clients on the basis of the quality of professionals, the timely availability of professionals with requisite skills, the scope and price
of services, and the geographic reach of services. We believe that our attractive value proposition, consisting of our highly qualified associates, relationship-oriented approach and professional culture, enables us to differentiate ourselves from
our competitors. Although we believe we compete favorably with our competitors, many of our competitors have significantly greater financial resources, generate greater revenues and have greater name recognition than our company.



Employees



As of May 31, 2004, we had a total of 2,550 employees, including 464 corporate and office-level employees and 2,086
professional services associates. None of our employees is covered by a collective bargaining agreement.



Available Information



The Companys principal executive offices are located at 695 Town Center Drive, Suite 600, Costa Mesa, California 92626. The Companys telephone number is (714) 430-6400 and its web site address is
http://www.resourcesconnection.com. The information set forth in the web site does not constitute part of



12



---



---

##### Table of Contents

this Report on Form 10-K. We file our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K pursuant to Section 13(a)
or 15(d) of the Securities Exchange Act of 1934 with the SEC electronically. The public may read or copy any materials we file with the SEC at the SECs Public Reference Room at 450 Fifth Street, NW, Washington, DC 20549. The public may obtain
information on the operation of the Public Reference Room by calling the SEC at 1-800-SEC-0330. The SEC maintains a web site that contains reports, proxy and information statements, and other information regarding issuers that file electronically
with the SEC. The address of that site is http://www.sec.gov.



A free copy of our annual reports on Form 10-K, quarterly reports on Form 10-Q, and current reports on Form 8-K and amendments to those reports may be obtained as soon as reasonably practicable after we file such reports with the SEC on our
website at http://www.resourcesconnection.com.



ITEM 2.    PROPERTIES



As of May 31, 2004, we maintained a total of 49 domestic offices, a few with multiple office locations in the same city, which are located in the following metropolitan areas:



|                          |  |                           |  |                           
|------------------------- |  | ------------------------- |  | --------------------------
|Phoenix, Arizona          |  | Boise, Idaho              |  | Cincinnati, Ohio          
|Costa Mesa, California    |  | Chicago, Illinois         |  | Cleveland, Ohio           
|Los Angeles, California   |  | Indianapolis, Indiana     |  | Columbus, Ohio            
|Sacramento, California    |  | Baltimore, Maryland       |  | Portland, Oregon          
|Santa Clara, California   |  | Boston, Massachusetts     |  | Philadelphia, Pennsylvania
|San Diego, California     |  | Detroit, Michigan         |  | Pittsburgh, Pennsylvania  
|San Francisco, California |  | Minneapolis, Minnesota    |  | Nashville, Tennessee      
|Walnut Creek, California  |  | Kansas City, Missouri     |  | Austin, Texas             
|Denver, Colorado          |  | St. Louis, Missouri       |  | Dallas, Texas             
|Hartford, Connecticut     |  | Las Vegas, Nevada         |  | Fort Worth, Texas         
|Stamford, Connecticut     |  | Parsippany, New Jersey    |  | Houston, Texas            
|Jacksonville, Florida     |  | Princeton, New Jersey     |  | San Antonio, Texas        
|Orlando, Florida          |  | Long Island, New York     |  | Seattle, Washington       
|Tampa, Florida            |  | New York, New York        |  | Milwaukee, Wisconsin      
|Atlanta, Georgia          |  | Syracuse, New York        |  | Washington, D.C.          
|Honolulu, Hawaii          |  | Charlotte, North Carolina |  |                           



As of May 31, 2004, we
maintained 15 international offices, which are located in the following cities and countries:



|                     |  |                                       |  |                        |  |                       
|-------------------- |  | ------------------------------------- |  | ---------------------- |  | ----------------------
|Melbourne, Australia |  | Hong Kong, Peoples Republic of China |  | Amsterdam, Netherlands |  | Groningen, Netherlands
|Sydney, Australia    |  | Taipei, Taiwan                        |  | Apeldoorn, Netherlands |  | Maarssen, Netherlands 
|Toronto, Canada      |  | Birmingham, United Kingdom            |  | Den Haag, Netherlands  |  | Rotterdam, Netherlands
|Tokyo, Japan         |  | London, United Kingdom                |  | Eindhoven, Netherlands |  |                       



Our corporate offices
are located in Costa Mesa, California office in a 19,048 square foot facility under a lease expiring in June 2007.



13



---



---

##### Table of Contents

ITEM 3.    LEGAL PROCEEDINGS



We are not currently subject to any material legal proceedings; however, we are a party to various legal proceedings arising in the ordinary course of our business.



ITEM 4.    SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS



No matters were submitted to a vote of security holders during the fourth quarter of fiscal 2004.



PART II



ITEM 5.    MARKET FOR REGISTRANTS COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES



Price Range of Common Stock



Our common stock has traded on the Nasdaq National Market under the symbol RECN since December 15, 2000. Prior to that time, there was no
public market for our common stock. The approximate number of holders of record of our common stock as of May 31, 2004 was 326.



The following table sets forth the range of high and low closing sales prices reported on the Nasdaq National Market for our common stock for the periods
indicated.



|                                                    |  |                             |       |     |   |      
|--------------------------------------------------- |  | --------------------------- | ----- | --- | - | -----
|                                                    |  | Price Range of Common Stock
|                                                    |  | High                        |       | Low
|                                                    |  |                            
|Fiscal 2003:                                        |  |                             |       |     |   |      
|First Quarter                                       |  | $                           | 27.30 |     | $ | 16.50
|Second Quarter                                      |  | $                           | 19.00 |     | $ | 11.57
|Third Quarter                                       |  | $                           | 23.21 |     | $ | 16.54
|Fourth Quarter                                      |  | $                           | 23.54 |     | $ | 17.81
|                                                    |  |                            
|Fiscal 2004:                                        |  |                             |       |     |   |      
|First Quarter                                       |  | $                           | 28.30 |     | $ | 20.35
|Second Quarter                                      |  | $                           | 29.03 |     | $ | 24.09
|Third Quarter                                       |  | $                           | 36.06 |     | $ | 26.72
|Fourth Quarter                                      |  | $                           | 44.94 |     | $ | 32.80
|                                                    |  |                            
|Fiscal 2005:                                        |  |                             |       |     |   |      
|First Quarter (June 1, 2004 through August 5, 2004) |  | $                           | 46.70 |     | $ | 35.09



Dividend Policy



We have never declared or paid any cash dividends on our capital stock. We
will periodically evaluate our cash position and may declare a special dividend if we deem our cash to be excessive. We currently intend to retain any future earnings to finance the growth and development of our business and do not anticipate paying
any cash dividends in the foreseeable future. Any future determination to pay cash dividends will be at the discretion of our board of directors and will depend upon our financial condition, results of operations, capital requirements, general
business condition, contractual restrictions contained in other agreements, and other factors deemed relevant by our board of directors.



14



---



---

##### Table of Contents

Issuances of Unregistered Securities



On October 11, 2002, the Company entered into an Asset Purchase Agreement (the Agreement), with RC Transaction
Corp., a wholly owned subsidiary of the Company (RC), The Procurement Centre, LLC (the Seller), and certain members of the Seller, pursuant to which RC acquired certain assets and liabilities of the Seller. As part of the
consideration, on October 11, 2002, the Company issued 116,000 shares of its common stock to the Seller. The Agreement valued such shares at approximately $1,504,000.



The issuance of the common stock by the Company to the Seller was a transaction not involving a public offering, and is
exempt from registration pursuant to Section 4(2) of the Securities Act of 1933, as amended. The facts relied on to make this exemption available include, without limitation, the following: (i) the offering did not involve any general solicitation
or advertising; (ii) the offering was made to the Seller solely in connection with the acquisition of the assets of the Seller; (iii) the Company obtained representations from the members of the Seller regarding, among other things, investment
intent, status as accredited investors, and access to information.



15



---



---

##### Table of Contents

ITEM 6.    SELECTED FINANCIAL DATA



You should read the following selected historical consolidated financial data in conjunction with our consolidated financial statements and related notes beginning on page 34 and Managements Discussion and
Analysis of Financial Condition and Results of Operations appearing on page 17. The consolidated statements of income data for the years ended May 31, 2001 and May 31, 2000 and the consolidated balance sheet data at May 31, 2002, 2001 and 2000
were derived from our consolidated financial statements that have been audited by PricewaterhouseCoopers LLP and are not included in this Report on Form 10-K. The consolidated statements of income data for the years ended May 31, 2004, 2003 and 2002
and the consolidated balance sheet data at May 31, 2004 and 2003 were derived from our consolidated financial statements that have been audited by PricewaterhouseCoopers LLP and are included elsewhere in this Report on Form 10-K. Historical results
are not necessarily indicative of results that may be expected for any future periods.



|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|---------------------------------------------------------- |  | ----------------------------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | - |  | ---- | ------- | - |  | - | -------
|                                                           |  | YEARS ENDED MAY 31,                                              
|                                                           |  | 2004                                                              |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000
|                                                           |  | (in thousands, except net income per common share and other data)
|Consolidated Statements of Income Data:                    |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|                                                           |  |                                                                   |         |   |     
|Revenue                                                    |  | $                                                                 | 328,333 |   |      | $ | 202,022 |      |  | $ | 181,677 |   |  | $    | 191,496 |   |  | $ | 127,459
|Direct cost of services                                    |  |                                                                   | 199,870 |   |      |   | 121,648 |      |  |   | 108,715 |   |  |      | 112,555 |   |  |   | 74,668 
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Gross profit                                               |  |                                                                   | 128,463 |   |      |   | 80,374  |      |  |   | 72,962  |   |  |      | 78,941  |   |  |   | 52,791 
|Selling, general and administrative expenses               |  |                                                                   | 84,301  |   |      |   | 58,248  |      |  |   | 50,688  |   |  |      | 49,964  |   |  |   | 34,648 
|Amortization of intangible assets                          |  |                                                                   | 1,716   |   |      |   | 655     |      |  |   | 125     |   |  |      | 2,273   |   |  |   | 2,231  
|Depreciation expense                                       |  |                                                                   | 1,907   |   |      |   | 1,290   |      |  |   | 1,180   |   |  |      | 866     |   |  |   | 285    
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Income from operations                                     |  |                                                                   | 40,539  |   |      |   | 20,181  |      |  |   | 20,969  |   |  |      | 25,838  |   |  |   | 15,627 
|Interest income                                            |  |                                                                   | (593    | ) |      |   | (1,077  | )    |  |   | (1,183  | ) |  |      | (633    | ) |  |   | -      
|Interest expense                                           |  |                                                                   | -       |   |      |   | -       |      |  |   | -       |   |  |      | 3,629   |   |  |   | 4,717  
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Income before provision for income taxes                   |  |                                                                   | 41,132  |   |      |   | 21,258  |      |  |   | 22,152  |   |  |      | 22,842  |   |  |   | 10,910 
|Provision for income taxes                                 |  |                                                                   | 16,798  |   |      |   | 8,716   |      |  |   | 8,861   |   |  |      | 9,137   |   |  |   | 4,364  
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Net income                                                 |  | $                                                                 | 24,334  |   |      | $ | 12,542  |      |  | $ | 13,291  |   |  | $    | 13,705  |   |  | $ | 6,546  
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|                                                           |  |                                                                   |         |   |     
|Net income per common share:                               |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Basic                                                      |  | $                                                                 | 1.06    |   |      | $ | 0.57    |      |  | $ | 0.63    |   |  | $    | 0.77    |   |  | $ | 0.42   
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Diluted                                                    |  | $                                                                 | 1.00    |   |      | $ | 0.55    |      |  | $ | 0.58    |   |  | $    | 0.71    |   |  | $ | 0.42   
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|                                                           |  |                                                                   |         |   |     
|Weighted average common shares outstanding:                |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Basic                                                      |  |                                                                   | 22,992  |   |      |   | 21,849  |      |  |   | 21,241  |   |  |      | 17,864  |   |  |   | 15,630 
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Diluted                                                    |  |                                                                   | 24,390  |   |      |   | 22,869  |      |  |   | 22,862  |   |  |      | 19,421  |   |  |   | 15,714 
|                                                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|Other Data:                                                |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|                                                           |  |                                                                   |         |   |     
|Number of offices opened at end of period                  |  |                                                                   | 64      |   |      |   | 55      |      |  |   | 47      |   |  |      | 44      |   |  |   | 35     
|Total number of associates on assignment atend of period   |  |                                                                   | 2,086   |   |      |   | 1,175   |      |  |   | 1,060   |   |  |      | 1,283   |   |  |   | 1,056  
|                                                           | 
|                                                           |  | MAY 31,                                                          
|                                                           |  | 2004                                                              |         |   | 2003 |   |         | 2002 |  |   | 2001    |   |  | 2000
|Consolidated Balance Sheet Data:                           |  |                                                                   |         |   |      |   |         |      |  |   |         |   |  |      |         |   |  |   |        
|                                                           |  |                                                                   |         |   |     
|Cash, cash equivalents and long-term marketable securities |  | $                                                                 | 69,839  |   |      | $ | 68,078  |      |  | $ | 55,745  |   |  | $    | 34,503  |   |  | $ | 4,490  
|Working capital                                            |  |                                                                   | 78,528  |   |      |   | 60,177  |      |  |   | 43,135  |   |  |      | 42,965  |   |  |   | 7,664  
|Total assets                                               |  |                                                                   | 226,263 |   |      |   | 155,937 |      |  |   | 130,588 |   |  |      | 105,345 |   |  |   | 70,106 
|Long-term debt, including current portion                  |  |                                                                   | -       |   |      |   | -       |      |  |   | -       |   |  |      | -       |   |  |   | 41,771 
|Stockholders equity                                       |  |                                                                   | 180,334 |   |      |   | 133,531 |      |  |   | 113,471 |   |  |      | 86,032  |   |  |   | 17,185 



16



---



---

##### Table of Contents

ITEM 7.    MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS



The following discussion and analysis of our financial condition and results of operations should be read in conjunction with our financial statements and
related notes. This discussion and analysis contains forward-looking statements that involve risks and uncertainties. Our actual results could differ materially from those anticipated in these forward-looking statements as a result of certain
factors including, but not limited to, those discussed in Risk Factors starting on page 27 and elsewhere in this Report on Form 10-K.



Overview



Resources Connection is an international professional services firm that provides experienced accounting and finance, risk management and internal audit, information technology, human resources and supply chain
management professionals to clients on a project basis. We assist our clients with discrete projects requiring specialized expertise in accounting and finance, such as mergers and acquisitions due diligence, financial analyses (e.g., product costing
and margin analyses), corporate reorganizations and tax-related projects. In addition, we provide human resources management services, such as compensation program design and implementation, information technology services, such as transitions of
management information systems, and internal audit services, such as documenting internal controls. We also assist our clients with periodic needs such as budgeting and forecasting, audit preparation, public reporting and with their compliance
efforts under the Sarbanes-Oxley Act of 2002 (Sarbanes).



We began operations in June 1996 as a division of Deloitte & Touche and operated as a wholly owned subsidiary of Deloitte & Touche from January 1997 until April 1999. In November 1998, our management formed RC Transaction Corp.,
renamed Resources Connection, Inc., to raise capital for an intended management-led buyout. In April 1999, we completed the management-led buyout in partnership with, among others, an investor, Evercore Partners, Inc. In December 2000, we completed
our initial public offering of common stock and began trading on the Nasdaq National Market.



Growth in revenue, to date, has generally been the result of establishing offices in major markets. We established nine offices during fiscal 1997, our initial fiscal year, all in the Western United States. In fiscal
1998, we established nine additional offices, which extended our geographic reach to the Midwest and Eastern United States. For the year ended May 31, 1999, we opened ten more offices and established a new service line in information technology. In
fiscal 2000, we established four more domestic offices, established a new service line in human resources management and also began operations in Toronto, Canada; Taipei, Taiwan; and Hong Kong, Peoples Republic of China. In fiscal 2001, we
established nine additional domestic offices. In fiscal 2002, we began operations in London, England and opened two more domestic offices. In addition, we purchased an interim management division of one of the Big Four accounting firms in the United
Kingdom.



During fiscal 2003, we commenced operations of
Resources Audit Solutions, LLC (RAS), an entity focused primarily on providing internal audit services, and we acquired The Procurement Centre, LLC (now operating as our Resources Connection Supply Chain Management subsidiary
(SCM)), a Texas based provider of supply chain management services to companies on a project basis. We opened six offices domestically during fiscal 2003 and an office in Birmingham, England.



During fiscal 2003, we also started a practice named Resources Consulting
Group, LP (RCG). This entity focused on expanding our executive compensation consulting practice. In October 2003, the employees of RCG left Resources Connection to work for another employer and their office was subsequently closed.
Services provided by RCG continue to be provided by the other operating units of Resources Connection. No material impact on operations has been experienced because of this change.



17



---



---

##### Table of Contents

During the first quarter of fiscal 2004, we completed three transactions to enhance our international
presence as well as our ability to assist clients with compliance efforts under Sarbanes. The largest of the three was the all cash acquisition for $29.8 million of the outstanding capital shares of Ernst & Youngs subsidiary, Executive
Temporary Management BV (ETM) in the Netherlands on July 15, 2003. ETM, renamed Resources Connection.NL BV (RC.NL), is considered a market leader in the interim management industry in the Netherlands. We believe this
acquisition provides a foundation in continental Europe and will allow us to market to our current and prospective multinational clients seeking an alternative to Big Four firms, particularly in light of concerns about auditor independence. RC.NL
has seven offices in the Netherlands and contracted with, or employed, over 240 professional service associates on assignment as of May 31, 2004.



In addition to the European expansion driven by the acquisition of RC.NL, we also acquired the operations of Deloitte Re:sources Pty Ltd. from Deloitte
Touche Tohmatsu Australia in an all cash deal for $1 million on June 1, 2003. We originally launched the subsidiary, now renamed Resources Connection Australia Pty. Ltd., in 1998 on behalf of the Deloitte Touche Tohmatsu Australia firm. The
acquisition presented the opportunity to expand our Asia Pacific presence.



Finally, in July 2003, we acquired the company that developed policyIQ, a web-based solution for internal controls documentation and content management. The purchase included upfront cash of $2 million and a provision
for contingent payments based on sales volume. policyIQ is a tool that our clients can use to assist in complying with Sarbanes, among other initiatives.



In the third quarter of fiscal 2004, we opened an office in Tokyo, Japan, continuing to expand our operations in the Asia Pacific region. We have also
opened two domestic offices during the current fiscal year. As of May 31, 2004, we served our clients through 49 offices in the United States and 15 offices abroad.



We primarily charge our clients on an hourly basis for the professional services of our associates. We recognize revenue
once services have been rendered and invoice the majority of our clients in the United States on a weekly 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 associates. This type of contractually non-refundable revenue is recognized at the time our client completes the hiring process and represented 0.6%, 1.0% and 1.6% of our revenue for the years ended May 31, 2004, 2003 and 2002,
respectively. We periodically review our outstanding accounts receivable balance and determine an estimate of the amount of those receivables we believe may prove uncollectible. Our provision for bad debts is included in our selling, general and
administrative expenses.



The costs to pay our professional
associates and all related benefit and incentive costs, including provisions for paid time off and other employee benefits, are included in direct cost of services. We pay most of our associates on an hourly basis for all hours worked on client
engagements and, therefore, direct cost of services tends to vary directly with the volume of revenue we earn. We expense the benefits we pay to our associates as they are earned. These benefits include paid vacation and holidays; a bonus incentive
plan; referral bonus programs; subsidized group health, dental and life insurance programs; a matching 401(k) retirement plan; the ability to participate in the Companys Employee Stock Purchase Plan; and professional development and career
training. In addition, we pay the related costs of employment, including state and federal payroll taxes, workers compensation insurance, unemployment insurance and other costs. Typically, an associate must work a threshold number of hours to
be eligible for all of the benefits. We recognize direct cost of services when incurred.



Selling, general and administrative expenses include the payroll and related costs of our internal management as well as general and administrative, marketing and recruiting costs. Our sales and marketing efforts are
led by our management team who are salaried employees and earn bonuses based on operating results for our company as a whole and within each managers geographic market.



The Companys fiscal year consists of 52 or 53 weeks, ending on the last Saturday in May. For fiscal years of 53 weeks,
such as fiscal 2003, the first three quarters consist of 13 weeks each and the fourth quarter consists



18



---



---

##### Table of Contents

of 14 weeks. The actual quarter end dates for fiscal 2004 and 2003 were as follows: for fiscal 2004, August 30, 2003 (first quarter); November 29, 2003
(second quarter); February 28, 2004 (third quarter); and May 29, 2004 (fourth quarter); and for fiscal 2003, August 24, 2002 (first quarter); November 23, 2002 (second quarter); February 22, 2003 (third quarter); and May 31, 2003 (fourth quarter).
For convenience, all references herein to years or periods are to years or periods ended May 31.



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. 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.



Valuation of long-lived assetsWe assess the potential impairment of long-lived tangible and intangible assets whenever events or
changes in circumstances indicate that the carrying value may not be recoverable. Under the current accounting standard, our goodwill and certain other intangible assets are no longer subject to periodic amortization over their estimated useful
lives. These assets are now 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.



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, review of historical receivable and reserve trends and other pertinent information. If the financial condition of
our clients deteriorates or we note an unfavorable trend in aggregate receivable collections, additional allowances may be required.



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. If the ultimate tax liability differs from the amount of tax expense we have reflected in the Consolidated Statements of Income, an
adjustment of tax expense may need to be recorded.



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.



19



---



---

##### Table of Contents

Results of Operations



The following tables set forth, for the periods indicated, our consolidated statements of income data. These historical results are not necessarily
indicative of future results.



|                                             |  |                             |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | For The Years Ended May
31, |        
|                                             |  | 2004                        |         |   | 2003 |   |         | 2002 | 
|                                             |  | (amounts in thousands)      |        
|                                             |  |                             |        
|Revenue                                      |  | $                           | 328,333 |   |      | $ | 202,022 |      |  | $ | 181,677 |  
|Direct cost of services                      |  |                             | 199,870 |   |      |   | 121,648 |      |  |   | 108,715 |  
|                                             |  |                             |         |   |      |   |         |      |  |   |         |  
|Gross profit                                 |  |                             | 128,463 |   |      |   | 80,374  |      |  |   | 72,962  |  
|Selling, general and administrative expenses |  |                             | 84,301  |   |      |   | 58,248  |      |  |   | 50,688  |  
|Amortization of intangible assets            |  |                             | 1,716   |   |      |   | 655     |      |  |   | 125     |  
|Depreciation expense                         |  |                             | 1,907   |   |      |   | 1,290   |      |  |   | 1,180   |  
|                                             |  |                             |         |   |      |   |         |      |  |   |         |  
|Income from operations                       |  |                             | 40,539  |   |      |   | 20,181  |      |  |   | 20,969  |  
|Interest income                              |  |                             | (593    | ) |      |   | (1,077  | )    |  |   | (1,183  | )
|                                             |  |                             |         |   |      |   |         |      |  |   |         |  
|Income before provision for income taxes     |  |                             | 41,132  |   |      |   | 21,258  |      |  |   | 22,152  |  
|Provision for income taxes                   |  |                             | 16,798  |   |      |   | 8,716   |      |  |   | 8,861   |  
|                                             |  |                             |         |   |      |   |         |      |  |   |         |  
|Net income                                   |  | $                           | 24,334  |   |      | $ | 12,542  |      |  | $ | 13,291  |  
|                                             |  |                             |         |   |      |   |         |      |  |   |         |  



Our operating results
for the periods indicated are expressed as a percentage of revenue below.



|                                             |  |                             |   |  |       |   |  |       |  
|-------------------------------------------- |  | --------------------------- | - |  | ----- | - |  | ----- | -
|                                             |  | For The Years Ended May 31, |  
|                                             |  | 2004                        |   |  | 2003  |   |  | 2002  |  
|Revenue                                      |  | 100.0                       | % |  | 100.0 | % |  | 100.0 | %
|Direct cost of services                      |  | 60.9                        |   |  | 60.2  |   |  | 59.8  |  
|                                             |  |                             |   |  |       |   |  |       |  
|Gross profit                                 |  | 39.1                        |   |  | 39.8  |   |  | 40.2  |  
|Selling, general and administrative expenses |  | 25.7                        |   |  | 28.8  |   |  | 27.9  |  
|Amortization of intangible assets            |  | 0.5                         |   |  | 0.3   |   |  | 0.1   |  
|Depreciation expense                         |  | 0.6                         |   |  | 0.7   |   |  | 0.7   |  
|                                             |  |                             |   |  |       |   |  |       |  
|Income from operations                       |  | 12.3                        |   |  | 10.0  |   |  | 11.5  |  
|Interest income                              |  | (0.2                        | ) |  | (0.5  | ) |  | (0.7  | )
|                                             |  |                             |   |  |       |   |  |       |  
|Income before provision for income taxes     |  | 12.5                        |   |  | 10.5  |   |  | 12.2  |  
|Provision for income taxes                   |  | 5.1                         |   |  | 4.3   |   |  | 4.9   |  
|                                             |  |                             |   |  |       |   |  |       |  
|Net income                                   |  | 7.4                         | % |  | 6.2   | % |  | 7.3   | %
|                                             |  |                             |   |  |       |   |  |       |  

---

Year Ended May 31, 2004 Compared to Year Ended May
31, 2003



The comments following for the year ended May 31,
2004 include the results of operations for the full year for Resources Connection Australia Pty Ltd; from July 15, 2003 for RC.NL; and from July 30, 2003 for policyIQ. The acquisitions, completed in the first quarter of fiscal 2004, are referred to
in the comments below as the acquisitions. The results of operations of SCM are included for the year ended May 31, 2003 from October 11, 2002. Finally, the results of operations for the fiscal year ended May 31, 2003 consist of 53
weeks, while the results of operations for the fiscal year ended May 31, 2004 consist of 52 weeks.



Revenue.    Revenue increased $126.3 million or 62.5% to $328.3 million for the year ended May 31, 2004 from $202.0 million for
the year ended May 31, 2003. The acquisitions contributed $51.1 million to the growth in revenues compared to the prior year. Without the additional revenue from the acquisitions, revenues increased 37.2%. This increase was triggered by the
continued expansion of our scope of services and improved overall demand for our services, resulting in more billable hours for our associates and an improvement in rate per hour. We believe our services expanded in finance and accounting,
information technology and Sarbanes related engagements by increasing market awareness of our ability to provide those types of services. Additional



20



---



---

##### Table of Contents

regulatory changes, such as the New York Stock Exchange requirement that all listed companies maintain or create an internal audit department, may generate
opportunities for expanding our services. Average bill rates improved by 8.6% compared to the prior year average bill rate. The increase in revenue for the year is also reflected by the increase in the number of associates on assignment from 1,175
at the end of fiscal 2003 to 2,086 at the end of fiscal 2004 (including 284 associates working for the Australian and Netherlands practices as of May 31, 2004). We operated 64 offices during the final quarter of fiscal 2004, compared to 55 offices
in the last quarter of fiscal 2003. While general economic conditions improved in the United States in fiscal 2004, the market for our Dutch practice (13.3% of revenue in fiscal 2004) remains difficult. In addition, our clients do not sign long-term
contracts with us. Therefore, our future revenue or operating results cannot be reliably predicted from previous quarters or from extrapolation of past results.



Direct Cost of Services.    Direct cost of services increased $78.2 million or 64.3% to $199.9 million for the year ended
May 31, 2004 from $121.6 million for the year ended May 31, 2003. The increase in direct cost of services was attributable to the previously described expansion of the scope of services resulting in more chargeable hours for our associates at higher
average pay rates as well as the impact of the services provided by associates employed by the acquisitions. Overall, the average pay rate per hour increased 13.9% year-over-year. The direct cost of services increased as a percentage of revenue from
60.2% for fiscal year 2003 to 60.9% for fiscal year 2004. Among the factors contributing to this increase were: 1) the incremental increase in pay rate per hour compared to bill rate per hour; 2) the greater impact of international operations which
use a higher percentage of independent contractors; 3) the increase in dollar volume of zero margin client expense reimbursements, as the Companys projects in fiscal 2004 requiring associate travel increased significantly; and 4) the decrease
in conversion fees as a percentage of revenues in fiscal 2004 compared to fiscal 2003 (conversion fees are non-refundable fees recognized when a client hires one of our associates).



The cost of compensation and related benefits offered to the associates of our international offices is greater as a
percentage of revenue than our domestic operations. In addition, international offices use independent contractors more extensively. Thus, the direct cost of services percentage of our international offices has usually exceeded our domestic
operations targeted direct cost of services percentage of 60%.



Selling, General and Administrative Expenses.    Selling, general and administrative expenses decreased as a percentage of revenue from 28.8% for the year ended May 31, 2003 to 25.7% for the year ended May 31,
2004 as a result of improved leverage. Selling, general and administrative expenses increased $26.1 million or 44.7% to $84.3 million for the year ended May 31, 2004 from $58.2 million for the year ended May 31, 2003. This increase was primarily
attributable to the acquisitions. In particular, compensation and related benefit expenses increased because management and administrative headcount grew from 344 at the end of fiscal 2003 to 464 at the end of fiscal 2004. Excluding the
acquisitions, management and administrative headcount was 359 at the end of fiscal 2004. The increase in dollars spent (apart from the acquisitions) was attributable to the increase in salaries and benefit costs driven by the larger headcount and
occupancy and related costs from new offices opened. In addition, marketing and advertising expenses increased in the current fiscal year, primarily related to the Netherlands practice; bonus expense increased as a result of the Companys
improved revenue results; and the Company increased its provision for bad debts in fiscal 2004 as compared to fiscal 2003 with the increase in revenues during the year.



Amortization and Depreciation Expenses.    Amortization of intangible assets increased to $1.7
million for fiscal 2004 compared to $655,000 in fiscal 2003. The increase is related to the acquisitions in the first quarter of fiscal 2004. During the third quarter of fiscal 2004, the Company completed its allocation of the purchase price of the
acquisitions, and considered a number of factors in performing this valuation, including a valuation of identifiable intangible assets. As a result, approximately $5.5 million of the purchase price was assigned to amortizable intangible assets
related to contractually based customer relationships, acquired databases of potential associates and technology related to the policyIQ software. These intangibles will be amortized over one to five years. The Company is also amortizing intangible
assets related to the SCM acquisition through fiscal 2006. In the prior year, amortization expense related primarily to the amortization of the SCM intangible assets.



21



---



---

##### Table of Contents

Depreciation expense increased from $1.3 million for the year ended May 31, 2003 to $1.9 million for the
year ended May 31, 2004. This increase reflects the impact of depreciation related to the acquisitions, the other offices opened since the beginning of fiscal 2004, a full year of depreciation of assets acquired during fiscal 2003 and our
incremental investment in information technology.



Interest
Income.    During fiscal 2004, the Company generated interest income of $593,000 compared to interest income of $1.1 million in the year ended May 31, 2003. The decrease in interest income is a combination of a lower average
cash balance available for investment in fiscal 2004 (as a result of the use of approximately $30 million for the acquisitions in the first quarter of fiscal 2004) and the lower interest rates available year over year. The Company earned
approximately 2.0%, annualized, on its money market, commercial paper and other marketable securities investments during the year.



The Company has invested available cash in money market and commercial paper investments that have been classified as cash equivalents due to the short
maturities of these investments. As of May 31, 2004, the Company has $18 million of government-agency bonds with remaining maturity dates in excess of one year from the balance sheet date. The bonds mature through 2006 and have coupon rates ranging
from 2.0% to 2.9%. These investments have been classified in the May 31, 2004 consolidated balance sheet as held-to-maturity securities.



Income Taxes.    The provision for income taxes increased from $8.7 million for the year ended May 31, 2003 to $16.8 million
for the year ended May 31, 2004 as a result of the increase in the Companys pre-tax income. The effective tax rate in fiscal 2003 was 41.0% compared with 40.8% in fiscal 2004. Periodically, the Company reviews the components of both book and
taxable income to analyze the adequacy of the provision. There can be no assurance that the Companys effective tax rate will not increase in the future.



Year Ended May 31, 2003 Compared to Year Ended May 31, 2002



Revenue.    Revenue increased $20.3 million or 11.2% to $202.0 million for the year ended May 31, 2003 from $181.7 million for
the year ended May 31, 2002. Growth in revenues resulted primarily from continued expansion of our scope of services resulting in more billable hours for our associates and an improvement in rate per hour. Our scope of services expanded by
increasing market awareness of our ability to provide information technology, human capital and Sarbanes-related services. We also added SCM operations. These measures partially offset the effects of the negative economy experienced in fiscal 2003.
To a lesser extent, revenue benefited from the fifty-third week of activity in fiscal 2003. Overall bill rates improved by 4.9% compared to the prior year average bill rate. The increase in revenue for the year is also reflected by the increase in
the number of associates on assignment from 1,060 at the end of fiscal 2002 to 1,175 at the end of fiscal 2003. We operated 55 offices during the final quarter of fiscal 2003, compared to 47 offices in the last quarter of fiscal 2002.



Direct Cost of Services.    Direct cost of
services increased $12.9 million or 11.9% to $121.6 million for the year ended May 31, 2003 from $108.7 million for the year ended May 31, 2002. The increase in direct cost of services was attributable to the previously described expansion of the
scope of services resulting in more chargeable hours for our associates at higher average pay rates. Overall, the average pay rate per hour increased 6.8% year-over-year. The number of associates on assignment increased from 1,060 at the end of
fiscal 2002 to 1,175 at the end of fiscal 2003. The direct cost of services increased as a percentage of revenue from 59.8% for fiscal year 2002 to 60.2% for fiscal year 2003. The net increase primarily reflects the incremental increase in pay rate
per hour compared to bill rate per hour and the decrease in conversion fees as a percentage of revenues in fiscal 2003 year compared to the prior year.



Selling, General and Administrative Expenses.    Selling, general and administrative expenses increased $7.6 million or 14.9%
to $58.2 million for the year ended May 31, 2003 from $50.7 million for the year ended May 31, 2002. This increase was primarily attributable to the increase in management and administrative



22



---



---

##### Table of Contents

headcount from 312 at the end of fiscal 2002 to 344 at the end of fiscal 2003, causing an increase in compensation and related benefits expense. The increase
in headcount arose from the addition of internal personnel of SCM, the incremental hiring for the seven additional offices opened during fiscal 2003, as well as the full year of operation for those offices opened in fiscal 2002. The Company also
continued throughout fiscal 2003 the advertising campaign in targeted business publications begun in the fourth quarter of fiscal 2002. The increase was also attributable to an increase in occupancy costs from the addition of the new offices, an
increase in bonus expense from the Companys improved revenue results and an increase in insurance costs. Selling, general and administrative expenses increased as a percentage of revenue from 27.9% for the year ended May 31, 2002 to 28.8% for
the year ended May 31, 2003. This percentage increase resulted from the aforementioned increase in salary expense and related benefits, occupancy expenses and national advertising expenses.



Amortization and Depreciation
Expenses.    Amortization of intangible assets increased from $125,000 for the year ended May 31, 2002 to $655,000 for the year ended May 31, 2003. The increase is attributable to the amortization of intangible assets in the
current year related to the Companys acquisition of SCM, as well as the purchase of a United Kingdom (UK) practice in fiscal 2002. The Company recognized approximately $356,000 in amortization expense on non-compete agreements and
candidate, prospect and client databases related to the SCM acquisition and $193,000 related to the UK practice. In the prior year, amortization expense related only to the amortization of the non-compete agreement entered into when the Company
acquired Resources Connection LLC (LLC) on April 1, 1999. The balance of $106,000 remaining for that non-compete agreement at the end of fiscal 2002 was fully amortized in fiscal 2003.



Depreciation expense increased from $1.2 million for the year ended May 31,
2002 to $1.3 million for the year ended May 31, 2003. This increase reflects the investment in our UK offices as well as the SCM acquisition, the other offices opened since the beginning of fiscal 2003, a full year of depreciation of assets acquired
during fiscal 2002 and our investment in information technology.



Interest Income.    During fiscal 2003, the Company generated interest income of $1.1 million compared to interest income of $1.2 million in the year ended May 31, 2002. Although the average cash balance for
investment increased from fiscal 2002 to fiscal 2003, the lower interest rates year-over-year more than offset the cash balance increase. The Company earned approximately 1.7%, annualized, on its money market, commercial paper and other marketable
securities investments during the year.



The Company has
invested available cash in money market and commercial paper investments that have been classified as cash equivalents due to the short maturities of these investments. As of May 31, 2003, the Company has $20 million of government-agency bonds with
remaining maturity dates in excess of one year from the balance sheet date. The bonds mature through 2005 and have coupon rates ranging from 1.8% to 3.0%. These investments have been classified in the May 31, 2003 consolidated balance sheet as
held-to-maturity securities.



Income
Taxes.    The provision for income taxes decreased from $8.9 million for the year ended May 31, 2002 to $8.7 million for the year ended May 31, 2003 due to the decrease in income from operations in fiscal 2003. The decrease
in income from operations was offset by the increase in the effective tax rate in fiscal 2003 to 41.0% from approximately 40.0% in fiscal 2002. The increase is primarily due to an increase in the federal statutory rate of 1.0%, which resulted from
applying a 35.0% federal tax rate in fiscal 2003 as opposed to a 34.0% tax rate as in prior years.



Quarterly Results



The
following table sets forth our unaudited quarterly consolidated statements of income data for each of the eight quarters in the two-year period ended May 31, 2004. In the opinion of management, this data has been prepared on a basis substantially
consistent with our audited consolidated financial statements appearing elsewhere in this document, and include all adjustments, consisting of normal recurring adjustments, necessary



23



---



---

##### Table of Contents

for a fair presentation of the data. The quarterly data should be read together with our consolidated financial statements and related notes appearing
elsewhere in this document. The operating results are not necessarily indicative of the results to be expected in any future period.



|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|--------------------------------------------------- |  | -------------------------------------------------- | ------- | - | ------------ | - | ------ | ------------ |  | - | ------------ | - |  | ----------- | ------ | - | ------------ | - | ------ | ------------ |  | - | ------------ | - |  | - | ------ | - |  | - | ------ | -
|                                                    |  | Quarters Ended                                     |        
|                                                    |  | May 31,2004                                        |         |   | Feb. 29,2004 |   |        | Nov. 30,2003 |  |   | Aug. 31,2003 |   |  | May 31,2003 |        |   | Feb. 28,2003 |   |        | Nov. 30,2002 |  |   | Aug. 31,2002 |  
|                                                    |  | (in thousands, except net income per common share) |        
|CONSOLIDATED STATEMENTS OF INCOME DATA (unaudited): | 
|Revenue                                             |  | $                                                  | 107,018 |   |              | $ | 87,758 |              |  | $ | 74,016       |   |  | $           | 59,541 |   |              | $ | 59,048 |              |  | $ | 49,237       |   |  | $ | 50,209 |   |  | $ | 43,528 |  
|Direct cost of services                             |  |                                                    | 64,042  |   |              |   | 54,353 |              |  |   | 45,420       |   |  |             | 36,055 |   |              |   | 35,285 |              |  |   | 30,153       |   |  |   | 29,909 |   |  |   | 26,301 |  
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Gross profit                                        |  |                                                    | 42,976  |   |              |   | 33,405 |              |  |   | 28,596       |   |  |             | 23,486 |   |              |   | 23,763 |              |  |   | 19,084       |   |  |   | 20,300 |   |  |   | 17,227 |  
|Selling, general and administrative expenses        |  |                                                    | 23,877  |   |              |   | 22,724 |              |  |   | 20,471       |   |  |             | 17,229 |   |              |   | 16,534 |              |  |   | 14,170       |   |  |   | 14,526 |   |  |   | 13,018 |  
|Amortization of intangible assets                   |  |                                                    | 504     |   |              |   | 514    |              |  |   | 392          |   |  |             | 306    |   |              |   | 200    |              |  |   | 298          |   |  |   | 126    |   |  |   | 31     |  
|Depreciation expense                                |  |                                                    | 580     |   |              |   | 507    |              |  |   | 433          |   |  |             | 387    |   |              |   | 335    |              |  |   | 328          |   |  |   | 312    |   |  |   | 315    |  
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Income from operations                              |  |                                                    | 18,015  |   |              |   | 9,660  |              |  |   | 7,300        |   |  |             | 5,564  |   |              |   | 6,694  |              |  |   | 4,288        |   |  |   | 5,336  |   |  |   | 3,863  |  
|Interest income                                     |  |                                                    | (171    | ) |              |   | (147   | )            |  |   | (103         | ) |  |             | (172   | ) |              |   | (238   | )            |  |   | (231         | ) |  |   | (270   | ) |  |   | (338   | )
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Income before provision for income taxes            |  |                                                    | 18,186  |   |              |   | 9,807  |              |  |   | 7,403        |   |  |             | 5,736  |   |              |   | 6,932  |              |  |   | 4,519        |   |  |   | 5,606  |   |  |   | 4,201  |  
|Provision for income taxes                          |  |                                                    | 7,456   |   |              |   | 4,021  |              |  |   | 2,998        |   |  |             | 2,323  |   |              |   | 2,843  |              |  |   | 1,853        |   |  |   | 2,298  |   |  |   | 1,722  |  
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Net income                                          |  | $                                                  | 10,730  |   |              | $ | 5,786  |              |  | $ | 4,405        |   |  | $           | 3,413  |   |              | $ | 4,089  |              |  | $ | 2,666        |   |  | $ | 3,308  |   |  | $ | 2,479  |  
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Net income per common share (1):                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Basic                                               |  | $                                                  | 0.46    |   |              | $ | 0.25   |              |  | $ | 0.20         |   |  | $           | 0.15   |   |              | $ | 0.19   |              |  | $ | 0.12         |   |  | $ | 0.15   |   |  | $ | 0.11   |  
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  
|Diluted                                             |  | $                                                  | 0.43    |   |              | $ | 0.24   |              |  | $ | 0.19         |   |  | $           | 0.15   |   |              | $ | 0.18   |              |  | $ | 0.12         |   |  | $ | 0.15   |   |  | $ | 0.11   |  
|                                                    |  |                                                    |         |   |              |   |        |              |  |   |              |   |  |             |        |   |              |   |        |              |  |   |              |   |  |   |        |   |  |   |        |  



---

|(1) | Net income per common share calculations for each of the quarters were based upon the weighted average number of shares outstanding for each period, and the sum of the quarters may
not necessarily be equal to the full year net income per common share amount.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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 below in the section of this
report entitled Risks Related to Our Business. Due to these and other factors, we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance.



Liquidity and Capital Resources



Our primary source of liquidity is cash provided by our operations and, to
the extent necessary, available commitments under our revolving line of credit. We have generated positive cash flows from operations since inception, and we continued to do so during the year ended May 31, 2004.



At May 31, 2004, the Company had operating leases, primarily for office
premises, expiring at various dates. At May 31, 2004, the Company had no significant capital leases. Future minimum rental commitments under operating leases are as follows:



|                            |  |                                               |        |                  |   |           |  |           |       |                   |   |       |  |   |      
|--------------------------- |  | --------------------------------------------- | ------ | ---------------- | - | --------- |  | --------- | ----- | ----------------- | - | ----- |  | - | -----
|                            |  | Payments due by
period (amounts in thousands)
|Contractual obligations     |  | Total                                         |        | Less than 1 year |   | 1-3 years |  | 3-5 years |       | More than 5 years
|Operating lease obligations |  | $                                             | 23,961 |                  | $ | 6,343     |  | $         | 8,694 |                   | $ | 4,193 |  | $ | 4,731
|                            |  |                                               |        |                  |   |           |  |           |       |                   |   |       |  |   |      



24



---



---

##### Table of Contents

The Companys original August 2001 $10.0 million unsecured revolving credit facility with Bank of
America was replaced effective March 26, 2004 with a new $10.0 million unsecured revolving credit facility with substantially the same terms (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, a London Inter-Bank Offered (LIBOR) rate plus 1.5% or Bank of Americas Grand Cayman Banking Center (IBOR) rate plus 1.5%.
Interest, if any, is payable monthly. There is an annual facility fee of 0.25% payable on the unutilized portion of the Credit Agreement. The Credit Agreement expires December 1, 2005. As of May 31, 2004 and 2003, the Company had no outstanding
borrowings under the revolving credit facility and is in compliance with all covenants included in the Credit Agreement.



Net cash provided by operating activities totaled $20.6 million in fiscal 2004 compared to $17.0 million in fiscal 2003. Cash provided by operations
resulted primarily from the net income of the Company of $24.3 million. Another of the components of the net increase in cash provided by operations was the increase in the accrual for management incentive bonus as well as the profit sharing plan
for associates as of May 31, 2004 compared to May 31, 2003, reflecting the Companys revenue increase. The increase in the number of associates on assignment at the end of fiscal 2004 as compared to fiscal 2003 also caused the Companys
accrued salary obligation to increase. The Company also experienced an increase in the volume of stock option exercises during the year, resulting in a $6.8 million tax benefit. These favorable operating cash flow activities were offset by the
increase in the Companys accounts receivable balance in fiscal 2004 of $25.8 million, triggered by the Companys higher revenue in the fourth quarter of fiscal 2004 as compared to the fourth quarter of fiscal 2003. The Company had $51.8
million in cash and cash equivalents and $18 million of long-term marketable securities at May 31, 2004.



Net cash used in investing activities totaled $32.2 million for fiscal 2004 compared to $4.7 million for fiscal 2003. The Company used approximately $31.0
million in cash in the first, second and fourth quarters of fiscal 2004 to complete the acquisitions as well as related transaction costs. In addition, the Company spent approximately $3.2 million on leasehold improvements, office equipment and
technology upgrades in fiscal 2004, up from $675,000 in the previous fiscal year.



Net cash provided by financing activities totaled $15.1 million for the year ended May 31, 2004 compared to $4.2 million for the year ended May 31, 2003. The increased volume of stock option exercises in fiscal 2004
caused this change.



Our ongoing operations and anticipated
growth in the geographic markets we currently serve will require us to continue to make investments in capital equipment, primarily technology hardware and software. In addition, we may consider making additional strategic acquisitions. We
anticipate that our current cash, existing availability under our revolving line of credit 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 additional debt financing. The sale of additional equity securities or the addition
of new 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, which could have a material adverse affect on our operations, market position and competitiveness.



Off-Balance Sheet Arrangements



The Company has no off-balance sheet arrangements.



25



---



---

##### Table of Contents

Recent Accounting Pronouncements



In December 2003, the SEC issued Staff Accounting Bulletin (SAB) No. 104, Revenue Recognition. SAB
No. 104 revises and rescinds certain sections of SAB No. 101 in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC rules and regulations. Accordingly there is no impact to our
results of operations, financial position or cash flows as a result of the issuance of SAB No. 104.



On December 23, 2003, the FASB issued SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits, an
amendment of FASB Statements No. 87, 88 and 106, and a revision of FASB Statement No. 132 (FAS 132 (revised 2003)). This statement revises employers disclosures about pension plans and other postretirement benefit plans. It
does not change the measurement or recognition of those plans required by SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The new rules require additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and postretirement benefit plans. The new disclosures are generally effective for 2003 calendar year-end financial statements of public companies, with a delayed effective date for certain
disclosures and for foreign plans. The adoption of SFAS No. 132 did not have an effect on our consolidated financial statements.



In December 2003, the FASB issued Interpretation No. 46R (FIN 46R), a revision to FIN 46, Consolidation of Variable Interest
Entities. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted FIN 46 prior
to this effective date can continue to apply the provisions of FIN 46 until the effective date of FIN 46R. The adoption of FIN 46R did not have an effect on our consolidated financial statements.



26



---



---

##### Table of Contents

RISK FACTORS



You should carefully consider the risks described below before making a decision to buy shares of our common stock. The
order of the risks is not an indication of their relative weight or importance. The risks and uncertainties described below are not the only ones facing us. Additional risks and uncertainties, including those risks set forth in
Managements Discussion and Analysis of Financial Condition and Results of Operations, may also adversely impact and impair our business. If any of the following risks actually occur, our business could be harmed. In that case, the
trading price of our common stock could decline, and you might lose all or part of your investment. When determining whether to buy our common stock, you should also refer to the other information in this Report on Form 10-K, including our financial
statements and the related notes.



This Report on Form 10-K
contains forward-looking statements based on our current expectations, assumptions, estimates and projections about our industry and us. These forward-looking statements involve risks and uncertainties. Our actual results could differ materially
from those discussed in these forward-looking statements as a result of certain factors, as more fully described in this section and elsewhere in this Report on Form 10-K. We do not undertake to update publicly any forward-looking statements for any
reason, even if new information becomes available or other events occur in the future.



We must provide our clients with highly qualified and experienced associates, and the loss of a significant number of our associates, or an inability to attract and retain new associates, could adversely affect our business and operating
results.



Our business involves the delivery of
professional services, and our success depends on our ability to provide our clients with highly qualified and experienced associates who possess the skills and experience necessary to satisfy their needs. Such professionals are in great demand,
particularly in certain geographic areas given some economic recovery, and are likely to remain a limited resource for the foreseeable future. Our ability to attract and retain associates with the requisite experience and skills depends on several
factors including, but not limited to, our ability to:



| |  | provide our associates with full-time employment;
| | - | -------------------------------------------------



| |  | obtain the type of challenging and high-quality projects that our associates seek;
| | - | ----------------------------------------------------------------------------------



| |  | pay competitive compensation and provide competitive benefits; and
| | - | ------------------------------------------------------------------



| |  | provide our associates with flexibility as to hours worked and assignment of client engagements.
| | - | ------------------------------------------------------------------------------------------------



We cannot assure you that we will be successful in accomplishing any of these factors and, even if we are, that we will be
successful in attracting and retaining the number of highly qualified and experienced associates necessary to maintain and grow our business.



The market for professional services is highly competitive, and if we are unable to compete effectively against our competitors our business and operating results
could be adversely affected.



We operate in a competitive,
fragmented market, and we compete for clients and associates with a variety of organizations that offer similar services. The competition is likely to increase in the future due to the expected growth of the market and the relatively few barriers to
entry. Our principal competitors include:



| |  | consulting firms;
| | - | -----------------



| |  | independent contractors
| | - | -----------------------



| |  | employees loaned by the Big Four accounting firms;
| | - | --------------------------------------------------



| |  | traditional and Internet-based staffing firms; and
| | - | --------------------------------------------------



| |  | the in-house resources of our clients.
| | - | --------------------------------------



27



---



---

##### Table of Contents

We cannot assure you that we will be able to compete effectively against existing or future competitors.
Many of our competitors have significantly greater financial resources, greater revenues and greater name recognition, which may afford them an advantage in attracting and retaining clients and associates. In addition, our competitors may be able to
respond more quickly to changes in companies needs and developments in the professional services industry.



An economic downturn or change in the use of outsourced professional services associates may adversely affect our business.



During the recent downturn in the U.S. economy our business was affected. As
the general level of economic activity slowed, our clients delayed or cancelled plans that involved professional services, particularly outsourced professional services. Consequently, we experienced fluctuations in the demand for our services. In
addition, the use of professional services associates on a project basis could decline for non-economic reasons. In the event of a non-economic reduction in the demand for our associates, our financial results could suffer.



Our business depends upon our ability to secure new projects from clients and, therefore,
we could be adversely affected if we fail to do so.



We do
not have long-term agreements with our clients for the provision of services. The success of our business is dependent on our ability to secure new projects from clients. For example, if we are unable to secure new client projects because of
improvements in our competitors service offerings or because of an economic downturn decreasing the demand for outsourced professional services, our business is likely to be materially adversely affected. New impediments to our ability to
secure projects from clients may develop over time, such as the increasing use by large clients of companies that manage their relationship with service providers.



We may be legally liable for damages resulting from the performance of projects by our associates or for our clients mistreatment
of our associates.



Many of our engagements with our
clients involve projects that are critical to our clients businesses. If we fail to meet our contractual obligations, we could be subject to legal liability or damage to our reputation, which could adversely affect our business, operating
results and financial condition. It is likely, because of the nature of our business, that we will be sued in the future. Claims brought against us could have a serious negative effect on our reputation and on our business, financial condition and
results of operations.



Because we are in the business of
placing our associates in the workplaces of other companies, we are subject to possible claims by our associates alleging discrimination, sexual harassment, negligence and other similar activities by our clients. We may also be subject to similar
claims from our clients based on activities by our associates. The cost of defending such claims, even if groundless, could be substantial and the associated negative publicity could adversely affect our ability to attract and retain associates and
clients.



We may not be able to grow our business, manage our growth or
sustain our current business.



We grew rapidly from our
inception in 1996 until 2001 by opening new offices and by increasing the volume of services we provide through existing offices. We experienced a decline in revenue in fiscal 2002 to $181.7 million, but then rebounded in fiscal 2003 to revenue of
$202.0 million. Although revenue increased in fiscal 2004, as compared to fiscal 2003, by 37% (excluding the acquisitions), there can be no assurance that we will be able to maintain or expand our market presence in our current locations or to
successfully enter other markets or locations. Our ability to successfully grow our business will depend upon a number of factors, including our ability to:



| |  | grow our client base;
| | - | ---------------------



| |  | expand profitably into new cities;
| | - | ----------------------------------



28



---



---

##### Table of Contents

| |  | provide additional professional services lines;
| | - | -----------------------------------------------



| |  | hire associates;
| | - | ----------------



| |  | maintain margins in the face of pricing pressures; and
| | - | ------------------------------------------------------



| |  | manage costs.
| | - | -------------



Even if we are able to continue our growth, the growth will result in new and increased responsibilities for our management as well as increased demands
on our internal systems, procedures and controls, and our administrative, financial, marketing and other resources. Failure to adequately respond to these new responsibilities and demands may adversely affect our business, financial condition and
results of operation.



The increase in our international activities will
expose us to additional operational challenges that we might not otherwise face.



As we increase our international activities, we will have to confront and manage a number of risks and expenses that we would not otherwise face if we conducted our operations solely in the United States. If any of
these risks or expenses occur, there could be a material negative effect on our operating results. These risks and expenses include:



| |  | difficulties in staffing and managing foreign offices as a result of, among other things, distance, language and cultural differences;
| | - | --------------------------------------------------------------------------------------------------------------------------------------



| |  | less flexible labor laws and regulations;
| | - | -----------------------------------------



| |  | expenses associated with customizing our professional services for clients in foreign countries;
| | - | ------------------------------------------------------------------------------------------------



| |  | foreign currency exchange rate fluctuations, when we sell our professional services in denominations other than U.S. dollars;
| | - | -----------------------------------------------------------------------------------------------------------------------------



| |  | protectionist laws and business practices that favor local companies;
| | - | ---------------------------------------------------------------------



| |  | political and economic instability in some international markets;
| | - | -----------------------------------------------------------------



| |  | multiple, conflicting and changing government laws and regulations;
| | - | -------------------------------------------------------------------



| |  | trade barriers;
| | - | ---------------



| |  | reduced protection for intellectual property rights in some countries; and
| | - | --------------------------------------------------------------------------



| |  | potentially adverse tax consequences.
| | - | -------------------------------------



We have acquired, and may continue to acquire, companies, and these acquisitions could disrupt our business.



We have acquired several companies and may continue to acquire companies in
the future. Entering into an acquisition entails many risks, any of which could harm our business, including:



| |  | diversion of managements attention from other business concerns;
| | - | -----------------------------------------------------------------



| |  | failure to integrate the acquired company with our existing business;
| | - | ---------------------------------------------------------------------



| |  | failure to motivate, or loss of, key employees from either our existing business or the acquired business;
| | - | ----------------------------------------------------------------------------------------------------------



| |  | potential impairment of relationships with our employees and clients;
| | - | ---------------------------------------------------------------------



| |  | additional operating expenses not offset by additional revenue;
| | - | ---------------------------------------------------------------



| |  | incurrence of significant non-recurring charges;
| | - | ------------------------------------------------



29



---



---

##### Table of Contents

| |  | incurrence of additional debt with restrictive covenants or other limitations;
| | - | ------------------------------------------------------------------------------



| |  | dilution of our stock as a result of issuing equity securities; and
| | - | -------------------------------------------------------------------



| |  | assumption of liabilities of the acquired company.
| | - | --------------------------------------------------



Our business could suffer if we lose the services of one or more key members of our management.



Our future success depends upon the continued employment of Donald B. Murray, our chief executive officer, and Stephen J.
Giusto, our chief financial officer. The departure of Mr. Murray, Mr. Giusto or any of the other key members of our senior management team could significantly disrupt our operations. Key members of our senior management team include Karen M.
Ferguson, an executive vice president, John D. Bower, our vice president, finance, and Kate W. Duchene, our chief legal officer and executive vice president of human relations. We do not have employment agreements with Mr. Bower or Ms. Duchene.



Our quarterly financial results may be subject to significant fluctuations
that may increase the volatility of our stock price.



Our
results of operations could vary significantly from quarter to quarter. Factors that could affect our quarterly operating results include:



| |  | our ability to attract new clients and retain current clients;
| | - | --------------------------------------------------------------



| |  | the mix of client projects;
| | - | ---------------------------



| |  | the announcement or introduction of new services by us or any of our competitors;
| | - | ---------------------------------------------------------------------------------



| |  | the expansion of the professional services offered by us or any of our competitors into new locations both nationally and internationally;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------



| |  | changes in the demand for our services by our clients;
| | - | ------------------------------------------------------



| |  | the entry of new competitors into any of our markets;
| | - | -----------------------------------------------------



| |  | the number of associates eligible for our offered benefits as the average length of employment with Resources increases;
| | - | ------------------------------------------------------------------------------------------------------------------------



| |  | the number of holidays in a quarter, particularly the day of the week on which they occur;
| | - | ------------------------------------------------------------------------------------------



| |  | changes in the pricing of our professional services or those of our competitors;
| | - | --------------------------------------------------------------------------------



| |  | the amount and timing of operating costs and capital expenditures relating to management and expansion of our business;
| | - | -----------------------------------------------------------------------------------------------------------------------



| |  | the timing of acquisitions and related costs, such as compensation charges that fluctuate based on the market price of our common stock; and
| | - | --------------------------------------------------------------------------------------------------------------------------------------------



| |  | the periodic fourth quarter consisting of 14 weeks.
| | - | ---------------------------------------------------



Due to these factors, we believe that quarter-to-quarter comparisons of our results of operations are not meaningful indicators of future performance. It
is possible that in some future periods, our results of operations may be below the expectations of investors. If this occurs, the price of our common stock could decline.



We may be subject to laws and regulations that impose difficult and costly compliance requirements and subject us to potential liability
and the loss of clients.



In connection with providing
services to clients in certain regulated industries, such as the gaming and energy industries, we are subject to industry-specific regulations, including licensing and reporting requirements. Complying with these requirements is costly and, if we
fail to comply, we could be prevented from rendering services to clients in those industries in the future.



30



---



---

##### Table of Contents

It may be difficult for a third party to acquire our company, and this could depress our stock price.



Delaware corporate law and our second restated certificate of
incorporation and bylaws contain provisions that could delay, defer or prevent a change of control of our company or our management. These provisions could also discourage proxy contests and make it difficult for you and other stockholders to elect
directors and take other corporate actions. As a result, these provisions could limit the price that future investors are willing to pay for your shares. These provisions:



| |  | authorize our board of directors to establish one or more series of undesignated preferred stock, the terms of which can be determined by the board of directors at the time of
issuance;
| | - | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | divide our board of directors into three classes of directors, with each class serving a staggered three-year term. Because the classification of the board of directors generally
increases the difficulty of replacing a majority of the directors, it may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us and may make it difficult to change the composition of the board of
directors;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | prohibit cumulative voting in the election of directors which, if not prohibited, could allow a minority stockholder holding a sufficient percentage of a class of shares to ensure
the election of one or more directors;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | require that any action required or permitted to be taken by our stockholders must be effected at a duly called annual or special meeting of stockholders and may not be effected by
any consent in writing;
| | - | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | state that special meetings of our stockholders may be called only by the chairman of the board of directors, our chief executive officer, by the board of directors after a
resolution is adopted by a majority of the total number of authorized directors, or by the holders of not less than 10% of our outstanding voting stock;
| | - | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | establish advance notice requirements for submitting nominations for election to the board of directors and for proposing matters that can be acted upon by stockholders at a
meeting;
| | - | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | provide that certain provisions of our certificate of incorporation can be amended only by supermajority vote of the outstanding shares and that our bylaws can be amended only by
supermajority vote of the outstanding shares of our board of directors;
| | - | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | allow our directors, not our stockholders, to fill vacancies on our board of directors; and
| | - | -------------------------------------------------------------------------------------------



| |  | provide that the authorized number of directors may be changed only by resolution of the board of directors.
| | - | ------------------------------------------------------------------------------------------------------------



The Companys board of directors has adopted a stockholder rights plan,
which is described further in Note 10 of the Notes to Consolidated Financial Statements included in this Report on Form 10-K. The existence of this rights plan may also have the effect of delaying, deferring or preventing a change of
control of our company or our management by deterring acquisitions of our stock not approved by our board of directors.



We may be unable to adequately protect our intellectual property rights, including our brand name. If we fail to adequately protect our intellectual property rights,
the value of such rights may diminish and our results of operations and financial condition may be adversely affected.



We believe that establishing, maintaining and enhancing the Resources Connection brand name is essential to our business. We have obtained U.S.
registrations on our service mark and logo, Registration No. 2,516,522 registered December 11, 2001, and No. 2,524,226 registered January 1, 2002 and No. 2,613,873, registered September 3, 2002. We have been aware from time to time of other
companies using the name Resources Connection or some variation thereof. There could be potential trade name or service mark infringement claims brought against us by the users of these similar names and marks and those users may have
service mark rights



31



---



---

##### Table of Contents

that are senior to ours. If these claims were successful, we could be forced to cease using the service mark Resources Connection even if an
infringement claim is not brought against us. It is also possible that our competitors or others will adopt service names similar to ours or that our clients will be confused by another company using a name, service mark or trademark similar to
ours, thereby impeding our ability to build brand identity. We cannot assure you that our business would not be adversely affected if confusion did occur or if we are required to change our name.



Our clients may be confused by the presence of competitors and other companies that have
names similar to our name and we may change the name of the Company.



We are aware of other companies using the name Resources Connection or some variation thereof. The existence of these companies may confuse our clients, thereby impeding our ability to build our brand
identity. To avoid confusion, we may consider changing the name of the operating company and that could entail risks.



32



---



---

##### Table of Contents

ITEM 7A.    QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK



Interest Rate Risk.    At the end of fiscal 2004, we had approximately $69.8 million of cash, highly liquid short-term
investments and long-term marketable securities. These investments are subject to changes in interest rates, and to the extent interest rates were to decline, it would reduce our interest income.



Foreign Currency Exchange Rate Risk.    Prior to
fiscal 2004, our foreign operations were not significant to our overall operations, and our exposure to foreign currency exchange rate risk was low. However, as our strategy to continue expanding foreign operations progresses, more of our revenues
will be derived from foreign operations denominated in the currency of the applicable markets. As a result, our operating results could become subject to fluctuations based upon changes in the exchange rates of foreign currencies in relation to the
U.S. dollar. Although we intend to monitor our exposure to foreign currency fluctuations, including the use of financial hedging techniques when we deem it appropriate, we cannot assure you that exchange rate fluctuations will not adversely affect
our financial results in the future.



33



---



---

##### Table of Contents

ITEM 8.    FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA



RESOURCES CONNECTION, INC.



FINANCIAL
STATEMENTS



|                                                                                                             |  |     
|------------------------------------------------------------------------------------------------------------ |  | ----
|                                                                                                             |  | Page
|                                                                                                             | 
|Report of Independent Registered Public Accounting Firm                                                      |  | 35  
|                                                                                                             | 
|Consolidated Balance Sheets as of May 31, 2004 and 2003                                                      |  | 36  
|                                                                                                             | 
|Consolidated Statements of Income for each of the three years in the period ended May 31, 2004               |  | 37  
|                                                                                                             | 
|Consolidated Statements of Stockholders Equity for each of the three years in the period ended May 31, 2004 |  | 38  
|                                                                                                             | 
|Consolidated Statements of Cash Flows for each of the three years in the period ended May 31, 2004           |  | 40  
|                                                                                                             | 
|Notes to Consolidated Financial Statements                                                                   |  | 41  
|                                                                                                             | 
|FINANCIAL STATEMENT SCHEDULE                                                                                 |  |     
|                                                                                                             | 
|Report of Independent Registered Public Accounting Firm on Financial Statement Schedule                      |  | 60  
|                                                                                                             | 
|Schedule II
Valuation and Qualifying Accounts for each of the three years in the period ended May 31, 2004  |  | 61  



34



---



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM



To the Stockholders and the Board of Directors of

Resources Connection, Inc.



In our opinion, the accompanying consolidated balance sheets and the related consolidated statements of income, stockholders equity and cash flows
present fairly, in all material respects, the financial position of Resources Connection, Inc. and its subsidiaries at May 31, 2004 and 2003, and the results of their operations and their cash flows for each of the three years in the period ended
May 31, 2004 in conformity with accounting principles generally accepted in the United States of America. These financial statements are the responsibility of the Companys management. Our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these statements in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting
principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.



/s/ PricewaterhouseCoopers LLP



Orange County, California

July 30, 2004



35



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



CONSOLIDATED BALANCE SHEETS



|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|---------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------- | ------- | - | ---- | - | ------- | -
|                                                                                                                                                                             |  | May 31,                |        
|                                                                                                                                                                             |  | 2004                   |         |   | 2003 |  
|                                                                                                                                                                             |  | (amounts in thousands) |        
|ASSETS                                                                                                                                                                       |  |                        |         |   |      |   |         |  
|Current assets:                                                                                                                                                              |  |                        |         |   |      |   |         |  
|Cash and cash equivalents                                                                                                                                                    |  | $                      | 51,839  |   |      | $ | 48,078  |  
|Trade accounts receivable, net of allowance for doubtful accounts of $3,262 and $2,388 as of May 31, 2004 and 2003,
respectively                                             |  |                        | 59,766  |   |      |   | 26,635  |  
|Prepaid expenses and other current assets                                                                                                                                    |  |                        | 3,955   |   |      |   | 2,035   |  
|Prepaid income taxes                                                                                                                                                         |  |                        | 535     |   |      |   | 1,774   |  
|Deferred income taxes                                                                                                                                                        |  |                        | 3,674   |   |      |   | 2,596   |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Total current assets                                                                                                                                                         |  |                        | 119,769 |   |      |   | 81,118  |  
|Investments in marketable securities                                                                                                                                         |  |                        | 18,000  |   |      |   | 20,000  |  
|Goodwill                                                                                                                                                                     |  |                        | 76,048  |   |      |   | 47,876  |  
|Intangible assets, net                                                                                                                                                       |  |                        | 5,005   |   |      |   | 1,203   |  
|Property and equipment, net                                                                                                                                                  |  |                        | 6,655   |   |      |   | 4,341   |  
|Other assets                                                                                                                                                                 |  |                        | 786     |   |      |   | 1,399   |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Total assets                                                                                                                                                                 |  | $                      | 226,263 |   |      | $ | 155,937 |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|                                                                                                                                                                             |  |                       
|LIABILITIES AND STOCKHOLDERS EQUITY                                                                                                                                         |  |                        |         |   |      |   |         |  
|Current liabilities:                                                                                                                                                         |  |                        |         |   |      |   |         |  
|Accounts payable and accrued expenses                                                                                                                                        |  | $                      | 13,700  |   |      | $ | 2,784   |  
|Accrued salaries and related obligations                                                                                                                                     |  |                        | 27,059  |   |      |   | 17,899  |  
|Other liabilities                                                                                                                                                            |  |                        | 482     |   |      |   | 258     |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Total current liabilities                                                                                                                                                    |  |                        | 41,241  |   |      |   | 20,941  |  
|Deferred income taxes                                                                                                                                                        |  |                        | 4,688   |   |      |   | 1,465   |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Total liabilities                                                                                                                                                            |  |                        | 45,929  |   |      |   | 22,406  |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Commitments and contingencies (Note 13)                                                                                                                                      |  |                        |         |   |      |   |         |  
|Stockholders equity:                                                                                                                                                        |  |                        |         |   |      |   |         |  
|Preferred stock, $0.01 par value, 5,000 shares authorized; zero shares issued and outstanding                                                                                |  |                        |         |   |      |   |         |  
|Common stock, $0.01 par value, 35,000 shares authorized; 23,355 and 22,251 shares issued, and 23,201 and 22,110 shares outstanding as of May
31, 2004 and 2003, respectively |  |                        | 233     |   |      |   | 222     |  
|Additional paid-in capital                                                                                                                                                   |  |                        | 108,849 |   |      |   | 86,676  |  
|Deferred stock compensation                                                                                                                                                  |  |                        | (168    | ) |      |   | (480    | )
|Accumulated other comprehensive gain                                                                                                                                         |  |                        | 514     |   |      |   | 293     |  
|Notes receivable from stockholders                                                                                                                                           |  |                        | -       |   |      |   | (55     | )
|Retained earnings                                                                                                                                                            |  |                        | 71,210  |   |      |   | 46,876  |  
|Treasury stock at cost, 154 and 141 shares at May 31, 2004 and 2003, respectively                                                                                            |  |                        | (304    | ) |      |   | (1      | )
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Total stockholders equity                                                                                                                                                   |  |                        | 180,334 |   |      |   | 133,531 |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  
|Total liabilities and stockholders equity                                                                                                                                   |  | $                      | 226,263 |   |      | $ | 155,937 |  
|                                                                                                                                                                             |  |                        |         |   |      |   |         |  



The accompanying notes
are an integral part of these financial statements.



36



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



CONSOLIDATED STATEMENTS OF INCOME



|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|-------------------------------------------- |  | ---------------------------------------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                             |  | For The Years Ended May 31,                                |        
|                                             |  | 2004                                                       |         |   | 2003 |   |         | 2002 | 
|                                             |  | (amounts in thousands, except net income per common share) |        
|                                             |  |                                                            |        
|Revenue                                      |  | $                                                          | 328,333 |   |      | $ | 202,022 |      |  | $ | 181,677 |  
|Direct cost of services                      |  |                                                            | 199,870 |   |      |   | 121,648 |      |  |   | 108,715 |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Gross profit                                 |  |                                                            | 128,463 |   |      |   | 80,374  |      |  |   | 72,962  |  
|Selling, general and administrative expenses |  |                                                            | 84,301  |   |      |   | 58,248  |      |  |   | 50,688  |  
|Amortization of intangible assets            |  |                                                            | 1,716   |   |      |   | 655     |      |  |   | 125     |  
|Depreciation expense                         |  |                                                            | 1,907   |   |      |   | 1,290   |      |  |   | 1,180   |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Income from operations                       |  |                                                            | 40,539  |   |      |   | 20,181  |      |  |   | 20,969  |  
|Interest income                              |  |                                                            | (593    | ) |      |   | (1,077  | )    |  |   | (1,183  | )
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Income before provision for income taxes     |  |                                                            | 41,132  |   |      |   | 21,258  |      |  |   | 22,152  |  
|Provision for income taxes                   |  |                                                            | 16,798  |   |      |   | 8,716   |      |  |   | 8,861   |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Net income                                   |  | $                                                          | 24,334  |   |      | $ | 12,542  |      |  | $ | 13,291  |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|                                             |  |                                                            |        
|Net income per common share                  |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Basic                                        |  | $                                                          | 1.06    |   |      | $ | 0.57    |      |  | $ | 0.63    |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Diluted                                      |  | $                                                          | 1.00    |   |      | $ | 0.55    |      |  | $ | 0.58    |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Weighted average common shares outstanding   |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Basic                                        |  |                                                            | 22,992  |   |      |   | 21,849  |      |  |   | 21,241  |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  
|Diluted                                      |  |                                                            | 24,390  |   |      |   | 22,896  |      |  |   | 22,862  |  
|                                             |  |                                                            |         |   |      |   |         |      |  |   |         |  





The accompanying notes are an integral part of these financial statements.



37



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



CONSOLIDATED STATEMENTS OF STOCKHOLDERS EQUITY

(Amounts in thousands)



|                                                                                   |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | --- |  | ------------------------- | ------ | - | -------------- | - | ------ | ------------------------------- |  | --- | ---------------------------------------- | - | -- | ---------------- |  | ------------------------ | ---- | - |  | - | --- | - |  | - | ------ |  | - | ------- | -
|                                                                                   |  | Common Stock |  | AdditionalPaid-InCapital |     |  | DeferredStockCompensation |        |   | Treasury Stock |   |        | NotesReceivableFromStockholders |  |     | AccumulatedOtherComprehensive(Loss) Gain |   |    | RetainedEarnings |  | TotalStockholdersEquity |     
|                                                                                   |  | Shares       |  | Amount                   |     |  |                           | Shares |   | Amount         |   |        |                                 |  |    
|Balances as of May 31, 2001                                                        |  | 20,735       |  | $                        | 207 |  | $                         | 66,507 |   |                | $ | (1,507 | )                               |  | 48  |                                          | $ | (1 | )                |  | $                        | (164 | ) |  | $ | (53 | ) |  | $ | 21,043 |  | $ | 86,032  |  
|Secondary offering of common stock                                                 |  | 230          |  |                          | 2   |  |                           | 4,552  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 4,554   |  
|Costs related to stock offering                                                    |  |              |  |                          |     |  |                           | (793   | ) |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | (793    | )
|Exercise of stock options                                                          |  | 599          |  |                          | 6   |  |                           | 3,859  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 3,865   |  
|Tax benefit from exercise of stock options                                         |  |              |  |                          |     |  |                           | 4,169  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 4,169   |  
|Issuance of common stock under Employee Stock Purchase Plan                        |  | 97           |  |                          | 1   |  |                           | 1,895  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 1,896   |  
|Repurchase of treasury stock                                                       |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  | 53  |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Reversal of deferred compensation for restricted stock and stock options forfeited |  |              |  |                          |     |  |                           | (198   | ) |                |   | 198    |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Amortization of deferred stock compensation                                        |  |              |  |                          |     |  |                           |        |   |                |   | 400    |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 400     |  
|Repayment of notes receivable from shareholders                                    |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          | 55   |   |  |   |     |   |  |   |        |  |   | 55      |  
|Comprehensive Income:                                                              |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Currency translation adjustment, net of tax                                        |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   | 2   |   |  |   |        |  |   | 2       |  
|Net income for the year ended May 31, 2002                                         |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   | 13,291 |  |   | 13,291  |  
|                                                                                   |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Total comprehensive income                                                         |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   | 2   |   |  |   | 13,291 |  |   | 13,293  |  
|                                                                                   |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Balances as of May 31, 2002                                                        |  | 21,661       |  | $                        | 216 |  | $                         | 79,991 |   |                | $ | (909   | )                               |  | 101 |                                          | $ | (1 | )                |  | $                        | (109 | ) |  | $ | (51 | ) |  | $ | 34,334 |  | $ | 113,471 |  
|Exercise of stock options                                                          |  | 388          |  |                          | 4   |  |                           | 2,342  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 2,346   |  
|Tax benefit from exercise of stock options                                         |  |              |  |                          |     |  |                           | 1,152  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 1,152   |  
|Issuance of common stock under Employee Stock Purchase Plan                        |  | 86           |  |                          | 1   |  |                           | 1,800  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 1,801   |  
|Issuance of common stock for acquisition of The Procurement Centre                 |  | 116          |  |                          | 1   |  |                           | 1,503  |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 1,504   |  
|Repurchase of treasury stock                                                       |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  | 40  |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Reversal of deferred compensation for restricted stock and stock options forfeited |  |              |  |                          |     |  |                           | (112   | ) |                |   | 112    |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Amortization of deferred stock compensation                                        |  |              |  |                          |     |  |                           |        |   |                |   | 317    |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   | 317     |  
|Repayment of notes receivable from shareholders                                    |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          | 54   |   |  |   |     |   |  |   |        |  |   | 54      |  
|Comprehensive Income:                                                              |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Currency translation adjustment, net of tax                                        |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   | 344 |   |  |   |        |  |   | 344     |  
|Net income for the year ended May 31, 2003                                         |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   | 12,542 |  |   | 12,542  |  
|                                                                                   |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  
|Total comprehensive income                                                         |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   | 344 |   |  |   | 12,542 |  |   | 12,886  |  
|                                                                                   |  |              |  |                          |     |  |                           |        |   |                |   |        |                                 |  |     |                                          |   |    |                  |  |                          |      |   |  |   |     |   |  |   |        |  |   |         |  



38



---



---

##### Table of Contents

|                                                                                   |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   |         |  
|---------------------------------------------------------------------------------- |  | ------------ |  | ------------------------ | --- |  | ------------------------- | ------- | - | -------------- | - | ---- | ------------------------------- |  | --- | ---------------------------------------- | - | ---------------- | - | ------------------------ | - | --- | - |  | - | --- |  | - | ------ |  | - | ------- | -
|                                                                                   |  | Common Stock |  | AdditionalPaid-InCapital |     |  | DeferredStockCompensation |         |   | Treasury Stock |   |      | NotesReceivableFromStockholders |  |     | AccumulatedOtherComprehensive(Loss) Gain |   | RetainedEarnings |   | TotalStockholdersEquity |  
|                                                                                   |  | Shares       |  | Amount                   |     |  |                           | Shares  |   | Amount         |   |      |                                 |  |    
|Balances as of May 31, 2003                                                        |  | 22,251       |  | $                        | 222 |  | $                         | 86,676  |   |                | $ | (480 | )                               |  | 141 |                                          | $ | (1               | ) |                          | $ | (55 | ) |  | $ | 293 |  | $ | 46,876 |  | $ | 133,531 |  
|Exercise of stock options                                                          |  | 1,034        |  |                          | 10  |  |                           | 13,953  |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   | 13,963  |  
|Tax benefit from exercise of stock options                                         |  |              |  |                          |     |  |                           | 6,840   |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   | 6,840   |  
|Issuance of common stock under Employee Stock Purchase Plan                        |  | 70           |  |                          | 1   |  |                           | 1,394   |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   | 1,395   |  
|Repurchase of treasury stock                                                       |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  | 13  |                                          |   | (303             | ) |                          |   |     |   |  |   |     |  |   |        |  |   | (303    | )
|Reversal of deferred compensation for restricted stock and stock options forfeited |  |              |  |                          |     |  |                           | (14     | ) |                |   | 14   |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   |         |  
|Amortization of deferred stock compensation                                        |  |              |  |                          |     |  |                           |         |   |                |   | 298  |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   | 298     |  
|Repayment of notes receivable from shareholders                                    |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   | 55  |   |  |   |     |  |   |        |  |   | 55      |  
|Comprehensive Income:                                                              |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   |         |  
|Currency translation adjustment, net of tax                                        |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   | 221 |  |   |        |  |   | 221     |  
|Net income for the year ended May 31, 2004                                         |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   | 24,334 |  |   | 24,334  |  
|                                                                                   |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   |         |  
|Total comprehensive income                                                         |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   | 221 |  |   | 24,334 |  |   | 24,555  |  
|                                                                                   |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   |         |  
|Balances as of May 31, 2004                                                        |  | 23,355       |  | $                        | 233 |  | $                         | 108,849 |   |                | $ | (168 | )                               |  | 154 |                                          | $ | (304             | ) |                          | $ | -   |   |  | $ | 514 |  | $ | 71,210 |  | $ | 180,334 |  
|                                                                                   |  |              |  |                          |     |  |                           |         |   |                |   |      |                                 |  |     |                                          |   |                  |   |                          |   |     |   |  |   |     |  |   |        |  |   |         |  





The accompanying notes are an integral part of these financial statements.



39



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



CONSOLIDATED STATEMENTS OF CASH FLOWS



|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|------------------------------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ---- | - | ------- | ---- |  | - | ------- | -
|                                                                                                                    |  | For The Years Ended May 31, |        
|                                                                                                                    |  | 2004                        |         |   | 2003 |   |         | 2002 | 
|                                                                                                                    |  | (Amounts in thousands)      |        
|Cash flows from operating activities:                                                                               |  |                             |         |   |      |   |         |      |  |   |         |  
|Net income                                                                                                          |  | $                           | 24,334  |   |      | $ | 12,542  |      |  | $ | 13,291  |  
|Adjustments to reconcile net income to net cash provided by operating activities :                                  |  |                             |         |   |      |   |         |      |  |   |         |  
|                                                                                                                    |  |                             |        
|Depreciation and amortization                                                                                       |  |                             | 3,623   |   |      |   | 1,945   |      |  |   | 1,305   |  
|Amortization of deferred stock compensation                                                                         |  |                             | 298     |   |      |   | 317     |      |  |   | 400     |  
|Bad debt expense                                                                                                    |  |                             | 1,910   |   |      |   | 907     |      |  |   | 1,007   |  
|Tax benefit from exercise of stock options                                                                          |  |                             | 6,840   |   |      |   | 1,152   |      |  |   | 4,169   |  
|Deferred income taxes provision (benefit)                                                                           |  |                             | 214     |   |      |   | 555     |      |  |   | (2      | )
|Changes in operating assets and liabilities, net of effect of acquisitions:                                         |  |                             |         |   |      |   |         |      |  |   |         |  
|Trade accounts receivable                                                                                           |  |                             | (25,762 | ) |      |   | (5,938  | )    |  |   | 2,940   |  
|Prepaid expenses and other current assets                                                                           |  |                             | (1,807  | ) |      |   | (316    | )    |  |   | (754    | )
|Prepaid income taxes                                                                                                |  |                             | 1,239   |   |      |   | 1,731   |      |  |   | (4,587  | )
|Other assets                                                                                                        |  |                             | 613     |   |      |   | (102    | )    |  |   | (36     | )
|Accounts payable and accrued expenses                                                                               |  |                             | (287    | ) |      |   | 92      |      |  |   | (78     | )
|Accrued salaries and related obligations                                                                            |  |                             | 9,160   |   |      |   | 4,546   |      |  |   | (1,894  | )
|Other liabilities                                                                                                   |  |                             | 224     |   |      |   | (432    | )    |  |   | (433    | )
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Net cash provided by operating activities                                                                           |  |                             | 20,599  |   |      |   | 16,999  |      |  |   | 15,328  |  
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Cash flows from investing activities:                                                                               |  |                             |         |   |      |   |         |      |  |   |         |  
|Redemption of marketable securities                                                                                 |  |                             | 50,000  |   |      |   | 18,000  |      |  |   | 22,000  |  
|Purchase of marketable securities                                                                                   |  |                             | (48,000 | ) |      |   | (14,000 | )    |  |   | (46,000 | )
|Purchase of Executive Temporary Management BV, net of cash acquired of $1.9 million and including transaction costs |  |                             | (27,893 | ) |      |   | -       |      |  |   | -       |  
|Purchase of policyIQ, including transaction costs                                                                   |  |                             | (2,056  | ) |      |   | -       |      |  |   | -       |  
|Purchase of Deloitte Re:sources Pty, including transaction costs                                                    |  |                             | (1,078  | ) |      |   | -       |      |  |   | -       |  
|Purchase of The Procurement Centre, net of cash acquired and including transaction costs                            |  |                             | -       |   |      |   | (8,003  | )    |  |   | -       |  
|Purchase of Ernst & Young United Kingdom subsidiary, including transaction costs                                    |  |                             | -       |   |      |   | -       |      |  |   | (1,683  | )
|Purchases of property and equipment                                                                                 |  |                             | (3,180  | ) |      |   | (675    | )    |  |   | (1,980  | )
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Net cash used in investing activities                                                                               |  |                             | (32,207 | ) |      |   | (4,678  | )    |  |   | (27,663 | )
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Cash flows from financing activities:                                                                               |  |                             |         |   |      |   |         |      |  |   |         |  
|Proceeds from exercise of stock options                                                                             |  |                             | 13,963  |   |      |   | 2,346   |      |  |   | 3,865   |  
|Stock offering costs                                                                                                |  |                             | -       |   |      |   | -       |      |  |   | (793    | )
|Proceeds from issuance of common stock                                                                              |  |                             | -       |   |      |   | -       |      |  |   | 4,554   |  
|Proceeds from issuance of common stock under Employee Stock Purchase Plan                                           |  |                             | 1,395   |   |      |   | 1,801   |      |  |   | 1,896   |  
|Repurchase of treasury stock                                                                                        |  |                             | (303    | ) |      |   | -       |      |  |   | -       |  
|Repayment of notes receivable from stockholders                                                                     |  |                             | 55      |   |      |   | 54      |      |  |   | 55      |  
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Net cash provided by financing activities                                                                           |  |                             | 15,110  |   |      |   | 4,201   |      |  |   | 9,577   |  
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Effect of exchange rate changes on cash                                                                             |  |                             | 259     |   |      |   | (189    | )    |  |   | -       |  
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Net increase (decrease) in cash                                                                                     |  |                             | 3,761   |   |      |   | 16,333  |      |  |   | (2,758  | )
|Cash and cash equivalents at beginning of period                                                                    |  |                             | 48,078  |   |      |   | 31,745  |      |  |   | 34,503  |  
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  
|Cash and cash equivalents at end of period                                                                          |  | $                           | 51,839  |   |      | $ | 48,078  |      |  | $ | 31,745  |  
|                                                                                                                    |  |                             |         |   |      |   |         |      |  |   |         |  



The accompanying notes
are an integral part of these financial statements.



40



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



NOTES
TO CONSOLIDATED FINANCIAL STATEMENTS

Amounts in thousands, except per share amounts



1.    Description of the Company and its Business



Resources Connection, Inc. (Resources Connection) was
incorporated on November 16, 1998. Resources Connection provides professional services to a variety of industries and enterprises through its subsidiaries, Resources Connection LLC (LLC), RECN of Texas, LP (Texas), Resources
Audit Solutions, LLC (RAS), and seven foreign subsidiaries (collectively the Company). Prior to its acquisition of LLC on April 1, 1999, Resources Connection had no substantial operations. LLC, which commenced operations in
June 1996, and Texas, which was formed in May 2002, and the various foreign subsidiaries provide clients with experienced professionals who specialize in accounting, finance, information technology, human resources and supply chain management
services on a project basis. RAS commenced business formally in June 2002 and assists its clients with their internal audit and risk assessment needs on a project or co-sourced basis. The Company has offices in the United States, Australia, Canada,
Hong Kong, Japan, the Netherlands, Taiwan and the United Kingdom. Resources Connection is a Delaware corporation. LLC and RAS are Delaware limited liability companies. Texas is a limited partnership formed in Texas.



The Companys fiscal year consists of 52 or 53 weeks, ending on the
Saturday in May nearest the last day of May in each year. For convenience, all references herein to years or periods are to years or periods ended May 31. The fiscal years ended May 31, 2004 and 2002 consist of 52 weeks. The fiscal year ended May
31, 2003 consists of 53 weeks.



2.    Summary of
Significant Accounting Policies



Principles of
Consolidation



The consolidated financial statements
include the accounts of the Company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.



Revenue Recognition



Revenues are recognized and billed when the Companys professionals deliver services. Conversion fees are recognized when one of the Companys
professionals accepts an offer of permanent employment from a client. Conversion fees were 0.6%, 1.0% and 1.6% of revenue for the years ended May 31, 2004, 2003 and 2002, respectively. All costs of compensating the Companys professionals are
the responsibility of the Company and are included in direct cost of services.



Client Reimbursements of Out-of-Pocket Expenses



The Company recognizes all reimbursements received from clients for out-of-pocket expenses as revenue and all expenses as direct cost of
services.



Foreign Currency Translation



The financial statements of subsidiaries outside the United States are
measured using the local currency as the functional currency. Assets and liabilities of these subsidiaries are translated at current exchange rates, income and expense items are translated at average exchange rates prevailing during the period and
the related translation adjustments are recorded as a component of comprehensive income or loss within stockholders equity. Gains and losses from foreign currency transactions are included in the consolidated statements of income.



41



---



---

##### Table of Contents

Per Share Information



The Company follows Statement of Financial Accounting Standards (SFAS) No. 128, Earnings Per Share,
which establishes standards for the computation, presentation and disclosure requirements for basic and diluted earnings per share for entities with publicly held common shares and potential common shares. Basic earnings per share is computed by
dividing net income by the weighted average number of common shares outstanding. In computing diluted earnings per share, the weighted average number of shares outstanding is adjusted to reflect the effect of potentially dilutive securities.



Potential common shares totaling 436, 1,518 and 827 were not
included in the diluted earnings per share amounts for the years ended May 31, 2004, 2003 and 2002, respectively, as their effect would have been anti-dilutive. For the years ended May 31, 2004, 2003 and 2002, potentially dilutive securities
consisted solely of stock options and resulted in potential common shares of 1,398, 1,047 and 1,621, respectively.



Cash and Cash Equivalents



The Company considers cash on hand, deposits in banks, and short-term investments purchased with an original maturity date of three months or less to be
cash and cash equivalents. The carrying amounts reflected in the consolidated balance sheets for cash and cash equivalents approximate the fair values due to the short maturities of these instruments.



Investments in Marketable Securities



The Company accounts for its marketable securities in accordance with SFAS
No. 115, Accounting for Certain Investments in Debt and Equity Securities. Accordingly, securities that the Company has the ability and positive intent to hold to maturity are carried at amortized cost. These securities consist of
commercial paper and government-agency bonds. Cost approximates market for these securities. All held-to-maturity securities have remaining maturity dates greater than one year.



Property and Equipment



Property and equipment is stated at cost, less accumulated depreciation and amortization. Depreciation and amortization is computed using the
straight-line method over the estimated useful lives of the related assets that range from three to ten years. Leasehold improvements are amortized using the straight-line method over the estimated useful life of the asset or the term of the lease,
whichever is shorter. Costs for normal repairs and maintenance are expensed to operations as incurred, while renewals and major refurbishments are capitalized.



Assessments of whether there has been a permanent impairment in the value of property and equipment are periodically performed by considering factors
such as expected future operating income, trends and prospects, as well as the effects of demand, competition and other economic factors. Management believes no permanent impairment has occurred.



Intangible Assets



In accordance with SFAS No. 142, Goodwill and Other Intangible
Assets, goodwill and other intangible assets with indefinite lives are not subject to amortization but are tested for impairment annually or whenever events or changes in circumstances indicate that the asset might be impaired. The Company
performed their annual impairment analysis as of May 31, 2004 and will continue to test for impairment annually as of May 31. No impairment was indicated. Other intangible assets with finite lives are subject to amortization, and impairment reviews
are performed in accordance with SFAS No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets. No event has occurred that would trigger an impairment assessment of the Companys intangible assets with finite lives.



42



---



---

##### Table of Contents

Refer to Note 5 for further description of the Companys intangible assets.



Stock-Based Compensation



On December 31, 2002, the Financial Accounting Standards Board
(FASB) issued SFAS No. 148, Accounting for Stock Based Compensation Transition and Disclosure, which amends SFAS No. 123, Accounting for Stock Based Compensation. SFAS No. 148 requires more prominent and frequent
disclosures about the effects of stock-based compensation, which the Company has adopted as of the year ended May 31, 2003. The Company will continue to account for its stock-based compensation according to the provisions of Accounting Principles
Board Opinion No. 25, Accounting for Stock Issued to Employees.



If the Company had recognized compensation cost at the date of grant using the fair value method, our pro-forma net income and pro-forma net income per share would have been as follows:



|                                                                                                                                            |  |      |        |   |      |   |        |      |  |   |        |  
|------------------------------------------------------------------------------------------------------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | ---- |  | - | ------ | -
|                                                                                                                                            |  | 2004 |        |   | 2003 |   |        | 2002 | 
|                                                                                                                                            |  |      |       
|Net income, as reported                                                                                                                     |  | $    | 24,334 |   |      | $ | 12,542 |      |  | $ | 13,291 |  
|Deduct: Total stock-based employee compensation expense determined under fair value based method for all awards, net of related tax
effects |  |      | (6,190 | ) |      |   | (8,275 | )    |  |   | (5,117 | )
|                                                                                                                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Pro forma net income                                                                                                                        |  | $    | 18,144 |   |      | $ | 4,267  |      |  | $ | 8,174  |  
|                                                                                                                                            |  |      |        |   |      |   |        |      |  |   |        |  
|Net income per share:                                                                                                                       |  |      |        |   |      |   |        |      |  |   |        |  
|Basic-as reported                                                                                                                           |  | $    | 1.06   |   |      | $ | 0.57   |      |  | $ | 0.63   |  
|Basic-pro forma                                                                                                                             |  | $    | 0.79   |   |      | $ | 0.20   |      |  | $ | 0.38   |  
|Diluted-as reported                                                                                                                         |  | $    | 1.00   |   |      | $ | 0.55   |      |  | $ | 0.58   |  
|Diluted-pro forma                                                                                                                           |  | $    | 0.74   |   |      | $ | 0.19   |      |  | $ | 0.36   |  



For purposes of
computing the pro forma amounts, the fair value of stock-based compensation was estimated using the Black-Scholes option-pricing model with the following assumptions:



|                                       |  |             |  |             |  |            
|-------------------------------------- |  | ----------- |  | ----------- |  | -----------
|                                       |  | 2004        |  | 2003        |  | 2002       
|Weighted-average expected life (years) |  | 5           |  | 5           |  | 5          
|Annual dividend per share              |  | None        |  | None        |  | None       
|Risk-free interest rate                |  | 2.48%-3.38% |  | 2.68%-4.08% |  | 1.69%-5.11%
|Expected volatility                    |  | 50%         |  | 65%         |  | 75%        



Because the
determination of the fair value of all options granted includes the factors described in the preceding paragraph, and because additional option grants are expected to be made each year, the above pro forma disclosures are not likely to be
representative of the pro forma effect on reported net income for future years.



Income Taxes



The
Company accounts for income taxes in accordance with SFAS No. 109, Accounting for Income Taxes. Under this method, deferred income taxes are recognized for the estimated tax consequences in future years of differences between the tax
bases of assets and liabilities and their financial reporting amounts at each year-end based on enacted tax laws and statutory rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are
established to reduce deferred tax assets to the amount expected to be realized when, in managements opinion, it is more likely than not that some portion of the deferred tax assets will not be realized. The provision for income taxes
represents current taxes payable net of the change during the period in deferred tax assets and liabilities.



43



---



---

##### Table of Contents

Recent Accounting Pronouncements



In December 2003, the Securities and Exchange Commission (SEC) issued Staff Accounting Bulletin
(SAB) No. 104, Revenue Recognition. SAB No. 104 revises and rescinds certain sections of SAB No. 101 in order to make this interpretive guidance consistent with current authoritative accounting and auditing guidance and SEC
rules and regulations. Accordingly there is no impact to our results of operations, financial position or cash flows as a result of the issuance of SAB No. 104.



On December 23, 2003, the FASB issued SFAS No. 132 (revised 2003), Employers Disclosures about Pensions and Other Postretirement Benefits,
an amendment of FASB Statements No. 87, 88 and 106, and a revision of FASB Statement No. 132 (FAS 132 (revised 2003)). This statement revises employers disclosures about pension plans and other postretirement benefit plans.
It does not change the measurement or recognition of those plans required by SFAS No. 87, Employers Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of Defined Benefit Pension
Plans and for Termination Benefits, and SFAS No. 106, Employers Accounting for Postretirement Benefits Other Than Pensions. The new rules require additional disclosures about the assets, obligations, cash flows, and net
periodic benefit cost of defined benefit pension plans and postretirement benefit plans. The new disclosures are generally effective for 2003 calendar year-end financial statements of public companies, with a delayed effective date for certain
disclosures and for foreign plans. The adoption of SFAS No. 132 did not have an effect on our consolidated financial statements.



In December 2003, the FASB issued Interpretation No. 46R (FIN 46R), a revision to FIN 46, Consolidation of Variable Interest
Entities. FIN 46R clarifies some of the provisions of FIN 46 and exempts certain entities from its requirements. FIN 46R is effective at the end of the first interim period ending after March 15, 2004. Entities that have adopted FIN 46 prior
to this effective date can continue to apply the provisions of FIN 46 until the effective date of FIN 46R. The adoption of FIN 46R did not have an effect on our consolidated financial statements.



Reclassifications



Certain reclassifications have been made to the prior period consolidated
financial statements to conform to the current year presentation.



Use of Estimates



The preparation of financial
statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions 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. Although management believes these estimates and assumptions are adequate, actual results could differ from the estimates and assumptions
used.



3.    Acquisitions



On July 15, 2003, the Company acquired the outstanding capital shares of
Ernst & Youngs subsidiary, Executive Temporary Management BV in the Netherlands for $29.8 million, including $1.6 million in transaction costs directly attributable to the acquisition. The Company completed the acquisition to provide a
foundation in continental Europe and believes the acquisition will allow it to market to current and prospective multinational clients with significant international operations. This operation has been renamed Resources Connection.NL BV
(RC.NL).



The acquisition was accounted for as a
purchase under SFAS No. 141, Business Combinations. In accordance with SFAS No. 141, the Company allocated the purchase price based on the fair value of the assets acquired and liabilities assumed with the residual recorded as goodwill.
The total intangible assets acquired



44



---



---

##### Table of Contents

include approximately $25.7 million for goodwill, $3.7 million for customer relationships and $1.0 million for a customer database. The customer
relationships are being amortized over four years and the customer database over five years. The goodwill is not deductible for tax purposes.



The components of the purchase price and allocation of the acquisition of RC.NL are as follows:



|                                        |  |   |         |  
|--------------------------------------- |  | - | ------- | -
|Assets acquired                         |  | $ | 11,526  |  
|Liabilities assumed                     |  |   | (12,060 | )
|Identifiable intangible assets acquired |  |   | 4,668   |  
|Goodwill                                |  |   | 25,659  |  
|                                        |  |   |         |  
|Total                                   |  | $ | 29,793  |  
|                                        |  |   |         |  



The following table
presents revenue, income before provision for income taxes, net income and diluted earnings per share for the years ended May 31, 2004 and 2003 as if the acquisition of RC.NL had occurred on June 1, 2003 and 2002, respectively:



|                                        |  |                                          |         |                               |   |       |                      |  |   |                   |   |  |   |        
|--------------------------------------- |  | ---------------------------------------- | ------- | ----------------------------- | - | ----- | -------------------- |  | - | ----------------- | - |  | - | -------
|                                        |  | ResourcesConnectionYear EndedMay 31,2004 |         | RC.NL Pre-Acquisition Results |   |       | Pro FormaAdjustments |  |   | Pro FormaCombined
|Revenue                                 |  | $                                        | 328,333 |                               | $ | 5,233 |                      |  | $ | -                 |   |  | $ | 333,566
|Income before provision forincome taxes |  | $                                        | 41,132  |                               | $ | (82   | )                    |  | $ | (117              | ) |  | $ | 40,933 
|Net income                              |  | $                                        | 24,334  |                               | $ | (53   | )                    |  | $ | (70               | ) |  | $ | 24,211 
|Diluted earnings per share              |  | $                                        | 1.00    |                               |   | -     |                      |  |   | -                 |   |  | $ | 0.99   



|                                        |  |                                          |         |                               |   |        |                      |  |   |                   |   |  |   |        
|--------------------------------------- |  | ---------------------------------------- | ------- | ----------------------------- | - | ------ | -------------------- |  | - | ----------------- | - |  | - | -------
|                                        |  |                                          |         |                              
|                                        |  | ResourcesConnectionYear EndedMay 31,2003 |         | RC.NL Pre-Acquisition Results |   |        | Pro FormaAdjustments |  |   | Pro FormaCombined
|Revenue                                 |  | $                                        | 202,022 |                               | $ | 58,693 |                      |  | $ | -                 |   |  | $ | 260,715
|Income before provision forincome taxes |  | $                                        | 21,258  |                               | $ | (417   | )                    |  | $ | (1,476            | ) |  | $ | 19,365 
|Net income                              |  | $                                        | 12,542  |                               | $ | (265   | )                    |  | $ | (871              | ) |  | $ | 11,406 
|Diluted earnings per share              |  | $                                        | 0.55    |                               |   | -      |                      |  |   | -                 |   |  | $ | 0.50   



The pro forma
adjustments reflect estimated amortization on intangible assets acquired, reduction in interest income from the use of cash in the purchase and the related impact on income taxes.



On July 30, 2003, the Company acquired policyIQ, a web-based solution for internal controls documentation and content
management, for $2 million and a provision for contingent payments based on future sales volume (approximately $374 in fiscal 2004).



On June 1, 2003, the Company acquired the operations of Deloitte Re:sources Pty Ltd. operating in Australia from Deloitte Touche Tohmatsu Australia for $1
million. This operation has been renamed Resources Connection Australia Pty. Ltd.



On October 11, 2002, the Company completed the acquisition of the assets of The Procurement Centre, LLC, a Houston-based provider of supply chain management services to companies on a project basis. This entity now
operates as a subsidiary renamed Resources Connection Supply Chain Management (SCM). The



45



---



---

##### Table of Contents

purchase price of the acquisition was approximately $9.4 million, consisting of approximately $7.8 million in cash, $125 in transaction costs directly
attributable to the acquisition and 116 shares of common stock with a fair value of approximately $1.5 million. The cash consideration included $400 paid during the third quarter of fiscal 2003 upon SCM meeting certain revenue goals. SCM contributed
$6.7 million to revenue from the date of acquisition through May 31, 2003.



The acquisition was accounted for as a purchase under FASB No. 141. In accordance with SFAS No. 141, the Company allocated the purchase price based on the fair value of the assets acquired and liabilities assumed with
the residual recorded as goodwill. During the third quarter of 2003, the Company, with the assistance of an independent appraiser, completed the identification of and allocation to intangible assets acquired in the transaction. The Company assigned
approximately $1.4 million of the purchase price to amortizable intangibles, consisting of contractually based customer relationships, non-competition agreements and the acquired database of potential SCM associates. These intangibles are being
amortized over one to four years. Approximately $6.6 million was allocated to goodwill. The goodwill is expected to be deductible for tax purposes. Pro forma disclosures related to this acquisition are not presented due to immateriality.



4.    Property and Equipment



Property and equipment consist of the following at May 31:



|                                               |  |      |        |   |      |   |        |  
|---------------------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                               |  | 2004 |        |   | 2003 |  
|Computers and equipment                        |  | $    | 6,683  |   |      | $ | 3,954  |  
|Furniture                                      |  |      | 2,317  |   |      |   | 1,906  |  
|Leasehold improvements                         |  |      | 2,635  |   |      |   | 1,732  |  
|                                               |  |      |        |   |      |   |        |  
|                                               |  |      | 11,635 |   |      |   | 7,592  |  
|Less accumulated depreciation and amortization |  |      | (4,980 | ) |      |   | (3,251 | )
|                                               |  |      |        |   |      |   |        |  
|                                               |  | $    | 6,655  |   |      | $ | 4,341  |  
|                                               |  |      |        |   |      |   |        |  



5.    Intangible Assets and Goodwill



The following table presents detail of our intangible assets, related accumulated amortization and goodwill:



|                                            |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|------------------------------------------- |  | ------------------ | ------ | ----------------------- | - | ------ | --- |  | ----- | ------ | ----------------------- | - | ------ | --- | - | ------ | - |  | - | ------
|                                            |  | As of May 31, 2004 |        | As of May 31, 2003     
|                                            |  | Gross              |        | AccumulatedAmortization |   |        | Net |  | Gross |        | AccumulatedAmortization |   |        | Net
|Customer relationships (2-4 years)          |  | $                  | 4,849  |                         | $ | (1,170 | )   |  | $     | 3,679  |                         | $ | 1,050  |     | $ | (171   | ) |  | $ | 879   
|Associate and customer database (1-5 years) |  |                    | 1,734  |                         |   | (878   | )   |  |       | 856    |                         |   | 580    |     |   | (318   | ) |  |   | 262   
|Non-compete agreements (1-4 years)          |  |                    | 630    |                         |   | (630   | )   |  |       |       |                         |   | 630    |     |   | (568   | ) |  |   | 62    
|Developed technology (3 years)              |  |                    | 520    |                         |   | (132   | )   |  |       | 388    |                         |   |       |     |   |       |   |  |   |      
|Trade name and trademark (indefinite life)  |  |                    | 82     |                         |   |       |     |  |       | 82     |                         |   |       |     |   |       |   |  |   |      
|                                            |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|Total intangible assets                     |  | $                  | 7,815  |                         | $ | (2,810 | )   |  | $     | 5,005  |                         | $ | 2,260  |     | $ | (1,057 | ) |  | $ | 1,203 
|                                            |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       
|Goodwill (indefinite life)                  |  | $                  | 80,665 |                         | $ | (4,617 | )   |  | $     | 76,048 |                         | $ | 52,493 |     | $ | (4,617 | ) |  | $ | 47,876
|                                            |  |                    |        |                         |   |        |     |  |       |        |                         |   |        |     |   |        |   |  |   |       



46



---



---

##### Table of Contents

The Company recorded amortization expense for the years ended May 31, 2004, 2003 and 2002 of $1,716, $655
and $125, respectively. Estimated intangible asset amortization expense (based on existing intangible assets) for the years ending May 31, 2005, 2006, 2007, 2008 and 2009 is $1,647, $1,613, $1,269, $362 and $34, respectively.



|                                                 |  |       |        |   |                         |   |        |     |  |   |        |  
|------------------------------------------------ |  | ----- | ------ | - | ----------------------- | - | ------ | --- |  | - | ------ | -
|                                                 |  | Gross |        |   | AccumulatedAmortization |   |        | Net | 
|                                                 |  |       |       
|Goodwill, as of May 31, 2003                     |  | $     | 52,493 |   |                         | $ | (4,617 | )   |  | $ | 47,876 |  
|Acquisitions                                     |  |       | 28,220 |   |                         |   |       |     |  |   | 28,220 |  
|Impact of foreign currency exchange rate changes |  |       | (48    | ) |                         |   |       |     |  |   | (48    | )
|                                                 |  |       |        |   |                         |   |        |     |  |   |        |  
|Goodwill, as of May 31, 2004                     |  | $     | 80,665 |   |                         | $ | (4,617 | )   |  | $ | 76,048 |  
|                                                 |  |       |        |   |                         |   |        |     |  |   |        |  



6.    Income
Taxes



The following table represents the current and
deferred income tax provision for federal and state income taxes attributable to operations for the years ended May 31:



|         |  |      |        |      |   |       |  |   |       |  
|-------- |  | ---- | ------ | ---- | - | ----- |  | - | ----- | -
|         |  | 2004 |        | 2003 |   | 2002  | 
|Current  |  |      |        |      |   |       |  |   |       |  
|Federal  |  | $    | 13,684 |      | $ | 7,084 |  | $ | 7,038 |  
|State    |  |      | 2,900  |      |   | 1,077 |  |   | 1,825 |  
|         |  |      |        |      |   |       |  |   |       |  
|         |  |      | 16,584 |      |   | 8,161 |  |   | 8,863 |  
|         |  |      |        |      |   |       |  |   |       |  
|Deferred |  |      |        |      |   |       |  |   |       |  
|Federal  |  |      | 152    |      |   | 269   |  |   | (157  | )
|State    |  |      | 62     |      |   | 286   |  |   | 155   |  
|         |  |      |        |      |   |       |  |   |       |  
|         |  |      | 214    |      |   | 555   |  |   | (2    | )
|         |  |      |        |      |   |       |  |   |       |  
|         |  | $    | 16,798 |      | $ | 8,716 |  | $ | 8,861 |  
|         |  |      |        |      |   |       |  |   |       |  



The components of the
provision for deferred income taxes are as follows for the years ended May 31:



|                                   |  |      |       |   |      |   |       |      |  |   |       |  
|---------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                   |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Allowance for doubtful accounts    |  | $    | (350  | ) |      | $ | (107  | )    |  | $ | 116   |  
|Property and equipment             |  |      | 23    |   |      |   | (62   | )    |  |   | (1    | )
|Goodwill and non-compete agreement |  |      | 1,296 |   |      |   | 1,286 |      |  |   | 1,180 |  
|Accrued liabilities                |  |      | (432  | ) |      |   | (23   | )    |  |   | (116  | )
|Deferred compensation              |  |      |      |   |      |   | 357   |      |  |   | (357  | )
|Foreign items                      |  |      | (106  | ) |      |   | (761  | )    |  |   | (889  | )
|State taxes                        |  |      | (217  | ) |      |   | (135  | )    |  |   | 65    |  
|                                   |  |      |       |   |      |   |       |      |  |   |       |  
|Net deferred income tax provision  |  | $    | 214   |   |      | $ | 555   |      |  | $ | (2    | )
|                                   |  |      |       |   |      |   |       |      |  |   |       |  



47



---



---

##### Table of Contents

The provision for income taxes from operations differs from the amount that would result from applying
the federal statutory rate as follows for the years ended May 31:



|                                    |  |      |   |  |      |   |  |      |   
|----------------------------------- |  | ---- | - |  | ---- | - |  | ---- | --
|                                    |  | 2004 |   |  | 2003 |   |  | 2002 |   
|Statutory tax rate                  |  | 35.0 | % |  | 35.0 | % |  | 34.0 | % 
|State taxes, net of federal benefit |  | 4.7  | % |  | 4.2  | % |  | 6.9  | % 
|Other, net                          |  | 1.1  | % |  | 1.8  | % |  | (0.9 | )%
|                                    |  |      |   |  |      |   |  |      |   
|Effective tax rate                  |  | 40.8 | % |  | 41.0 | % |  | 40.0 | % 
|                                    |  |      |   |  |      |   |  |      |   



The components of the
net deferred tax asset consist of the following as of May 31:



|                                   |  |      |        |   |      |   |        |  
|---------------------------------- |  | ---- | ------ | - | ---- | - | ------ | -
|                                   |  | 2004 |        |   | 2003 |  
|Deferred tax assets:               |  |      |        |   |      |   |        |  
|Allowance for doubtful accounts    |  | $    | 1,374  |   |      | $ | 1,024  |  
|Accrued expenses                   |  |      | 1,828  |   |      |   | 1,396  |  
|Net operating losses               |  |      | 81     |   |      |   | -      |  
|Foreign items                      |  |      | 1,756  |   |      |   | 1,650  |  
|State taxes                        |  |      | 391    |   |      |   | 176    |  
|                                   |  |      |        |   |      |   |        |  
|                                   |  |      | 5,430  |   |      |   | 4,246  |  
|                                   |  |      |        |   |      |   |        |  
|Deferred tax liabilities:          |  |      |        |   |      |   |        |  
|Property and equipment             |  |      | (101   | ) |      |   | (78    | )
|Goodwill and non-compete agreement |  |      | (6,343 | ) |      |   | (3,037 | )
|                                   |  |      |        |   |      |   |        |  
|                                   |  |      | (6,444 | ) |      |   | (3,115 | )
|                                   |  |      |        |   |      |   |        |  
|Net deferred tax (liability) asset |  | $    | (1,014 | ) |      | $ | 1,131  |  
|                                   |  |      |        |   |      |   |        |  



Prepaid income taxes
were $535 and $1,774 at May 31, 2004 and 2003, respectively.



The tax benefit associated with the exercise of nonqualified stock options and the disqualifying dispositions by employees of incentive stock options and shares issued under the Companys Employee Stock Purchase Plan reduced income
taxes payable by $6,840 and $1,152 for the years ended May 31, 2004 and 2003, respectively. Such benefit is reflected as additional paid-in capital.



Realization on the deferred tax assets is dependent upon generating sufficient taxable income. Although realization is not assured for the deferred tax
assets, management believes that it is more likely than not that they will be realized through future taxable earnings or alternative tax strategies.



Deferred income taxes have not been provided on the undistributed earnings of the Companys foreign subsidiaries as of May 31, 2004 since these
amounts are intended to be permanently reinvested in foreign operations. It is not practicable to calculate the deferred taxes associated with these earnings; however, foreign tax credits would likely be available to reduce federal income taxes in
the event of distribution.



As a result of the policyIQ
acquisition, the Company acquired net operating loss carryforwards. At May 31, 2004, the Company had federal and state net operating loss carryforwards of approximately $201 and $246, respectively, which will begin to expire in 2021 through 2023.
Utilization of net operating loss carryforwards are subject to the change of ownership provisions under Section 382 of the Internal Revenue Code. The amount of such annual limitation is approximately $89.



48



---



---

##### Table of Contents

7.    Accrued Salaries and Related Obligations



Accrued salaries and related obligations consist of the following as of May
31:



|                                                  |  |      |        |      |   |       
|------------------------------------------------- |  | ---- | ------ | ---- | - | ------
|                                                  |  | 2004 |        | 2003
|Accrued salaries, bonuses and related obligations |  | $    | 23,641 |      | $ | 15,394
|Accrued vacation                                  |  |      | 3,418  |      |   | 2,505 
|                                                  |  |      |        |      |   |       
|                                                  |  | $    | 27,059 |      | $ | 17,899
|                                                  |  |      |        |      |   |       



8.    Revolving
Credit Agreement



The Companys original August 2001
$10.0 million unsecured revolving credit facility with Bank of America was replaced effective March 26, 2004 with a new $10.0 million unsecured revolving credit facility with substantially the same terms (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, a London Inter-Bank Offered (LIBOR) rate plus 1.5% or Bank of Americas Grand
Cayman Banking Center (IBOR) rate plus 1.5%. Interest, if any, is payable monthly. There is an annual facility fee of 0.25% payable on the unutilized portion of the Credit Agreement. The Credit Agreement expires December 1, 2005. As of
May 31, 2004, the Company had no outstanding borrowings under the revolving credit facility.



The Credit Agreement contains certain financial and other restrictive covenants. These covenants include, but are not limited to, maintaining defined levels of profitability. The Company was in compliance with these
covenants as of May 31, 2004.



9.    Concentrations of
Credit Risk



The Company maintains cash and cash equivalent
balances and long-term marketable securities with a high credit quality financial institution. At times, such balances are in excess of federally insured limits.



Financial instruments, which potentially subject the Company to concentration of credit risk, consist primarily of trade
receivables. However, concentrations of credit risk are limited due to the large number of customers comprising the Companys customer base and their dispersion across different business and geographic areas. The Company monitors its exposure
to credit losses and maintains an allowance for anticipated losses. To reduce credit risk, the Company performs credit checks on certain customers. No single customer accounted for more than 6%, 4% and 5% of revenue for the years ended May 31, 2004,
2003 and 2002, respectively.



10.    Stockholders
Equity



The Company has authorized for issuance 35,000
shares of common stock with a $0.01 par value. At May 31, 2004 and 2003, there were 23,355 and 22,251 issued shares of common stock, respectively, all of which are voting.



The Company has authorized for issuance 5,000 shares of preferred stock with a $0.01 par value. The board of directors has
the authority to issue preferred stock in one or more series and to determine the related rights and preferences. No shares of preferred stock were outstanding at May 31, 2004 and 2003.



On May 10, 2002, the Companys board of directors adopted a stockholder rights plan, pursuant to which a dividend of
one preferred stock purchase right (the rights) was declared for each share of common stock



49



---



---

##### Table of Contents

outstanding at the close of business on May 28, 2002. The rights are not exercisable until the Distribution Date, which, unless extended by the Board, is 10
days after a person or group acquires 15% of the voting power of the common stock of the Company or announces a tender offer that could result in a person or group owning 15% or more of the voting power of the common stock of the Company (such
person or group, an Acquiring Person). Each right, should it become exercisable, will entitle the owner to buy 1/100thof a share of a new series of the Companys Junior Participating Preferred Stock at a purchase price of $120, subject to certain adjustments.



In the event a person or group becomes an Acquiring Person without the approval of the board of directors, each right will
entitle the owner, other than the Acquiring Person, to buy at the rights then current exercise price, a number of shares of common stock with a market value equal to twice the exercise price of the rights. In addition, if, after a person or
group becomes an Acquiring Person, the Company was to be acquired by merger, stockholders with unexercised rights could purchase common stock of the acquiring company with a value of twice the exercise price of the rights. The board of directors may
redeem the rights for $0.001 per right at any time prior to and including the tenth business day after the first public announcement that a person has become an Acquiring Person. Unless earlier redeemed, exchanged or extended by the board, the
rights will expire on May 28, 2012.



On August 13, 2001,
the SEC declared the Companys registration statement effective for a secondary offering of the Companys common stock. Selling stockholders sold 3,333, shares of the Companys common stock in the offering, but the Company did not
receive any of the proceeds from the sale of those shares. The Company sold 200 shares in the offering for approximately $3.2 million (after underwriting discounts, commissions and other transaction-related expenses). On September 5, 2001, the
underwriters exercised their over-allotment option for an additional 500 shares from the selling stockholders, but the Company did not receive any of the proceeds from the sale of those shares. The Company sold an additional 30 shares in the
over-allotment for approximately $600.



During fiscal 2004,
2003 and 2002, pursuant to the terms of the 1998 Employee Stock Purchase Plan (the plan), the Company reacquired 13, 40 and 53 shares, respectively, of its common stock from former employees. None of the shares reacquired in 2004, 2003
or 2002 have subsequently been resold. Pursuant to the plan, the Company resold 75 shares of common stock in fiscal 2001 for an aggregate purchase price of approximately $513 to certain employees of the Company, of which $164 was financed by the
Company in exchange for promissory notes from the employees, bearing interest at 4.0% with annual aggregate principal payments of approximately $55 through June 30, 2003. The notes were repaid during fiscal 2004.



11.    Benefit Plan



The Company established a defined contribution 401(k) plan (the
plan) on April 1, 1999, which covers all employees who have completed three months of service and are age 21 or older. Participants may contribute up to 15% of their annual salary up to the maximum amount allowed by statute. As defined in the
plan agreement, the Company may make matching contributions in such amount, if any, up to a maximum of 6% of individual employees annual salaries. The Company, in its sole discretion, determines the matching contribution made from year to
year. To receive matching contributions, the employee must be employed on the last day of the fiscal year. For the years ended May 31, 2004, 2003 and 2002, the Company contributed approximately $916, $806 and $751 respectively, to the plan.



50



---



---

##### Table of Contents

12.    Supplemental Disclosure of Cash Flow Information



For the years ended May 31:



|                                                |  |      |       |   |      |   |       |      |  |   |       |  
|----------------------------------------------- |  | ---- | ----- | - | ---- | - | ----- | ---- |  | - | ----- | -
|                                                |  | 2004 |       |   | 2003 |   |       | 2002 | 
|Income taxes paid                               |  | $    | 8,506 |   |      | $ | 5,302 |      |  | $ | 9,725 |  
|Non-cash investing and financing activities:    |  |      |       |   |      |   |       |      |  |   |       |  
|Deferred stock compensation                     |  | $    | (14   | ) |      | $ | (112  | )    |  | $ | (198  | )
|Issuance of common stock for acquisition of SCM |  | $    |      |   |      | $ | 1,504 |      |  | $ |      |  



13.    Commitments and Contingencies



Lease Commitments



At
May 31, 2004, the Company had operating leases, primarily for office premises, expiring at various dates. At May 31, 2004, the Company had no significant capital leases. Future minimum rental commitments under operating leases are as follows:



|                     |  |   |       
|-------------------- |  | - | ------
|Years Ending May 31: |  |  
|2005                 |  | $ | 6,343 
|2006                 |  |   | 5,091 
|2007                 |  |   | 3,603 
|2008                 |  |   | 2,311 
|2009                 |  |   | 1,882 
|Thereafter           |  |   | 4,731 
|                     |  |   |       
|Total                |  | $ | 23,961
|                     |  |   |       



Rent expense for the
years ended May 31, 2004, 2003 and 2002 totaled $7,049, $5,433 and $4,706, respectively.



Employment Agreements



The Company entered into a new employment agreement in fiscal 2004 with its Chief Executive Officer. This agreement is effective through 2009. It provides Mr. Murray with a specified severance amount depending on whether his separation from
the company is with or without good cause as defined in the agreement. The Company also has employment agreements with certain key members of management through 2005. These agreements provide those employees with a specified severance amount
depending on whether the employee is terminated with or without good cause as defined in their applicable agreements.



Legal Proceedings



Certain claims and lawsuits arising in the ordinary course of business have been filed or are pending against the Company. In the opinion of management,
all such matters if disposed of unfavorably would not have a material adverse effect on the Companys financial position, cash flows or results of operations.



51



---



---

##### Table of Contents

14.    Stock Based Compensation Plans



1998 Restricted Stock Purchase Plan



Under the terms of the Resources Connection, Inc. 1998 Restricted Stock
Purchase Plan (the Purchase Plan), a total of 5,630 shares of common stock may be issued. The Purchase Plan gives the administrator authority to grant awards to management-based employees at a price of at least 85% of the fair market
value of the stock (100% of the fair market value of the stock in the case of an individual possessing more than 10% of the total outstanding stock of the Company) on the date the related award was granted. An award under the Purchase Plan gives the
participant the right to acquire a specified number of shares of common stock, at a specified price, for a limited period of time. Awards under the Purchase Plan are generally nontransferable. The stock purchased upon exercise of an award generally
vests over five years. If the participants employment terminates before the participants stock is fully vested, the Company may repurchase the unvested stock for the price initially paid by the participant. The administrator may
accelerate the vesting of stock acquired under the Purchase Plan in the event of a change in control.



From December 1998 through February 1999, 5,630 awards were granted and exercised pursuant to the Purchase Plan at a price of $0.01 per share. During the
year ended May 31, 2001, repurchased unvested shares of common stock were sold to eligible employees pursuant to the terms of the 1998 Restricted Stock Purchase Plan. The per share weighted average grant date fair values of the unvested awards
granted for the year ended May 31, 2001 was $4.00 per share. The amount of unearned compensation recognized for stock re-sold under the Purchase Plan was $178, $181 and $182 for the years ended May 31, 2004, 2003 and 2002, respectively. The Company
does not anticipate granting any additional awards under the Purchase Plan.



Employee Stock Purchase Plan



In October 2000, the Companys board of directors adopted the Resources Connection, Inc. Employee Stock Purchase Plan (ESPP), which was approved by the Companys stockholders in October 2000. Under the terms of the
ESPP, a total of 1,200 shares of common stock may be issued. The ESPP allows for qualified employees (as defined) to participate in the purchase of designated shares of the Companys common stock at a price equal to the lesser of 85% of the
fair market value of common stock at the beginning or end of each semi-annual stock purchase period. The Company issued 70, 86 and 97 shares of common stock pursuant to this plan during the years ended May 31, 2004, 2003 and 2002, respectively and
there are 947 shares of common stock unissued as of May 31, 2004.



1999 Long-Term Incentive Plan



Under the terms
of the Resources Connection, Inc. 1999 Long-Term Incentive Plan (the Incentive Plan), the Company is authorized to grant restricted stock awards, incentive stock options (ISOs), nonqualified stock options (NQSOs),
stock appreciation rights and bonus awards to directors, officers, key employees, consultants and other agents. Under the terms of the Incentive Plan, the option price for the ISOs and NQSOs shall not be less than the fair market value of the shares
of the Companys stock on the date of the grant. For ISOs, the exercise price per share may not be less than 110% of the fair market value of a share of common stock on the grant date for any individual possessing more than 10% of the total
outstanding stock of the Company. Managements estimate of the fair market value of the shares of the Companys common stock prior to December 15, 2000 was based upon a valuation of the Company obtained from an independent appraisal firm.
The maximum number of shares of common stock available for grant is 6,540. Stock options granted under the Incentive Plan become exercisable generally over periods of one to five years and expire within a period of not more than ten years from the
date of grant. There were 994 options exercisable at May 31, 2004 at a weighted average exercise price of $16.23 per share, 1,046 options exercisable at May 31, 2003 at a weighted average exercise price of $14.82 per share, and 507 options
exercisable at May 31, 2002 at a weighted-average exercise price of $10.13 per share.



52



---



---

##### Table of Contents

A summary of the option activity under the Incentive Plan is as follows:



|                                    |  |                               |   |  |                                 |       |                             |   |      
|----------------------------------- |  | ----------------------------- | - |  | ------------------------------- | ----- | --------------------------- | - | -----
|                                    |  | Number of Shares Under Option |   |  | Weighted Average Exercise Price |       | Weighted Average Fair Value
|Options outstanding at May 31, 2001 |  | 3,052                         |   |  | $                               | 8.87  |                             |   |     
|Granted, at fair market value       |  | 1,535                         |   |  | $                               | 26.18 |                             | $ | 26.18
|Exercised                           |  | (599                          | ) |  | $                               | 6.45  |                             |   |     
|Forfeited                           |  | (460                          | ) |  | $                               | 13.88 |                             |   |     
|                                    |  |                               |   |  |                                 |       |                             |   |      
|Options outstanding at May 31, 2002 |  | 3,528                         |   |  | $                               | 16.16 |                             |   |     
|Granted, at fair market value       |  | 1,141                         |   |  | $                               | 17.64 |                             | $ | 17.64
|Exercised                           |  | (388                          | ) |  | $                               | 6.69  |                             |   |     
|Forfeited                           |  | (524                          | ) |  | $                               | 18.65 |                             |   |     
|                                    |  |                               |   |  |                                 |       |                             |   |      
|Options outstanding at May 31, 2003 |  | 3,757                         |   |  | $                               | 17.23 |                             |   |     
|Granted, at fair market value       |  | 2,063                         |   |  | $                               | 28.70 |                             | $ | 28.70
|Exercised                           |  | (1,034                        | ) |  | $                               | 13.50 |                             |   |     
|Forfeited                           |  | (545                          | ) |  | $                               | 21.68 |                             |   |     
|                                    |  |                               |   |  |                                 |       |                             |   |      
|Options outstanding at May 31, 2004 |  | 4,241                         |   |  | $                               | 23.12 |                             |   |     
|                                    |  |                               |   |  |                                 |       |                             |   |      



The following table
summarizes significant option groups outstanding as of May 31, 2004 and related weighted average price and life information:



|                                  |  |                                    |  |                                 |       |                                         |      |                                    |     |                                 |   |      
|--------------------------------- |  | ---------------------------------- |  | ------------------------------- | ----- | --------------------------------------- | ---- | ---------------------------------- | --- | ------------------------------- | - | -----
|                                  |  | Options Outstanding                |  | Options Exercisable            
|Range of Exercise Price Per
Share |  | Number Outstanding at May 31, 2004 |  | Weighted Average Exercise Price |       | Weighted Average Remaining Life (Years) |      | Number Exercisable at May 31, 2004 |     | Weighted Average Exercise Price
|$3.00 to $6.11                    |  | 417                                |  | $                               | 4.21  |                                         | 5.79 |                                    | 348 |                                 | $ | 4.03 
|$12.00 to $18.48                  |  | 900                                |  | $                               | 15.77 |                                         | 7.81 |                                    | 254 |                                 | $ | 16.62
|$20.34 to $25.43                  |  | 1,094                              |  | $                               | 24.03 |                                         | 8.64 |                                    | 163 |                                 | $ | 24.19
|$27.56 to $28.66                  |  | 878                                |  | $                               | 28.34 |                                         | 8.55 |                                    | 228 |                                 | $ | 28.65
|$30.76 to $43.30                  |  | 952                                |  | $                               | 32.49 |                                         | 9.76 |                                    | 1   |                                 | $ | 43.30
|                                  |  |                                    |  |                                 |       |                                         |      |                                    |     |                                 |   |      
|                                  |  | 4,241                              |  | $                               | 23.12 |                                         | 8.41 |                                    | 994 |                                 | $ | 16.23
|                                  |  |                                    |  |                                 |       |                                         |      |                                    |     |                                 |   |      



During the years ended
May 31, 2004, 2003 and 2002, the Company recorded compensation expense related to options granted to employees of $120, $136 and $218, respectively, representing the difference between the deemed fair market value of the common stock, as determined
for accounting purposes, and the exercise price of the options at the date of grant. During the year ended May 31, 2003, there were forfeitures of $112 of the deferred compensation related to options granted to employees as these employees
terminated prior to vesting. There were no forfeitures during the fiscal year ended 2004. The Company amortizes deferred compensation over the related service period of the underlying options.



15.    Segment Information and Enterprise Reporting



No single customer accounted for more than 6%, 4% and 5% of revenue for the
years ended May 31, 2004, 2003 and 2002, respectively.



In
accordance with the requirements of SFAS No. 131, Disclosures about Segments of an Enterprise and Related Information, the Company discloses information regarding operations outside of the United States. The Company operates as one
segment. The accounting policies for the domestic and international operations are the



53



---



---

##### Table of Contents

same as those described in Note 1 to the financial statements on this Annual Report on Form 10-K. Summarized information regarding the Companys
domestic and international operations is shown in the following table for the year ended May 31, 2004. Amounts related to international operations for the years ended May 31, 2003 and 2002 were not material.



|                |  |                                        |         |                                       |   |      
|--------------- |  | -------------------------------------- | ------- | ------------------------------------- | - | -----
|                |  | Revenue for theYear Ended May 31, 2004 |         | Long-LivedAssets as ofMay 31, 2004(1)
|United States   |  | $                                      | 265,262 |                                       | $ | 4,890
|The Netherlands |  |                                        | 43,847  |                                       |   | 1,202
|Other           |  |                                        | 19,224  |                                       |   | 563  
|                |  |                                        |         |                                       |   |      
|Total           |  | $                                      | 328,333 |                                       | $ | 6,655
|                |  |                                        |         |                                       |   |      

|(1) | Long-lived assets are comprised of computers and equipment, furniture and leasehold improvements.
|--- | -------------------------------------------------------------------------------------------------



16.    Related Party Transactions



On May 1, 1999, a member of management received a loan of $200 from the Company. The loan is interest free and matures on
April 1, 2007. At May 31, 2003, $150 of the receivable was outstanding. The loan was repaid during fiscal 2004.



54



---



---

##### Table of Contents

ITEM 9.    CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE



None.



ITEM 9A.    CONTROLS AND PROCEDURES



As of the end of fiscal year 2004, the Companys management, including its Chief Executive Officer and Chief Financial Officer, has evaluated the effectiveness of the Companys disclosure controls and
procedures, as such term is defined in Rule 13a-15(e) promulgated under the Securities and Exchange Act of 1934, as amended (the Exchange Act). Based on that evaluation, the Companys Chief Executive Officer and Chief Financial
Officer concluded that the Companys disclosure controls and procedures were effective as of May 31, 2004 to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded,
processed, summarized and reported within the time periods specified in the SECs rules and forms. There was no change in the Companys internal controls over financial reporting during the Companys fiscal year ended May 31, 2004
that materially affected, or is reasonably likely to materially affect, the Companys internal controls over financial reporting.



PART III



ITEM 10.    DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT



Executive Officers and Directors



Reference is made to the information regarding directors appearing under the caption ELECTION OF DIRECTORS and to the information appearing
under the caption SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE, in each case in the Companys proxy statement related to its 2004 Annual Meeting of Stockholders, which information is incorporated herein by reference.



ITEM 11.    EXECUTIVE COMPENSATION



The information appearing under the caption EXECUTIVE COMPENSATION AND RELATED INFORMATION in the Companys proxy statement related to its 2004 Annual Meeting of Stockholders is incorporated herein by
reference.



55



---



---

##### Table of Contents

ITEM 12.    SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS



The information appearing under the caption SECURITY OWNERSHIP OF MANAGEMENT AND PRINCIPAL STOCKHOLDERS in the proxy statement related to the
Companys 2004 Annual Meeting of Stockholders is incorporated herein by reference.



The following table highlights the Companys equity compensation plans:



|                                                               |  |                                                                                              |  |                                                                                |  |                                                                                                                                              
|-------------------------------------------------------------- |  | -------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------ |  | ---------------------------------------------------------------------------------------------------------------------------------------------
|                                                               |  | Number of securities to beissued upon exercise ofoutstanding options, warrantsand
rights (a) |  | Weighted average exercise price of outstanding options,warrants and rights (b) |  | Number of securities remaining available for futureissuance under equitycompensation plans (excluding
securities reflected in column (a)) (c)
|Equity compensation plans approved by security holders         |  | 4,241,430                                                                                    |  | $23.12                                                                         |  | 1,298,141 (1)                                                                                                                                
|Equity compensation plans not approved by security holders (2) |  |                                                                                             |  |                                                                               |  |                                                                                                                                             



(1) Includes 947,534
shares available for issuance under the Companys Employee Stock Purchase Plan and 154,000 shares available for restricted stock awards under the Companys 1998 Employee Stock Purchase Plan. We do not intend to grant any further awards
pursuant to the 1998 Employee Stock Purchase Plan.

(2) The Company does not have any equity compensation plans that have not been approved
by security holders.



ITEM 13.    CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS



The information appearing under the caption CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS in the proxy statement related to the
Companys 2004 Annual Meeting of Stockholders is incorporated herein by reference.



ITEM 14.    PRINCIPAL ACCOUNTANT FEES AND SERVICES



The information appearing under the caption PRINCIPAL ACCOUNTANT FEES AND SERVICES in the proxy statement related to the Companys 2004
Annual Meeting of Stockholders is incorporated herein by reference.



56



---



---

##### Table of Contents

PART IV



ITEM 15.    EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K



(a) Report documents:



1.    Financial Statements



2.    Financial Statement Schedule



These documents are included in the response to Item 8 of this report on Form 10-K. See the index on page 34.



3.    Exhibits. The Exhibits filed as part of this Report
on Form 10-K are listed in Item 15(c) of this Annual Report on Form 10-K.



(b) Reports on Form 8-K:



The registrant filed or furnished the following reports on Form 8-K during the fourth quarter of fiscal 2004:



Form 8-K (item 12), furnished on March 25, 2004, covering a press release announcing the Companys financial results for the quarter
ended February 29, 2004.



(c) Exhibits.



The following exhibits are filed as part of, or are
incorporated by reference in, this Report on Form 10-K:



EXHIBITS TO FORM 10-K



|               |  |                                                                                                                                                                                                                                                                                                                                  
|-------------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                                                                                                                                                          
|3.1            |  | Second Restated Certificate of Incorporation (incorporated by reference to Exhibit 3.1 to the Registrants Quarterly Report on Form 10-Q for the quarter ended November 30,
2000).                                                                                                                                               
|               | 
|3.2            |  | Amended and Restated Bylaws, as amended (incorporated by reference to Exhibit 3.4 to the Registrants Registration Statement on Form S-1 filed on September 1, 2000 (File No.
333-45000)).                                                                                                                                       
|               | 
|4.2            |  | Stockholders Agreement, dated December 11, 2000, between Resources Connection, Inc. and certain stockholders of Resources Connection, Inc. (incorporated by reference to Exhibit 4.2 to the
Registrants Amendment No. 7 to the Registrants Registration Statement on Form S-1 filed on December 12, 2000 (File No. 333-45000)).
|               | 
|4.3            |  | Specimen Stock Certificate (incorporated by reference to Exhibit 4.3 to the Registrants Amendment No. 7 to the Registrants Registration Statement on Form S-1 filed on December 12,
2000 (File No. 333-45000)).                                                                                                                
|               | 
|10.1           |  | Resources Connection, Inc. 1998 Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.1 to the Registrants Registration Statement on Form S-1 filed on September 1, 2000
(File No. 333-45000)).                                                                                                                 
|               | 
|10.2           |  | Resources Connection, Inc. 1999 Long-Term Incentive Plan (incorporated by reference to Exhibit 10.2 to the Registrants Registration Statement on Form S-1 filed on September 1, 2000
(File No. 333-45000)).                                                                                                                     



57



---



---

##### Table of Contents

|               |  |                                                                                                                                                                                                                                                                             
|-------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit Number |  | Description of Document                                                                                                                                                                                                                                                     
|10.4           |  | Employment Agreement, dated April 1, 1999, between Resources Connection, Inc. and Stephen J. Giusto (incorporated by reference to Exhibit 10.4 to the Registrants
Registration Statement on Form S-1 filed on September 1, 2000 (File No. 333-45000)).                     
|               | 
|10.5           |  | Employment Agreement, dated April 1, 1999, between Resources Connection, Inc. and Karen M. Ferguson (incorporated by reference to Exhibit 10.5 to the Registrants
Registration Statement on Form S-1 filed on September 1, 2000 (File No. 333-45000)).                     
|               | 
|10.12          |  | Resources Connection, Inc. Employee Stock Purchase Plan (incorporated by reference to Exhibit 10.11 to Amendment No. 2 to the Registrants Registration Statement on Form S-1 filed on
November 13, 2000 (File No. 333-45000)).                                             
|               | 
|10.16          |  | Agreement of Lease, dated October 23, 2000, between 500-512 Seventh Avenue Limited Partnership and Resources Connection LLC (incorporated by reference to Exhibit 10.16 to the
Registrants Registration Statement on Form S-1 filed on July 17, 2001 (File No. 333-65272)).
|               | 
|10.17          |  | Lease, dated January 1, 2001, between One Town Center Associates and Resources Connection LLC (incorporated by reference to Exhibit 10.17 to the Registrants Registration Statement on
Form S-1 filed on July 17, 2001 (File No. 333-65272)).                              
|               | 
|10.18          |  | Loan Agreement, dated March 26, 2004 by and among Resources Connection, Inc., Resources Connection LLC and Bank of America, N.A.*                                                                                                                                           
|               | 
|10.19          |  | Employment Agreement, dated April 1, 2004, between Resources Connection, Inc. and Donald B. Murray.*                                                                                                                                                                        
|               | 
|21.1           |  | List of Subsidiaries.                                                                                                                                                                                                                                                       
|               | 
|23.1           |  | Consent of Independent Registered Public Accounting Firm.                                                                                                                                                                                                                   
|               | 
|31.1           |  | Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                          
|               | 
|31.2           |  | Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.                                                                                                                          
|               | 
|32             |  | Certification pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.                                                                                                                                                     
|               | 
|*              |  | Filed herewith                                                                                                                                                                                                                                                              



|(d) | Financial Statement Schedule:
|--- | -----------------------------



The financial statement schedule for Resources Connection, Inc. is included in the response to Item 8 of this Report on Form 10-K. See the index on page
34.



58



---



---

##### Table of Contents

SIGNATURES



Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this Annual Report on
Form 10-K to be signed on its behalf by the undersigned, thereunto duly authorized.



RESOURCES CONNECTION, INC.By:

/s/ STEPHEN J. GIUSTOStephen J. Giusto Chief Financial OfficerDATE

August 10, 2004




Pursuant to
the requirements of the Securities Exchange Act of 1934, this Annual Report on Form 10-K has been signed below by the following persons on behalf of the Registrant in the capacities and on the dates indicated.



|                                             |  |                                                                                                                                                                   |  |                
|-------------------------------------------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ---------------
|Signature                                    |  | Title                                                                                                                                                             |  | Date           
|                                             |  |                                                                                                                                                                  
|/S/ DONALD B. MURRAYDonald B. Murray         |  | Chief Executive Officer, President and Director (Principal Executive Officer)                                                                                     |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ STEPHEN J. GIUSTOStephen J. Giusto       |  | Chief Financial Officer, Executive Vice President of Corporate Development, Secretary and Director (Principal Financial Officer and Principal
Accounting Officer) |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ KAREN M. FERGUSONKaren M. Ferguson       |  | Executive Vice President and Director                                                                                                                             |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ NEIL DIMICKNeil Dimick                   |  | Director                                                                                                                                                          |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ JULIE HILLJulie Hill                     |  | Director                                                                                                                                                          |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ C. STEPHEN MANSFIELDC. Stephen Mansfield |  | Director                                                                                                                                                          |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ A. ROBERT PISANOA. Robert Pisano         |  | Director                                                                                                                                                          |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ GERALD ROSENFELDGerald Rosenfeld         |  | Director                                                                                                                                                          |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ JOHN C. SHAWJohn C. Shaw                 |  | Director                                                                                                                                                          |  | August 10, 2004
|                                             |  |                                                                                                                                                                  
|/S/ JOLENE SYKESJolene Sykes                 |  | Director                                                                                                                                                          |  | August 10, 2004



59



---



---

##### Table of Contents

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

ON FINANCIAL STATEMENT SCHEDULE



To the Stockholders and the Board of Directors of

Resources Connection, Inc.



Our audits of the consolidated financial statements referred to in our report dated July 30, 2004 appearing in the 2004 Annual Report to Shareholders of
Resources Connection, Inc. (which report and consolidated financial statements are incorporated by reference in this Annual Report on Form 10-K) also included an audit of the financial statement schedule listed in Item 15(a)(2) of this Form 10-K. In
our opinion, this financial statement schedule presents fairly, in all material respects, the information set forth therein when read in conjunction with the related consolidated financial statements.

/S/ PRICEWATERHOUSECOOPERS LLP



Orange County, California

July 30, 2004



60



---



---

##### Table of Contents

RESOURCES CONNECTION, INC.



SCHEDULE II



VALUATION AND QUALIFYING
ACCOUNTS



|                                                            |  |                   |           |                       |   |            |  |   |                |   |  |   |          
|----------------------------------------------------------- |  | ----------------- | --------- | --------------------- | - | ---------- |  | - | -------------- | - |  | - | ---------
|                                                            |  | Beginning Balance |           | Charged to Operations |   | Write-offs |  |   | Ending Balance
|Allowance for Doubtful Accounts for the Years Ended May 31: |  |                   |           |                       |   |            |  |   |                |   |  |   |          
|                                                            |  |                   |           |                      
|2002                                                        |  | $                 | 2,450,000 |                       | $ | 1,007,000  |  | $ | (1,300,000     | ) |  | $ | 2,157,000
|2003                                                        |  | $                 | 2,157,000 |                       | $ | 907,000    |  | $ | (676,000       | ) |  | $ | 2,388,000
|2004                                                        |  | $                 | 2,388,000 |                       | $ | 1,910,000  |  | $ | (1,036,000     | ) |  | $ | 3,262,000



61



---