UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
x
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QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the quarterly period ended July 2, 2010
OR
¨
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TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
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For the transition period from
to
Commission File Number
333-48123
The Hackett Group, Inc.
(Exact name of Registrant as specified in its charter)
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FLORIDA
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65-0750100
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(State or other jurisdiction of
Incorporation or organization)
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(I.R.S. Employer
Identification Number)
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1001 Brickell Bay Drive, Suite 3000
Miami, Florida
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33131
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(Address of principal executive offices)
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(Zip Code)
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(305)
375-8005
(Registrants telephone number, including area code)
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 requirement for the past 90
days. YES
x
NO
¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every
Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such
files). YES
¨
NO
¨
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller
reporting company. See the definitions of large accelerated filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act. (Check one):
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Large Accelerated Filer
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¨
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Accelerated Filer
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x
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Non-Accelerated Filer
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¨
(Do not check if a smaller reporting company)
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Smaller Reporting Company
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¨
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Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange
Act). YES
¨
NO
x
Indicate the number of shares outstanding of each of the issuers classes of common stock, as of the latest practicable date:
As of August 6, 2010, there were 41,965,634 shares of common stock outstanding.
The Hackett Group, Inc.
TABLE OF CONTENTS
2
PART I FINANCIAL INFORMATION
Item 1.
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Financial Statements
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The Hackett Group, Inc.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
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July 2,
2010
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January 1,
2010
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(unaudited)
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ASSETS
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Current assets:
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Cash and cash equivalents
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$
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17,380
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$
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15,004
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Accounts receivable and unbilled revenue, net of allowance of $1,993 and $1,354 at July 2, 2010 and January 1, 2010,
respectively
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31,952
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28,653
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Prepaid expenses and other current assets
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2,495
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2,683
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Total current assets
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51,827
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46,340
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Restricted cash
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1,680
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1,475
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Property and equipment, net
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7,693
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7,137
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Other assets
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3,732
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4,871
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Goodwill, net
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75,655
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76,712
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Total assets
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$
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140,587
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$
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136,535
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LIABILITIES AND SHAREHOLDERS EQUITY
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Current liabilities:
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Accounts payable
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$
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4,713
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$
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3,674
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Accrued expenses and other liabilities
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26,024
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31,231
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Total current liabilities
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30,737
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34,905
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Accrued expenses and other liabilities, non-current
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2,249
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3,378
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Total liabilities
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32,986
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38,283
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Commitments and contingencies
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Shareholders equity:
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Preferred stock, $.001 par value, 1,250,000 shares authorized, none issued and outstanding
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Common stock, $.001 par value, 125,000,000 shares authorized; 59,965,921 and 57,652,536 shares issued at July 2, 2010 and
January 1, 2010, respectively
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60
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57
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Additional paid-in capital
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306,924
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301,366
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Treasury stock, at cost, 17,691,611 and 16,976,832 shares at July 2, 2010 and January 1, 2010,
respectively
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(61,565
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)
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(59,423
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)
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Accumulated deficit
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(131,984
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)
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(139,125
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)
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Accumulated other comprehensive loss
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(5,834
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)
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(4,623
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)
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Total shareholders equity
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107,601
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98,252
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Total liabilities and shareholders equity
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$
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140,587
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$
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136,535
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The accompanying notes are an integral part of the consolidated financial statements.
3
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
(unaudited)
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Quarter Ended
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Six Months Ended
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July 2,
2010
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July 3,
2009
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July 2,
2010
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July 3,
2009
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Revenue:
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Revenue before reimbursements
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$
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47,967
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$
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31,382
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$
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89,817
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$
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67,372
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Reimbursements
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5,718
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3,234
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10,596
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6,760
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Total revenue
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53,685
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34,616
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100,413
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74,132
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Costs and expenses:
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Cost of service:
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Personnel costs before reimbursable expenses (includes $593 and $529 and $1,208 and $1,089 of stock compensation expense in the
quarters and six months ended July 2, 2010 and July 3, 2009, repectively)
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29,307
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20,381
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56,056
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42,655
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Reimbursable expenses
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5,718
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3,234
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10,596
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6,760
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Total cost of service
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35,025
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23,615
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66,652
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49,415
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Selling, general and administrative costs (includes $563 and $218 and $825 and $324 of stock compensation expense in the quarters
and six months ended July 2, 2010 and July 3, 2009, repectively)
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14,908
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10,791
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28,150
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23,630
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Total costs and operating expenses
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49,933
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34,406
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94,802
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73,045
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Income from operations
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3,752
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210
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5,611
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1,087
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Other income (expense):
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Non-cash acquisition earn-out shares re-measurement gain
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784
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1,727
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Interest income
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4
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11
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10
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36
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Loss on marketable investments
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(35
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)
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(35
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)
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Income before income tax expense
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4,540
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186
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7,348
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1,088
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Income tax expense
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117
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26
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227
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89
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Net income
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$
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4,423
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$
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160
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$
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7,121
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$
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999
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Basic net income per common share:
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Net income per common share
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$
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0.11
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$
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0.00
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$
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0.18
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$
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0.03
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Weighted average common shares outstanding
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40,597
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37,894
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40,116
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38,169
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Diluted net income per common share:
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Net income per common share
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$
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0.10
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$
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0.00
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$
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0.17
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$
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0.03
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Weighted average common and common equivalent shares outstanding
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42,548
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38,070
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41,919
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38,387
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The accompanying notes
are an integral part of the consolidated financial statements.
4
The Hackett Group, Inc.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
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Six Months Ended
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July 2,
2010
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July 3,
2009
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Cash flows from operating activities:
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Net income
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$
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7,121
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$
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999
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Adjustments to reconcile net income to net cash (used in) provided by operating activities:
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Depreciation expense
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898
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1,061
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Amortization expense
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975
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332
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Provision (reversal) for doubtful accounts
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125
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(33
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)
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Loss on foreign currency translation
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423
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442
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Non-cash stock compensation expense
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2,033
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1,413
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Non-cash loss on the sale of property and equipment
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46
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Non-cash acquisition earn-out shares re-measurement gain
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(1,727
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)
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Loss on marketable investments
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35
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Changes in assets and liabilities:
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(Increase) decrease in accounts receivable and unbilled revenue
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(4,007
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)
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3,685
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Decrease (increase) in prepaid expenses and other assets
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238
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(687
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)
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Increase (decrease) in accounts payable
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1,039
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(1,141
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)
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Decrease in accrued expenses and other liabilities
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(1,133
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)
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(12,723
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)
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Net cash provided by (used in) operating activities
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5,985
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(6,571
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)
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Cash flows from investing activities:
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Purchases of property and equipment
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(1,429
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)
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(1,577
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)
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Increase in restricted cash
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(205
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)
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Proceeds from redemptions of marketable securities
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623
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Net cash used in investing activities
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(1,634
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)
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(954
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)
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Cash flows from financing activities:
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Proceeds from issuance of common stock
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229
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230
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Repurchases of common stock
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(2,142
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)
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(2,464
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)
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Net cash used in financing activities
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(1,913
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)
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(2,234
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)
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Effect of exchange rate on cash
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(62
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)
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215
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Net increase (decrease) in cash and cash equivalents
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2,376
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(9,544
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)
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Cash and cash equivalents at beginning of year
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15,004
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32,060
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Cash and cash equivalents at end of year
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$
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17,380
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$
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22,516
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Supplemental disclosure of cash flow information:
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Cash paid for income taxes
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$
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96
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$
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207
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The accompanying notes
are an integral part of the consolidated financial statements.
5
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis
of Presentation and General Information
Basis of Presentation
The accompanying consolidated financial statements of The Hackett Group
,
Inc. (Hackett or the Company) have
been prepared in accordance with accounting principles generally accepted in the United States of America (GAAP) and include the Companys accounts and those of its wholly owned subsidiaries which the Company is required to
consolidate. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management,
the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Companys financial position, results of operations, and cash flows as of the dates and for the
periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, these statements do not
include all the disclosures normally required by accounting principles generally accepted in the United States of America for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto
for the year ended January 1, 2010 included in the Annual Report on Form 10-K filed by the Company with the Securities and Exchange Commission. The consolidated results of operations for the quarter ended July 2, 2010 are not
necessarily indicative of the results to be expected for any future period or for the full fiscal year.
Use of Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America
requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.
Fair Value
The
Companys financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable and unbilled revenue, accounts payable and accrued expenses and other liabilities, including the liability for the earn-out shares.
As of July 2, 2010 and January 1, 2010, the fair value of all financial instruments approximated the respective
fair value due to the short-term nature and maturity of these instruments.
In 2009, the Company had an investment in Bank of
Americas Strategic Cash Portfolio which was fully redeemed during the year.
Recently Issued Accounting Standards
In October 2009, the Financial Accounting Standards Board (FASB) issued Accounting Standards Update (ASU)
No. 2009-13,
Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force
(ASU 2009-13), which addresses the accounting for multiple-deliverable arrangements to enable vendors to account for
products or services (deliverables) separately rather than as a combined unit. ASU 2009-13 is effective prospectively for revenue arrangements entered into or materially modified beginning in fiscal years on or after June 15, 2010, however,
early adoption is permitted. The adoption of ASU 2009-13 did not have a material impact on the Companys consolidated financial statements.
In February 2010, the FASB issued ASU 2010-09,
Amendments to Certain Recognition and Disclosure Requirements
, (ASU
2010-09) which amends FASB ASC 855,
Subsequent Events
, to address certain implementation issues related to an entitys requirement to perform and disclose subsequent-events procedures. ASU 2010-09 requires SEC filers to evaluate
subsequent events through the date the financial statements are issued and exempts SEC filers from disclosing the date through which subsequent events have been evaluated. ASU 2010-09 was effective immediately upon issuance. The adoption of ASU
2010-09 did not have a material impact on the Companys consolidated financial statements.
Reclassifications
Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current
period presentation.
6
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Acquisitions and Investing Activities
Effective November 9, 2009, the Company acquired Archstone Consulting, LLC (Archstone) pursuant to an Asset Purchase
Agreement (the Asset Purchase Agreement) under which the Company purchased from Archstone, Archstone Consulting UK Limited and Archstone Consulting BV (the Sellers), the assets used in connection with Archstones
consulting business. The results of Archstones operations have been included in the Companys consolidated financial statements since November 10, 2009.
The acquisition and resulting purchase price of Archstone was accounted for in accordance with FASB Accounting Standards Codification
(ASC) 805. The purchase price for the assets acquired and liabilities assumed was 5.2 million unregistered shares of the Companys common stock, of which 1.7 million unregistered shares were subject to an earn-out based on
revenue achieved in 2010. On the acquisition date, the Company recorded a liability for the 1.7 million earn-out based on the closing value of the Companys common stock on the effective date of acquisition.
On May 11, 2010, the Company and the Sellers agreed to the final earn-out determination of 1,435,000 shares of the total 1,655,000
shares of common stock to be deemed earned, and therefore, 220,000 shares were forfeited by Sellers. As a result of the fluctuation in the Companys share price, the Company recorded a non-cash re-measurement gain for the quarter and six months
ended July 2, 2010, of $0.8 million and $1.7 million, respectively, in accordance with FASB ASC 805 in the consolidated statement of operations.
The purchase price allocation resulted in $11.9 million which exceeded the estimated fair value of tangible and intangible assets and
liabilities, and which was allocated to goodwill. The goodwill was included in The Hackett Group reporting unit. The Company believes the goodwill primarily represents the fair value of the assembled workforce acquired. The goodwill amortization is
deductible for tax purposes.
3. Net Income per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during
the period. With regard to common stock subject to vesting requirements or restricted stock units issued to employees, the calculation includes only the vested portion of such stock.
Dilutive net income per common share is computed by dividing net income by the weighted average number of common shares outstanding,
increased by the assumed conversion of other potentially dilutive securities during the period.
The following table
reconciles basic and dilutive weighted average shares:
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
July 2,
|
|
July 3,
|
|
July 2,
|
|
July 3,
|
|
|
2010
|
|
2009
|
|
2010
|
|
2009
|
Basic weighted average common shares outstanding
|
|
40,597,262
|
|
37,894,570
|
|
40,116,462
|
|
38,168,642
|
|
|
|
|
|
Effect of dilutive securities:
|
|
|
|
|
|
|
|
|
Unvested restricted stock units issued to employees
|
|
1,316,495
|
|
163,851
|
|
1,173,649
|
|
202,399
|
Common stock issuable upon the exercise of stock options
|
|
34,276
|
|
11,604
|
|
28,110
|
|
15,430
|
Acquisition-related unregistered shares held in escrow
|
|
600,400
|
|
|
|
600,400
|
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares outstanding
|
|
42,548,433
|
|
38,070,025
|
|
41,918,621
|
|
38,386,471
|
|
|
|
|
|
|
|
|
|
7
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
3. Net Income per Common Share (continued)
Approximately 39 thousand and 317 thousand shares of common stock equivalents
were excluded from the computations of diluted net income per common share for the quarters ended July 2, 2010 and July 3, 2009, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per share.
4. Comprehensive Income
The Company accounts for comprehensive income under FASB ASC 220,
Comprehensive Income
. Comprehensive income is summarized below
(in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
July 2,
2010
|
|
|
July 3,
2009
|
|
July 2,
2010
|
|
|
July 3,
2009
|
Net income
|
|
$
|
4,423
|
|
|
$
|
160
|
|
$
|
7,121
|
|
|
$
|
999
|
Change in cumulative foreign currency on translation adjustment
|
|
|
(323
|
)
|
|
|
2,240
|
|
|
(1,211
|
)
|
|
|
2,116
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income
|
|
$
|
4,100
|
|
|
$
|
2,400
|
|
$
|
5,910
|
|
|
$
|
3,115
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5. Restructuring
As of July 2, 2010 and January 1, 2010, the Company had restructuring expense accruals related to the closure and consolidation
of facilities and related exit costs recorded in fiscal years 2001, 2002, 2005 and 2009. The following table sets forth the activity in the restructuring expense accruals (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
Accrual Balance at
January 1, 2010
|
|
Expenditures
|
|
|
Accrual Balance at
July 2, 2010
|
2001 Restructuring Accrual
|
|
$
|
829
|
|
$
|
(233
|
)
|
|
$
|
596
|
2002 Restructuring Accrual
|
|
$
|
1,158
|
|
$
|
(324
|
)
|
|
$
|
834
|
2005 Restructuring Accrual
|
|
$
|
431
|
|
$
|
(128
|
)
|
|
$
|
303
|
2009 Restructuring Accrual
|
|
$
|
4,714
|
|
$
|
(3,294
|
)
|
|
$
|
1,420
|
6. Accounts Receivable and
Unbilled Revenue, Net
Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
July 2,
2010
|
|
|
January 1,
2010
|
|
|
|
(unaudited)
|
|
|
|
|
Accounts receivable
|
|
$
|
25,682
|
|
|
$
|
22,340
|
|
Unbilled revenue
|
|
|
8,263
|
|
|
|
7,667
|
|
Allowance for doubtful accounts
|
|
|
(1,993
|
)
|
|
|
(1,354
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable and unbilled revenue, net
|
|
$
|
31,952
|
|
|
$
|
28,653
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable for the periods ending July 2, 2010 and January 1, 2010, is net of uncollected
advanced billings. Unbilled revenue as of July 2, 2010 and January 1, 2010 includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.
7. Stock Based Compensation
During the quarter and six months ended July 2, 2010, the Company issued 53,128 and 745,646 restricted stock units, respectively, at
a weighted average grant-date fair value of $2.91 and $2.89, respectively. As of July 2, 2010, the Company had 2,345,603 restricted stock units outstanding at a weighted average grant-date fair value of $3.02. As of July 2, 2010, there was
$4.0 million of total restricted stock unit compensation expense related to nonvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.12 years.
8
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
7. Stock Based Compensation (continued)
As of July 2, 2010, the Company had 963,654 shares of common stock subject to
vesting requirements outstanding at a weighted average grant-date fair value of $3.42. As of July 2, 2010, there was $1.9 million of compensation expense related to common stock subject to vesting requirements not yet recognized, which is
expected to be recognized over a weighted average period of 3.42 years.
8. Shareholders Equity
Treasury Stock
Under the repurchase plan, the Company may buy back shares of its outstanding stock from time to time either on the open market or through
privately negotiated transactions subject to market conditions and trading restrictions. During the quarter ended July 2, 2010, the Company repurchased approximately 682 thousand shares of its common stock at an average price of $3.02, for
a total cost of approximately $2.1 million. During the six months ended July 2, 2010, the Company had repurchased approximately 715 thousand shares of its common stock at an average price of $3.00, for a total cost of approximately $2.1
million. As of July 2, 2010, the Company had $3.4 million available under its buyback program.
Subsequent to July 2,
2010, the Board of Directors approved the repurchase of an additional $5.0 million of the Companys common stock, thereby increasing the total program size to $70.0 million.
9. Litigation
The
Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse
effect on the Companys financial position, cash flows or results of operations.
10. Geographic and Group Information
Revenue is primarily based on the country of the contracting entity and was attributed to the following geographical areas (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
July 2,
2010
|
|
July 3,
2009
|
|
July 2,
2010
|
|
July 3,
2009
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
42,444
|
|
$
|
26,258
|
|
$
|
80,527
|
|
$
|
57,029
|
International (primarily European countries)
|
|
|
11,241
|
|
|
8,358
|
|
|
19,886
|
|
|
17,103
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
53,685
|
|
$
|
34,616
|
|
$
|
100,413
|
|
$
|
74,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Long-lived assets are attributed to the following
geographical areas (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
July 2,
2010
|
|
January 1,
2010
|
|
|
|
|
|
|
(unaudited)
|
|
|
|
|
|
|
Long-Lived Assets:
|
|
|
|
|
|
|
|
|
|
|
North America
|
|
$
|
72,081
|
|
$
|
73,742
|
|
|
|
|
International (primarily European countries)
|
|
|
14,999
|
|
|
14,978
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total long-lived assets
|
|
$
|
87,080
|
|
$
|
88,720
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of July 2, 2010, foreign assets included $14.8 million of goodwill and intangible assets,
related to the REL and Archstone acquisitions. As of January 1, 2010, foreign assets included $14.4 million of goodwill and intangible assets related to the REL acquisition. As of January 1, 2010, domestic assets included $15.9 million of
goodwill and intangible assets related to the Archstone acquisition which were provisionally allocated to domestic assets.
9
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
10. Geographic and Group Information (continued)
The Companys revenue was derived from the following service groups (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
July 2,
2010
|
|
July 3,
2009
|
|
July 2,
2010
|
|
July 3,
2009
|
|
|
|
|
|
The Hackett Group
|
|
$
|
39,325
|
|
$
|
24,596
|
|
$
|
75,907
|
|
$
|
51,929
|
Hackett Technology Solutions
|
|
|
14,360
|
|
|
10,020
|
|
|
24,506
|
|
|
22,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
53,685
|
|
$
|
34,616
|
|
$
|
100,413
|
|
$
|
74,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10
Item 2.
|
Managements Discussion and Analysis of Financial Condition and Results of Operations
|
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This report and the information incorporated by reference in it include forward-looking statements within the meaning of
Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements regarding
our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by
our use of forward-looking words such as may, will, anticipate, estimate, expect, or intend and similar expressions. These statements involve known and unknown risks,
uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you
that our expectations in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to
retain existing business, our ability to attract additional business, our ability to effectively market and sell our product offerings and other services, the timing of projects and the potential for contract cancellation by our customers, changes
in expectations regarding the business and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our
customers, risks of competition, price and margin trends, foreign currency fluctuations and changes in general economic conditions and interest rates. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for
the year ended January 1, 2010. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
OVERVIEW
The Hackett
Group, Inc. (Hackett) is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the worlds leading
repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments.
Hackett, formed on April 23, 1997, is a strategic advisory firm and a world leader in best practice research, benchmarking, business
transformation and working capital management services that empirically defines and enables world-class enterprise performance. Only Hackett empirically defines world-class performance in sales, general and administrative and supply chain activities
with analysis gained through more than 5,000 benchmark studies over 18 years at 2,700 of the worlds leading companies.
Hacketts combined capabilities include business advisory programs, benchmarking, business transformation, working capital
management and technology solutions, with corresponding offshore support.
In the following discussion, Hackett
represents our total company, The Hackett Group encompasses our Benchmarking, Business Transformation and Executive Advisory groups, and Hackett Technology Solutions encompasses our technology groups, including SAP, Oracle
and EPM Oracle.
11
Results of Operations
The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to total revenue of
such results (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
Six Months Ended
|
|
|
|
July 2, 2010
|
|
|
July 3, 2009
|
|
|
July 2, 2010
|
|
|
July 3, 2009
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue before reimbursements
|
|
$
|
47,967
|
|
89.3
|
%
|
|
$
|
31,382
|
|
|
90.7
|
%
|
|
$
|
89,817
|
|
89.4
|
%
|
|
$
|
67,372
|
|
|
90.9
|
%
|
Reimbursements
|
|
|
5,718
|
|
10.7
|
%
|
|
|
3,234
|
|
|
9.3
|
%
|
|
|
10,596
|
|
10.6
|
%
|
|
|
6,760
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
|
53,685
|
|
100.0
|
%
|
|
|
34,616
|
|
|
100.0
|
%
|
|
|
100,413
|
|
100.0
|
%
|
|
|
74,132
|
|
|
100.0
|
%
|
|
|
|
|
|
|
|
|
|
Costs and expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of service:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Personnel costs before reimbursable expenses
|
|
|
29,307
|
|
54.6
|
%
|
|
|
20,381
|
|
|
58.9
|
%
|
|
|
56,056
|
|
55.8
|
%
|
|
|
42,655
|
|
|
57.5
|
%
|
Reimbursable expenses
|
|
|
5,718
|
|
10.6
|
%
|
|
|
3,234
|
|
|
9.3
|
%
|
|
|
10,596
|
|
10.6
|
%
|
|
|
6,760
|
|
|
9.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total cost of service
|
|
|
35,025
|
|
65.2
|
%
|
|
|
23,615
|
|
|
68.2
|
%
|
|
|
66,652
|
|
66.4
|
%
|
|
|
49,415
|
|
|
66.6
|
%
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative costs
|
|
|
14,908
|
|
27.8
|
%
|
|
|
10,791
|
|
|
31.2
|
%
|
|
|
28,150
|
|
28.0
|
%
|
|
|
23,630
|
|
|
31.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total costs and operating expenses
|
|
|
49,933
|
|
93.0
|
%
|
|
|
34,406
|
|
|
99.4
|
%
|
|
|
94,802
|
|
94.4
|
%
|
|
|
73,045
|
|
|
98.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from operations
|
|
|
3,752
|
|
7.0
|
%
|
|
|
210
|
|
|
0.6
|
%
|
|
|
5,611
|
|
5.6
|
%
|
|
|
1,087
|
|
|
1.5
|
%
|
|
|
|
|
|
|
|
|
|
Other income (expense):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cash acquisition earn-out shares re-measurement gain
|
|
|
784
|
|
1.5
|
%
|
|
|
|
|
|
0.0
|
%
|
|
|
1,727
|
|
1.7
|
%
|
|
|
|
|
|
0.0
|
%
|
Interest income
|
|
|
4
|
|
0.0
|
%
|
|
|
11
|
|
|
0.0
|
%
|
|
|
10
|
|
0.0
|
%
|
|
|
36
|
|
|
0.0
|
%
|
Loss on marketable investments
|
|
|
|
|
0.0
|
%
|
|
|
(35
|
)
|
|
-0.1
|
%
|
|
|
|
|
0.0
|
%
|
|
|
(35
|
)
|
|
0.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before income tax expense
|
|
|
4,540
|
|
8.5
|
%
|
|
|
186
|
|
|
0.5
|
%
|
|
|
7,348
|
|
7.3
|
%
|
|
|
1,088
|
|
|
1.5
|
%
|
Income tax expense
|
|
|
117
|
|
0.2
|
%
|
|
|
26
|
|
|
0.1
|
%
|
|
|
227
|
|
0.2
|
%
|
|
|
89
|
|
|
0.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
4,423
|
|
8.3
|
%
|
|
$
|
160
|
|
|
0.4
|
%
|
|
$
|
7,121
|
|
7.1
|
%
|
|
$
|
999
|
|
|
1.4
|
%
|
|
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Quarter and Six Months Ended July 2, 2010 versus Quarter and Six Months Ended July 3, 2009
Revenue
. We are a global company with operations located primarily in the United States and Western Europe. Our revenue is
denominated in multiple currencies, mostly the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. Exchange rate fluctuations had an impact on our revenue comparisons between the quarters and
six months ended July 2, 2010 and July 3, 2009. Hackett Technology Solutions was not materially impacted by foreign currency rate fluctuations.
Total Company revenue for the quarter and six months ended July 2, 2010 increased 55% to $53.7 million and 35% to $100.4 million,
respectively, compared to the quarter and six months ended July 3, 2009. The following table summarizes revenue (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
Six Months Ended
|
|
|
July 2,
2010
|
|
July 3,
2009
|
|
July 2,
2010
|
|
July 3,
2009
|
|
|
|
|
|
The Hackett Group
|
|
$
|
39,325
|
|
$
|
24,596
|
|
$
|
75,907
|
|
$
|
51,929
|
Hackett Technology Solutions
|
|
|
14,360
|
|
|
10,020
|
|
|
24,506
|
|
|
22,203
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total revenue
|
|
$
|
53,685
|
|
$
|
34,616
|
|
$
|
100,413
|
|
$
|
74,132
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The Hackett Group revenue increased 60% and 46% for
the quarter and six months ended July 2, 2010, respectively, as compared to the quarter and six months ended July 3, 2009. The increase in The Hackett Group revenue was primarily a result of the Archstone Consulting acquisition which
closed in November 2009.
12
The Hackett Groups international revenue, which is primarily based on the country of
the contracting entity, accounted for 29% and 26% of The Hackett Groups total revenue in the quarter and six months ended July 2, 2010, respectively, as compared to 34% and 33% for the quarter and six months ended July 3, 2009,
respectively. This decrease was a result of the addition of Archstone revenue, which is primarily a US-based business, and from continuing weakness in European demand.
Hackett Technology Solutions revenue increased 43% for the quarter ended July 2, 2010, as compared to the quarter ended July 3,
2009, as a result of increased demand across all service groups. Hackett Technology Solutions revenue increased 10% for the six months ended July 2, 2010, as compared to the six months ended July 3, 2009, primarily due to increases in the
SAP and Oracle service groups.
During the quarter ended July 2, 2010, two customers accounted for 6% and 7% of our total
revenue, and during the six months ended July 2, 2010, two customers accounted for 6% of our total revenue. During the quarter and six months ended July 3, 2009, one customer accounted for 7% and 8%, respectively, of our total revenue.
Cost of Service.
Cost of service primarily consists of salaries, benefits and incentive compensation for consultants,
subcontractor fees and reimbursable expenses associated with projects. Cost of service before reimbursable expenses increased 44% and 31% for the quarter and six months ended July 2, 2010, respectively, as compared to the quarter and six months
ended July 3, 2009, primarily due to the Archstone acquisition.
Total cost of service as a percentage of revenue before
reimbursable expenses decreased to 55% and 56% for the quarter and six months ended July 2, 2010, respectively, from 59% and 58% for the quarter and six months ended July 3, 2009, respectively, primarily due to increased revenue as
previously discussed.
The Hackett Group total revenue generated gross margins of 40% and 39% for the quarter and six month
ended July 2, 2010, respectively, as compared to Hackett Technology Solutions, which generated gross margins of 28% and 24% for the same periods, respectively. On a net revenue basis, total revenue excluding reimbursements, The Hackett Group
generated gross margins as a percentage of revenue of 44% and 43% for the quarter and six months ended July 2, 2010, respectively, as compared to Hackett Technology Solutions, which generated gross margins as a percentage of net revenue of 33%
and 28% for the same periods, respectively.
Selling, General and Administrative
. Selling, general and administrative
costs increased by 38% and 19% for the quarter and six months ended July 2, 2010, respectively, as compared to the quarter and six months ended July 3, 2009. The increase was primarily related to higher incentive compensation accruals and
higher amortization of intangible assets resulting from the Archstone acquisition. Selling, general and administrative costs as a percentage of revenue was 28% for both the quarter and six months ended July 2, 2010, respectively, as compared to
31% and 32% for the quarter and six months ended July 3, 2009, respectively. The decrease was due to selling, general and administrative leverage on increased revenue.
Non-Cash Acquisition Earn-out Shares Re-measurement Gain
. As a result of the fluctuation in the share price of our common stock,
we recorded a non-cash re-measurement gain of $0.8 million and $1.7 million in accordance with FASB ASC 805 for the quarter and six months ended July 2, 2010, respectively, related to the Archstone acquisition. On May 11, 2010, the final
earn-out determination was settled for 1,435,000 shares, of the total 1,655,000 shares of common stock, to be deemed earned, and 220,000 shares were forfeited.
Income Tax Expense.
We recorded income tax expense of $117 thousand and $227 thousand for the quarter and six months ended
July 2, 2010, respectively, which reflected estimated annual tax rates of 3%, respectively, for certain federal and state taxes. For the quarter and six months ended July 3, 2009, we recorded income taxes of $26 thousand and $89 thousand,
respectively, which reflected estimated annual tax rates of 14% and 8%, respectively, for certain federal and state taxes.
Liquidity and
Capital Resources
As of July 2, 2010 and January 1, 2010, we had $17.4 million and $15.0 million, respectively,
classified in cash and cash equivalents in the accompanying consolidated balance sheets. During these same periods, we had $1.7 million and $1.5 million, respectively, on deposit with financial institutions that served as collateral for letters of
credit for operating leases and for amounts related to employee agreements. These deposit accounts have been classified as restricted cash on the consolidated balance sheets.
13
The following table summarizes our cash flow activity (in thousands):
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|
|
|
|
|
|
|
|
|
|
Six Months Ended
|
|
|
|
July 2,
2010
|
|
|
July 3,
2009
|
|
Cash flows from operating activities
|
|
$
|
5,985
|
|
|
$
|
(6,571
|
)
|
Cash flows from investing activities
|
|
$
|
(1,634
|
)
|
|
$
|
(954
|
)
|
Cash flows from financing activities
|
|
$
|
(1,913
|
)
|
|
$
|
(2,234
|
)
|
Net cash provided by
operating activities was $6.0 million for the six months ended July 2, 2010, as compared to net cash used in operating activities of $6.6 million for the six months ended July 3, 2009. During the six months ended July 2, 2010, net
cash provided by operating activities was primarily attributable to net income and a 14 day decrease in days sales outstanding.
Net cash used in operating activities for the six months ended July 3, 2009 was primarily attributable to the payout of 2008
incentive compensation awards, timing of the vendor payments and an increase in prepaid assets related to the renewal of insurance policies. These uses of cash were partially offset by decreases in accounts receivable for the six months ended
July 3, 2009.
Net cash used in investing activities was $1.6 million for the six months ended July 2, 2010, as
compared $0.9 million for the six months ended July 3, 2009. Cash used in investing activities for the six months ended July 2, 2010 was primarily attributable to capital expenditures and an increase in cash on deposit with a financial
institution as collateral for a letter of credit related to an operating lease. Net cash used in investing activities for the six months ended July 3, 2009 was primarily attributable to $1.6 million in capital expenditures, partially offset by
$0.6 million of Bank of Americas Columbia Strategic Cash Portfolio redemptions.
Net cash used in financing activities
was $1.9 million for the six months ended July 2, 2010, as compared to $2.2 million for the six months ended July 3, 2009. Net cash used in financing activities for the six months ended July 2, 2010 was attributable to the repurchase
of 715 thousand shares of our common stock at an average price of $3.00 per share, for a total cost of $2.1 million. Net cash used in financing activities for the six months ended July 3, 2009 was attributable to the repurchase of
1.2 million shares of our common stock at an average price of $2.09 per share, for a total cost of $2.5 million.
Under
our repurchase plan, we may buy back shares from time to time either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. As of July 2, 2010, we had $3.4 million available under
the buyback program. Subsequent to July 2, 2010, our Board of Directors approved the repurchase of an additional $5.0 million of our common stock, thereby increasing the total program size to $70.0 million.
We currently believe that available funds and cash flows generated by operations will be sufficient to fund our working capital and
capital expenditure requirements for at least the next twelve months. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire
complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.
Recently Issued Accounting Standards
For discussion of recently issued accounting standards, please see Item 1, Financial Statements in Part I of this document.
Item 3.
|
Quantitative and Qualitative Disclosures about Market Risk
|
At July 2, 2010, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.
14
Interest Rate Risk
We invest only with high credit quality issuers and we do not use derivative financial instruments in our investments.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates, as a portion of our revenue, expenses, assets and liabilities
are denominated in currencies other than the U.S. Dollar, primarily the British Pound and the Euro. These exposures may change over time as business practices evolve. Currently, we do not hold any derivative contracts that hedge our foreign
currency risk, but we may adopt such strategies in the future.
Item 4.
|
Controls and Procedures
|
Evaluation of
Disclosure Controls and Procedures
As of the end of the period covered by this report, we carried out an evaluation, under
the supervision and with the participation of management, including our Chief Executive Officer (CEO) and Chief Financial Officer (CFO), of the effectiveness of the design and operation of our disclosure controls and
procedures (Disclosure Controls) pursuant to Rule 13a-14(c) and Rule 15d-14(c) under the Securities Exchange Act of 1934. Based upon that evaluation, the CEO and CFO concluded that our disclosure controls are effective.
Limitations on the Effectiveness of Controls
Management, including our CEO and CFO, does not expect that our disclosure controls and internal controls will prevent all error and all
fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are
resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances
of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can
be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report
on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
15
PART II OTHER INFORMATION
Item 1.
|
Legal Proceedings
|
The
Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse
effect on the Companys financial position, cash flows or results of operations.
There have
been no material changes to any of the risk factors disclosed in the Companys most recently filed Annual Report on Form 10-K.
Item 2.
|
Unregistered Sales of Equity Securities and Use of Proceeds
|
During the quarter ended July 2, 2010, the Company repurchased approximately 682 thousand shares of its common stock at a cost
of approximately $2.1 million under the Companys share repurchase program approved by the Board of Directors in 2002. All repurchases were made in the open market or through privately negotiated transactions, subject to market conditions and
trading restrictions. There is no expiration date on the current authorization during the period covered by the table, nor was any determination made by the Company to suspend or cancel purchases under the program.
Issuer Purchases of Equity Securities
|
|
|
|
|
|
|
|
|
|
|
|
Period
|
|
Total Number
of Shares
|
|
Average Price
Paid per Share
|
|
Total Number
of Shares as Part
of Publicly
Announced
Program
|
|
Maximum Dollar
Value That May
Yet be Purchased
Under the
Program
|
|
|
|
|
|
|
Balance as of April 2, 2010
|
|
|
|
$
|
|
|
|
|
$
|
5,495,917
|
|
April 3, 2010 to April 30, 2010
|
|
232,605
|
|
$
|
2.95
|
|
232,605
|
|
$
|
4,808,828
|
|
May 1, 2010 to May 28, 2010
|
|
130,302
|
|
$
|
3.13
|
|
130,302
|
|
$
|
4,400,694
|
|
May 29, 2010 to July 2, 2010
|
|
318,992
|
|
$
|
3.02
|
|
318,992
|
|
$
|
3,436,753
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
681,899
|
|
$
|
3.02
|
|
681,899
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
*
|
Subsequent to July 2, 2010, our Board of Directors approved an additional $5.0 million to our share repurchase program, thereby increasing the authorization to
$70.0 million.
|
See Index to
Exhibits on page 18, which is incorporated herein by reference.
The Exhibits listed in the accompanying Index to Exhibits are
filed as part of this report.
16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
The Hackett Group, Inc.
|
|
|
Date: August 11, 2010
|
|
/s/ Robert A. Ramirez
|
|
|
Robert A. Ramirez
|
|
|
Executive Vice President, Finance and Chief Financial Officer
|
17
INDEX TO EXHIBITS
|
|
|
Exhibit
No.
|
|
Exhibit Description
|
|
|
2.1
|
|
Asset Purchase Agreement among The Hackett Group, Inc., Archstone Acquisition Corp., Hackett-REL, Ltd., The Hackett Group, B.V., Archstone Consulting LLC, Archstone Consulting UK
Ltd. and Archstone Consulting Netherlands BV (incorporated herein by reference to the Registrants Form 8-K dated November 10, 2009).
|
|
|
3.1
|
|
Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrants Form 10-K for the year ended December
29, 2000).
|
|
|
3.2
|
|
Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrants Form 10-K for the year ended December 29,
2000).
|
|
|
3.3
|
|
Articles of Amendment of the Third Amended and Restated Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrants Form 10-K for the year
ended December 28, 2007).
|
|
|
3.4
|
|
Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrants Form 8-K filed on March 31, 2008).
|
|
|
31.1
|
|
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
|
|
|
31.2
|
|
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
|
|
|
32
|
|
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
|
18
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