ANNUAL REPORT
2010
2010 was a strong year as we quickly
re-established solid revenue growth
and operating margins coming off
the 2009 recession period. We are also
very excited about the investment in
the development of our new Hackett
Performance Exchange dashboard
offering that we plan to launch in the
first alf of 2011.
h
© 2008, The NASDAQ Stock Market, Inc.
Reprinted with permission.
Ted A. Fernandez
Chairman and Chief Executive Officer
Dear Shareholders,
Once again, I am pleased to update you on our progress over the past year. 2010
was a strong year which allowed us to re-establish revenue growth and solid
operating margins coming off the 2009 recession period. I am proud that we were
able to report strong year-over-year improvements on both a reported and organic
basis while continuing to invest in our brand as well as in innovative ways to serve
our clients.
We successfully integrated the acquisition of Archstone Consulting. We grew our
Technology Solutions business by 39% and we also grew our membership, contract
value and referral sales in our Executive Advisory business and expanded our
presence in the Asia Pacific region. In addition, we developed a new series of
performance dashboard offerings that we plan to launch in the first half of 2011.
Our strong results emanated from solid U.S. activity, servicing our advisory client
base more broadly and greater than expected cross-selling synergies from the
Archstone acquisition. Of special note was the performance of our Technology
Solutions team, led by the performance of our SAP practice. We believe we can
build on this momentum in 2011.
As we head into 2011 at a macroeconomic level, we expect to see healthy demand
in the U.S, and for the first time in over two years, we expect Europe to experience
improved demand in the upcoming year. Nearly all GDP growth projections have
improved over the most recent quarter improving the prospects for the upcoming
year. We believe that gradual economic growth improvement with expected volatility
is favorable for our services.
We have always believed that if we can combine our strong global brand with a
series of intellectual capital offerings, which clients use on a continuous basis, that
we can improve our revenue growth as well as the predictability and profitability of
our operating results. Using unique intellectual capital delivered in an easy to use
way coupled with broader transformation offering would also allow us to increase our
client base and also increase revenue per client.
We worked hard during 2010 to innovate new ways to make this happen. In the first
half of 2011, we will introduce our new Hackett Performance Exchange, which will
allow us to deliver and leverage our unique intellectual capital and best practice
expertise in a new and transformative way. We have now nearly completed our beta
testing of the first two fully automated dashboard offerings of our new Hackett
Performance Exchange with very positive feedback. This new offering will allow us
to measure, benchmark and estimate the performance improvement opportunity of
critical operating processes on a monthly basis.
Expanding brand permission remains a strategic focus for us. The key here is to
extend our current permission -- from being the premier global benchmarking
organization to all of our capabilities including our consulting capabilities. We
continue to invest in our go-to-market messaging in an effort to help our clients
understand why our benchmarking, and now our dashboard and best practice
insight, makes us unlike any other consulting organization. We must make sure that
our clients know that we are every bit as good at helping them implement the
outcome as we are at measuring and benchmarking their opportunity to improve.
Another area of focus is to be able to ascribe an increasing percentage of our total
annual revenues to clients who are continuously engaged with us through our
Executive Advisory programs which will now be supplemented by our new Hackett
Performance Exchange dashboard offerings. Our advisory relationship allows us to
maintain a continuous strategic relationship with clients which we should continue to
serve more broadly.
In summary, we made great progress in 2010 as we strongly bounced back from the
headwinds of the recession. We are pleased with our improved performance as well
as the prospects for 2011. As I always mention, when you consider our powerful
brand, our unique ability to combine our proprietary intellectual capital with our
terrific talent, our strong balance sheet and ample cash balances, we are eager to
see what 2011 offers.
In closing, let me thank our associates and shareholders for your ongoing
commitment to our organization.
Ted A. Fernandez
Chairman and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(cid:95) ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED December 31, 2010
OR
(cid:133) 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 0-24343
The Hackett Group, Inc.
(Exact name of registrant as specified in its charter)
FLORIDA
(State or other jurisdiction of
incorporation or organization)
1001 Brickell Bay Drive, Suite 3000
Miami, Florida
(Address of principal executive offices)
65-0750100
(I.R.S. Employer
Identification Number)
33131
(Zip Code)
(305) 375-8005
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
(Title of each class)
Common Stock, par value $.001 per share
(Name of each exchange on which registered)
NASDAQ Stock Market
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes (cid:133) No (cid:95)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange
Act. Yes (cid:133) No (cid:95)
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 (cid:95) No (cid:133)
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 (cid:133) No (cid:133)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) 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. (cid:133)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or 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):
Large Accelerated Filer (cid:133)
Accelerated Filer
(cid:95)
Non-accelerated Filer (cid:133) (Do not check if a smaller reporting company)
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:133) No (cid:95)
The aggregate market value of the common stock held by non-affiliates of the registrant was $77,354,059 on July 2, 2010 based on the last
(cid:133)
reported sale price of the registrant’s common stock on the NASDAQ Global Market.
The number of shares of the registrant’s common stock outstanding on March 7, 2011 was 41,388,838.
Part III of the Form 10-K incorporates by reference certain portions of the registrant’s proxy statement for its 2011 Annual Meeting of
Shareholders filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.
DOCUMENTS INCORPORATED BY REFERENCE
THE HACKETT GROUP, INC.
FORM 10-K
TABLE OF CONTENTS
PART I
ITEM 1.
Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
Properties
Legal Proceedings
Removed and Reserved
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
ITEM 9.
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
ITEM 9A. Controls and Procedures
ITEM 9B. Other Information
ITEM 10.
Directors, Executive Officers and Corporate Governance
ITEM 11.
Executive Compensation
PART III
ITEM 12.
ITEM 13.
ITEM 14.
ITEM 15.
Signatures
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
Certain Relationships and Related Transactions, and Director Independence
Principal Accounting Fees and Services
Exhibits and Financial Statement Schedules
PART IV
Index to Exhibits
Page
3
9
13
13
13
13
13
16
17
24
25
49
49
51
51
51
51
51
51
51
52
53
2
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 in these sections. 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 attract additional business, 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, and changes in general economic conditions and interest
rates. An additional description of our risk factors is described in Part 1 – Item 1A. “Risk Factors”. 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.
ITEM 1.
GENERAL
BUSINESS
PART I
On January 1, 2008, we changed our corporate name from Answerthink, Inc. (“Answerthink”) to The Hackett Group, Inc.
(“Hackett”). We were originally incorporated on April 23, 1997. All prior references to Answerthink will now be reflected as Hackett
as if the name change was effected for all years presented. Hackett is a global strategic advisory firm and a leader in best practice
advisory, benchmarking, and transformation consulting services, including shared services, offshoring and outsourcing advice.
Utilizing best practices and implementation insights from more than 5,000 benchmarking studies, executives use Hackett’s empirically
based approach to quickly define and prioritize initiatives to enable world-class performance. Through its Archstone Consulting group
(acquired in November 2009), Hackett offers Strategy & Operations consulting services in the Consumer and Industrial Products,
Pharmaceutical, Manufacturing and Financial Services industry sectors. Through its REL group, Hackett offers working capital
solutions focused on delivering significant cash flow improvements. Through its Hackett Technology Solutions group (“HTS”),
Hackett offers business application consulting services that help maximize returns on information technology (“IT”) investments.
Hackett has worked with more than 2,800 major corporations and government agencies, including 97% of the Dow Jones Industrials,
84% of the Fortune 100, 80% of the DAX 30 and 49% of the FTSE 100.
In this Form 10-K, unless the context otherwise requires, “Hackett,” the “Company,” “we,” “us,” and “our” refer to The
Hackett Group, Inc. and its subsidiaries and predecessors.
As expected during 2010, we experienced gradual economic and client demand improvement in most markets that we
serve, with the exception of Western Europe. This was a noticeable improvement from the challenging economic environment that we
experienced throughout most of 2009. As we head into 2011, we expect improved economic conditions in the U.S. and for the first
time in two years we expect improved demand in Europe. Global organizations will continue to recognize the need to drive
sustainable cost reductions and cash flow improvements as they look to be competitive in the growing but complex global economy.
Global growth opportunities require organizations to build global standards and operating excellence that many organizations have yet
to address. We believe that our offerings are well aligned with the demands that all organizations will continue to experience during a
period of gradual but continued global volatility. We will continue to ensure that our clients understand that our unique intellectual
capital along with our expanding implementation expertise will enable them to make the necessary improvements in a targeted and
timely manner.
Specifically, organizations must ensure that they have an operating platform or service delivery strategy that ensures that
their underlying business processes allow them to strategically support their operations and to optimize their results in the current
economic environment. To do so, organizations will have to understand and decide how best to organize, enable, source and manage
their critical business processes. We believe companies will continue to place increased emphasis on risk management and tangible
return on their business and technological investments. We believe large enterprises will continue to focus their performance
improvement spending on strategies and tools that help them generate more value from their business investments in the form of
enhanced productivity and efficiency. We also expect companies to continue to look for ways to centralize, standardize and automate
business processes and to do so by leveraging educated, low-cost labor markets. In today’s environment, clients must be clearly
convinced that you are uniquely qualified to help them achieve their targeted results in a timely manner.
3
OUR PROPRIETARY BEST PRACTICE IMPLEMENTATION INTELLECTUAL CAPITAL
Hackett uses its proprietary Best Practice Implementation (“BPI”) intellectual capital to help clients improve their
performance. Our benchmark offerings allow clients to empirically quantify their performance improvement opportunity at a process
level. Utilizing the performance metrics and our vast repository of best practices, combined with the global strategy and
implementation insight of our transformation and technology associates, Hackett has created a series of process and technology tools
that allow clients to effect proven sustainable performance improvement. Our proprietary BPI intellectual capital, which is imbedded
within our global delivery methodology, allows us to help clients accelerate their time to benefit.
Our BPI approach leverages our inventory of Hackett-Certified™ practices, observed through benchmark and other BPI
engagements, to correlate best practices with superior performance levels. We use Hackett intellectual capital in the form of best
practice process flows and software configuration guides to integrate Hackett’s empirically proven best practices directly into business
processes and workflows that are enabled by enterprise software applications. The repository of best practice process flows and
software configuration guides reside in the Best Practice Intelligence Center portal and are used throughout the term of a project to
ensure that best practices are identified and implemented. This coordinated approach addresses people, process, information access
and technology.
Because Hackett solutions are based on Hackett-Certified™ practices, we believe that clients gain significant advantages.
Clients can have confidence that their solutions are based on strategies from the world’s leading companies. More importantly,
Hackett solutions deliver enhanced efficiency, improved effectiveness, increased flexibility, optimized return on investment and
reduced implementation risk.
The BPI approach often begins with a clear understanding of current performance, which is gained through benchmarking
key processes and comparing the results to world-class levels and industry standards captured in the Hackett database. We then help
clients prioritize and select the appropriate best practices to implement through a coordinated performance improvement strategy.
Without a coordinated strategy that addresses the four key business drivers of people, process, technology and information, we believe
companies risk losing a significant portion of business case benefits of their investments. We have designed detailed best practice
process flows based on Hackett’s deep knowledge of world-class business performance which enable clients to streamline and
automate key processes, and generate performance improvements quickly and efficiently at both the functional and enterprise level.
Similarly, we integrate Hackett-Certified™ practices directly into technology solutions. We believe it is imperative that
companies simplify and automate processes to meet best practice standards before new technology implementations and upgrades are
completed. The automation of inefficient processes only serves to continue to drive up costs, cycle times and error rates. We have
completed detailed fit-gap analyses in most functional areas of major business application packages from Oracle, Hyperion and SAP
to determine their ability to support best practices. Application-specific tools, implementation guides and process flows allow us to
optimize the configuration of enterprise resource planning (“ERP”) software, while limiting customization. BPI’s establish the
foundation for improved performance.
We believe the combination of optimized processes, a best practices-based business application and enhanced business
intelligence environments allow our clients to achieve and sustain significant business performance improvement. The specific client
circumstances normally dictate how they engage us. Our goal is to be responsive to client needs, and to establish a continuous and
trusted relationship. We have developed a series of offerings that allow us to efficiently help the client without regard to where they
are in their performance improvement lifecycle.
COMPETITION
The strategic business advisory and technology consulting marketplace continues to be extremely competitive. The
marketplace will remain competitive as companies continue to look for ways to improve their organizational effectiveness. Our
competitors include strategic consulting firms, executive research advisory firms, international and regional management consulting
and IT firms, and the IT services divisions of application software firms. Mergers and consolidations throughout our industry have
resulted in higher levels of competition. We believe that the principal competitive factors in the industries in which we compete
include skills and capabilities of people, innovative services and product offerings, perceived ability to add value, reputation and client
references, price, scope of services, service delivery approaches, technical and industry expertise, quality of services and solutions,
ability to deliver results on a timely basis, availability of appropriate resources, and global reach and scale. We believe very few of our
competitors have proprietary intellectual capital similar to the performance metrics and BPI insight that emanates from our
Transformational Benchmark offering.
In spite of our size relative to our competitor group, we believe our competitive position is strong. With Hackett best
practice intellectual capital and its direct link to our BPI approach, we believe we can uniquely assist our clients. Our ability to apply
best practices to client operations via proven techniques is at the core of our competitive standing.
4
Similarly, we believe that Hackett is the definitive source for best practice performance metrics and strategies. Hackett is
the only organization that has conducted over 5,000 benchmark studies for over 2,800 clients, generating proprietary data sets
spanning performance metrics and correlating best practices with superior performance. The combination of Hackett benchmark data,
along with deep expertise and knowledge in evaluating, designing and implementing business transformation strategies, delivers a
powerful and distinct value proposition for our clients.
Our culture of client collaboration leverages the power of our cross-functional and service line teams to increase revenue
and strengthen relationships. We believe that this culture, along with our intellectual capital-centric approach, gives us a competitive
advantage.
STRATEGY
Our focus will be on executing the following strategies:
•
•
•
•
•
•
Expand our brand or market permission to our other offerings. We believe that our long term growth prospects lie in our
ability to extend our unique market permission to help clients measure their performance improvement opportunity, or gap
analysis, using our proprietary benchmark database into our other offerings. We have started to extend our permission through
the strategic relationship that results from our Executive Advisory Programs. However, our most significant growth opportunity
is in our ability to extend our brand and market permission into our enterprise transformation and other best practice
implementation offerings which create a significant opportunity to grow revenue per client.
Continue to position and grow Hackett as an IP-centric strategic advisory organization. The Hackett brand is widely
recognized for benchmarking metrics and best practice strategies. By building a series of highly complementary on-site and off-
site offerings that allow our clients access to our Intellectual Property (“IP”) which is based on our best practice process and
technology implementation insight, we are able to build trusted strategic relationships with our clients. Depending where our
clients are in their assessment or implementation of performance improvement initiatives, we offer them a combination of
offerings that support their efforts. If they need on-site planning, design and/or implementation support, we offer them a
combination of benchmarking and transformation support. If they need off-site access to our IP and advisors to help them either
assess or execute on their own, they can avail themselves of our Executive Advisory Programs. The key is for the client to know
that we can support them strategically by leveraging our unique IP and insight so that we are able to build a strategic
relationship which is appropriate for them. We also believe that clients that value our IP will turn to us for other services when
the need arises, allowing us over time to ascribe a larger amount of our total revenue to a growing client base, which will
improve the predictability of our results.
Introduce New IP–centric Offerings - In March of 2011 we will start selling a new performance management offering called
the “Hackett Performance Exchange.” This new dashboard offering will allow us to measure, benchmark and estimate the
performance improvement opportunity of key operating processes on a monthly basis. This offering is expected to securely
extract operating information directly from a client’s ERP system which will allow them to measure and compare their
performance to Hackett peer and world class standards. Most importantly, this solution is expected to be fully automated,
requiring limited client time to set up and can be viewed utilizing a laptop with secured web access. This new offering, if
successful, could help enhance our business model by creating a powerful and possibly continuous relationship with a client. It
could also increase key operating data that will allow us to improve the proprietary performance insight we can delivery through
all of our other offerings.
Continue to expand our BPI tools. BPI incorporates intellectual capital from Hackett into our implementation tools and
techniques. For clients, the end results are tangible cost, performance gains and improved returns on their investments. Our
clients attribute their decision to employ us based on our BPI approach and tools. Our objective is to help clients make smarter
business process and software configuration decisions as a result of our BPI methods and knowledge. We are continuously
updating our BPI content and tools through benchmarking, enterprise transformation and research activities. Additional BPI
updates are also driven by new software releases that drive new innovation in business process automation.
Create strategic relationships that help us leverage and expand our Hackett intellectual capital base as well as grow our
revenue. We continue to believe that there are other organizations which can help us grow revenue and intellectual capital
consistent with our strategy. Such relationships include programs that we have executed with other consulting organizations,
industry trade groups and software providers.
Recruit and develop talent. As we continue to grow and realize the potential of our business model, it has become increasingly
evident that the primary limit to our progress will be our ability to attract, retain, develop and motivate associates. In the latter
part of 2008, we rolled out a talent management initiative that included a new performance management program and a
comprehensive personal development training curriculum. We continue to invest in associate development programs that are
specifically targeted to improve our go-to-market and delivery execution.
5
•
•
Leverage our dual shore capabilities. Developing an offshore resource capability to support all of our offerings has been a key
strategy for our organization. Our facility in Hyderabad, India allows us to increase operational efficiencies while maintaining
24 hour/5 day operations.
Seek out strategic acquisitions. We will continue to pursue strategic acquisitions that strengthen our ability to compete and
expand our IP. We believe that our unique Hackett access and our BPI approach, coupled with our strong balance sheet and
infrastructure, can be utilized to support a larger organization. We believe that acquisitions must be accretive or have strong
growth prospects, but most importantly, have strong synergy with our best practice intellectual capital focus.
OUR OFFERINGS
We offer a comprehensive range of services, including executive advisory programs, benchmarking, business
transformation and technology consulting services. With strategic and functional knowledge in finance, human resources, information
technology, procurement, supply chain management, corporate services, customer service, and sales and marketing, our expertise
extends across the enterprise. We have completed successful engagements in a variety of industries, including automotive, consumer
goods, financial services, technology, life sciences, manufacturing, media and entertainment, retail, telecommunications,
transportation and utilities.
The Hackett Group
•
Executive Advisory Programs
On-demand access provides world-class performance metrics, peer-learning opportunities and best practice
implementation advice. The scope of Hackett’s advisory programs is defined by business function (Executive Advisory) and by end-
to-end process coverage (Process Advisory). Our advisory programs include a mix of the following deliverables:
• Advisor Inquiry: Hackett’s inquiry services are used by clients for quick access to fact-based advice on proven
approaches and methods to increase the efficiency and effectiveness of selling, general and administrative processes
(“SG&A”).
•
• Best Practice Research: Empirically-based research and insight derived from Hackett benchmark, performance and
transformation studies. Our research provides detailed insights into the most significant proven approaches in use at
world-class organizations that yield superior business results.
Peer Interaction: Regular member-led webcasts, annual Best Practice Conferences, annual Member Forums, membership
performance surveys and client-submitted content, provide ongoing peer learning and networking opportunities.
• Best Practice Intelligence Center: Online, searchable repository of best practices, performance metrics, conference
presentations and associated research available to Executive Advisory Program Members and their support teams.
•
Benchmarking Services
Our benchmarking group dates back to 1991, and has measured and evaluated the efficiency and effectiveness of
enterprise functions for over 2,800 organizations globally. This includes 97% of the Dow Jones Industrials, 84% of the Fortune 100,
80% of the DAX 30 and 49% of the FTSE 100. Ongoing studies are conducted in a wide range of areas, including SG&A, finance,
human resources, information technology, procurement, enterprise performance management, shared service centers and working
capital management. Hackett has identified over 1,900 best practices for over 95 processes in these key functional areas and uses
proprietary performance measurement tools and data collection processes that enable companies to complete the performance
measurement cycle and identify and quantify improvement opportunities in as little as four weeks. Benchmarks are used by our clients
to objectively establish priorities, generate organizational consensus, align compensation to establish performance goals, and develop
the required business case for business and technology investments.
•
Business Transformation
Our Business Transformation programs help clients develop a coordinated strategy for achieving performance
improvements across the enterprise. Our experienced teams utilize Hackett performance measurement data to link performance gains
to industry best practices. Our strategic capabilities include operational assessments, process and organization design, change
management and the effective application of technology. We combine best practices knowledge with business expertise and broad
technology capabilities, which we believe enables our programs to optimize return on client investments in people, process,
technology and information.
Through REL, a global leader in generating cash improvement from working capital, we offer services which are designed
to help companies improve cash flow from operations through improved working capital management, reduced costs and increased
service quality.
6
Through Archstone, we offer services which specialize in industry supply chain and procurement consulting and advisory
competencies.
Hackett Technology Solutions (“HTS”)
Our HTS professionals help clients choose and deploy the software applications that best meet their needs and objectives.
Our expertise is focused on the following application providers: Oracle (including Oracle EPM), SAP, and several leading time and
attendance providers. The group offers comprehensive services from planning, architecture, and vendor evaluation and selection
through implementation, customization, testing and integration. Comprehensive fit-gap analyses of all major packages against Hackett
Best Practices are utilized by our HTS teams. BPI tools and templates help integrate best practices into business and analytical
applications. The group also offers post-implementation support, change management, exception management, process transparency,
system documentation and end-user training, all of which are designed to enhance return on investment. We also provide offshore
application development and support services. These services include post-implementation support for select business application
platforms. Our HTS group also includes a division responsible for the sale and maintenance support of the SAP suite of ERP
applications.
See Note 1 and Note 16 in the notes to the consolidated financial statements regarding segment reporting and geographic
and service group information.
CLIENTS
We focus on long-term client relationships with Global 2000 firms and other sophisticated buyers of business and IT
consulting services. During 2010 and 2009, our ten most significant clients accounted for approximately 26% and 28% of revenue,
respectively, and one client generated 4% and 6% of total revenue, respectively. We believe that we have achieved a high level of
satisfaction across our client base. The responses to our client satisfaction surveys have been positive. We receive surveys from a
significant number of our engagements which are utilized in a rigorous process to improve our delivery execution, sales processes,
methodologies and training.
BUSINESS DEVELOPMENT AND MARKETING
Our extensive client base and relationships with Global 2000 firms remain our most significant sources of new business.
Our revenue generation strategy is formulated to ensure we are addressing multiple facets of business development. The categories
below define our business development resources. Our primary goal is to continue to increase awareness of our brand which we have
created around Hackett’s empirical knowledge capital and BPI in the extended enterprise that we now serve. Our Hackett and BPI
message have remained the central focus of our marketing and communications programs in 2010 which helped to expand both an
understanding of and demand for this approach. Similarly, we have regionalized our sales and market development efforts in both
North America and Europe, so we can better coordinate the sales efforts from the various offerings. Our compensation programs for
our associates reflect an emphasis on optimizing our total revenue relationship with our clients while continuing to emphasize the
growth of our Executive Advisory Program clients. For our HTS groups, we have continued to utilize Hackett intellectual capital that
resides in our BPI tools as a way to differentiate the relationships we have with the software providers and with our clients.
BUSINESS DEVELOPMENT RESOURCES
Although virtually all of our advisors and consultants have the ability to and are expected to contribute to new revenue
opportunities, our primary internal business development resources are comprised of the following:
• The Leadership Team, Principals and Senior Directors are comprised of our senior leaders who have a combination of
executive, regional, practice and anchor account responsibilities. In addition to their management responsibilities, this
group of associates is responsible for growing the business by fostering executive-level relationships within accounts and
leveraging their existing contacts in the marketplace.
• The Sales Organization is comprised of associates who are 100% dedicated to generating sales. They are deployed
geographically in key markets and are primarily focused on developing new relationships and are aligned to our core
practice areas within their target accounts. They also handle opportunities in their geographic territories as they arise.
• The Business Development Associates are comprised of trained groups of telemarketing specialists who are conversant
with their respective solution areas. Lead generation is coordinated with our marketing and sales groups to ensure that our
inbound and outbound efforts are synchronized with targeted marketing and sales programs.
• The Delivery Organization is comprised of our billable associates who work at client locations. We encourage associates
to pursue additional business development opportunities through their normal course of delivering existing projects and
helping us expand our business within existing accounts.
7
In addition to our business development resources, we have a corporate marketing and communications organization responsible for
overseeing our marketing programs, public relations and employee communications activities.
•
We have organized our market focus into the following categories:
Strategic Accounts are comprised of large prospects and existing relationships which we believe will have a significant
revenue relationship within the next 18 months. Strategic account criteria include the size of the company, industry
affiliation, propensity to buy external consulting services and contacts within the account. The sales representative
working closely with regional leadership is primarily responsible for identifying business opportunities in the account,
acting as the single point of coordination for the client, and performing the general duties of account manager.
• Regional Accounts are accounts within a specified geographic location. These accounts mostly include large prospects,
dormant clients, existing medium-sized clients and mid-tier market accounts and are handled primarily on an opportunistic
basis, except for active clients where delivery teams are focused on driving additional revenue.
Strategic Alliance Accounts are accounts that allow us to partner with organizations of greater scale or different skill sets
or with software developers which enables all parties to jointly market their products and services to prospective clients.
•
MANAGEMENT SYSTEMS
Our management control systems are comprised of various accounting, billing, financial reporting, human resources,
marketing and resource allocations systems, many of which are integrated with our knowledge management system, Mind~Share. We
believe that Mind~Share significantly enhances our ability to serve our clients efficiently by allowing our knowledge-base to be
shared by all associates worldwide on a real-time basis. Our well-developed, flexible, scalable infrastructure has allowed us to quickly
integrate the new employees and business systems we have acquired.
TALENT MANAGEMENT
We fully believe that our culture fosters intellectual creativity, collaboration and innovation. We believe in building
relationships with both our associates and clients. We believe the best solutions come from teams of diverse individuals addressing
problems collectively and from multiple dimensions, including the business, technological and human dimensions. We believe that the
most effective working environment is one where everyone is encouraged to contribute and is rewarded for that contribution. Our core
values are the strongest expression of our working style and represent what we stand for. These core values are:
• Continuous development of our associates, our unique content business model and our knowledge base;
• Diversity of backgrounds, skills and experiences;
• Knowledge capture, contribution and utilization; and
• Collaboration with one another, with our partners and with our clients
Our human resources staff includes seasoned professionals in North America, Europe and Asia Pacific who support our
practices by, among other things, administering our benefit programs and facilitating the hiring process. Our human resources staff
also includes dedicated individuals who recruit consultants with both business and technology expertise. Our recruiting team supports
our hiring process by focusing on the highest demand solution areas of our business to ensure an adequate pipeline of new associates.
We also have an employee referral program, which rewards existing employees who source new hires.
As of December 31, 2010, we had approximately 854 associates, approximately 78% of whom were billable professionals.
We do not have any associates that are subject to collective bargaining arrangements; however, in France our associates enjoy the
benefit of certain government mandated regulations based on industry classification. We have entered into nondisclosure and non-
solicitation agreements with virtually all of our personnel. From time to time we also engage consultants as independent contractors.
COMMUNITY INVOLVEMENT
One important way we put our values into action is through our commitment to the communities where we work. The
mission of our Community Council, which operates in each of the cities where we have offices, is to strive to leave the markets,
communities and clients we serve better than how we found them. We do so by building a strong sense of community, with
collaboration and personal interaction from all of our associates, through both volunteer and service programs and social gatherings.
8
AVAILABLE INFORMATION
We make our public filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on
Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all exhibits and amendments to these reports,
available free of charge at our website http://www.thehackettgroup.com as soon as reasonably practicable after we electronically file
such material with, or furnish it to, the SEC. Any material that we file with the SEC may be read and copied at the SEC’s Public
Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or at www.sec.gov. Information on the operation of the Public
Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.
Also available on our website, free of charge, are copies of our Code of Conduct and Ethics, and the charter for the Audit
Committee of our Board of Directors. We intend to disclose any amendment to, or waiver from, a provision of our Code of Conduct
and Ethics applicable to our senior financial officers, including our Chief Executive Officer, Chief Operating Officer, Chief Financial
Officer and Corporate Controller on our website within four business days following the date of the amendment or waiver.
ITEM 1A. RISK FACTORS
Our business is subject to risks. The following important factors could cause actual results to differ materially from those
contained in forward-looking statements made in this Annual Report on Form 10-K or printed elsewhere by management from time to
time.
Our results of operations could be negatively affected by global economic conditions.
Current global economic conditions may affect our clients’ businesses and the markets they serve. A substantial or
prolonged economic downturn could adversely affect our clients’ financial condition which may reduce our clients’ demand for our
services, force price reductions, cause project cancellations, or delay consulting services for which they have engaged us. In addition,
if we are unable to successfully anticipate the changing economic conditions, we may be unable to effectively plan for and respond to
those changes, and our business could be negatively affected.
Our quarterly operating results may vary.
Our financial results may fluctuate from quarter to quarter. In future quarters, our operating results may not meet public
market analysts’ and investors’ expectations. If that happens, the price of our common stock may fall. Many factors can cause these
fluctuations, including:
•
•
•
•
•
•
•
•
•
•
•
•
number, size, timing and scope of client engagements;
customer concentration;
long and unpredictable sales cycles;
contract terms of client engagements;
degrees of completion of client engagements;
client engagement delays or cancellations;
competition for and utilization of employees;
how well we estimate the resources and effort we need to complete client engagements;
the integration of acquired businesses;
pricing changes in the industry;
economic conditions specific to business and information technology consulting; and
global economic conditions.
A high percentage of our operating expenses, particularly personnel and rent, are fixed in advance of any particular
quarter. As a result, if we experience unanticipated changes in client engagements or in consultant utilization rates, we could
experience large variations in quarterly operating results and losses in any particular quarter. Due to these factors, we believe our
quarter-to-quarter operating results should not be used to predict future performance.
9
If we are unable to maintain our reputation and expand our name recognition, we may have difficulty attracting new business and
retaining current clients and employees.
We believe that establishing and maintaining a good reputation and name recognition are critical for attracting and
retaining clients and employees in our industry. We also believe that the importance of reputation and name recognition will continue
to increase due to the number of providers of business consulting and IT services. If our reputation is damaged or if potential clients
are not familiar with us or with the solutions we provide, we may be unable to attract new, or retain existing, clients and employees.
Promotion and enhancement of our name will depend largely on our success in continuing to provide effective solutions. If clients do
not perceive our solutions to be effective or of high quality, our brand name and reputation will suffer. In addition, if solutions we
provide have defects, critical business functions of our clients may fail, and we could suffer adverse publicity as well as economic
liability.
We depend heavily on a limited number of clients.
We have derived, and believe that we will continue to derive, a significant portion of our revenue from a limited number
of clients for which we perform large projects. In 2010, our ten largest clients accounted for approximately 26% of our aggregate
revenue. In addition, revenue from a large client may constitute a significant portion of our total revenue in any particular quarter. Our
customer contracts generally can be cancelled for convenience by the customer upon 30 days’ notice. The loss of any of our large
clients for any reason, including as a result of the acquisition of that client by another entity, our failure to meet that client’s
expectations, the client’s decision to reduce spending on technology-related projects, or failure to collect amounts owed to us from our
client could have a material adverse effect on our business, financial condition and results of operations.
We have risks associated with potential acquisitions or investments.
Since our inception, we have expanded through acquisitions. In the future, we plan to pursue additional acquisitions as
opportunities arise. We may not be able to successfully integrate businesses which we may acquire in the future without substantial
expense, delays or other operational or financial problems. We may not be able to identify, acquire or profitably manage additional
businesses. Also, acquisitions may involve a number of risks, including:
•
•
•
•
•
•
•
diversion of management’s attention;
failure to retain key personnel;
failure to retain existing clients;
unanticipated events or circumstances;
unknown claims or liabilities;
amortization of certain acquired intangible assets; and
operating in new or unfamiliar geographies.
Client dissatisfaction or performance problems at a single acquired business could have a material adverse impact on our
reputation as a whole. Further, we cannot assure you that our future acquired businesses will generate anticipated revenue or earnings.
Difficulties in integrating businesses we may acquire in the future may demand time and attention from our senior management.
Integrating businesses we may acquire in the future may involve unanticipated delays, costs and/or other operational and
financial problems. In integrating acquired businesses, we may not achieve expected economies of scale or profitability, or realize
sufficient revenue to justify our investment. If we encounter unexpected problems as we try to integrate an acquired firm into our
business, our management may be required to expend time and attention to address the problems, which would divert their time and
attention from other aspects of our business.
Our markets are highly competitive.
We may not be able to compete effectively with current or future competitors. The business consulting and IT services
markets are highly competitive. We expect competition to further intensify as these markets continue to evolve. Some of our
competitors have longer operating histories, larger client bases, longer relationships with their clients, greater brand or name
recognition and significantly greater financial, technical and marketing resources than we do. As a result, our competitors may be in a
stronger position to respond more quickly to new or emerging technologies and changes in client requirements and to devote greater
resources than we can to the development, promotion and sale of their services. Competitors could lower their prices, potentially
forcing us to lower our prices and suffer reduced operating margins. We face competition from international accounting firms;
international, national and regional strategic consulting and systems implementation firms; and the IT services divisions of application
software firms.
10
In addition, there are relatively low barriers to entry into the business consulting and IT services market. We do not own
any patented technology that would stop competitors from entering this market and providing services similar to ours. As a result, the
emergence of new competitors may pose a threat to our business. Existing or future competitors may develop and offer services that
are superior to, or have greater market acceptance, than ours, which could significantly decrease our revenue and the value of your
investment.
We may not be able to hire, train, motivate, retain and manage professional staff.
To succeed, we must hire, train, motivate, retain and manage highly skilled employees. Competition for skilled employees
who can perform the services we offer is intense. We might not be able to hire enough skilled employees or train, motivate, retain and
manage the employees we hire. This could hinder our ability to complete existing client engagements and bid for new ones. Hiring,
training, motivating, retaining and managing employees with the skills we need is time-consuming and expensive.
We could lose money on our contracts.
As part of our strategy, from time to time, we enter into capped or fixed-price contracts, in addition to contracts based on
payment for time and materials. Because of the complexity of many of our client engagements, accurately estimating the cost, scope
and duration of a particular engagement can be a difficult task. We maintain an Office of Risk Management (“ORM”) that evaluates
and attempts to mitigate delivery risk associated with complex projects. In connection with their review, ORM analyzes the critical
estimates associated with these projects. If we fail to make these estimates accurately, we could be forced to devote additional
resources to these engagements for which we will not receive additional compensation. To the extent that an expenditure of additional
resources is required on an engagement, this could reduce the profitability of, or result in a loss on, the engagement. In the past, we
have, on occasion, engaged in negotiations with clients regarding changes to the cost, scope or duration of specific engagements. To
the extent we do not sufficiently communicate to our clients, or our clients fail to adequately appreciate the nature and extent of any of
these types of changes to an engagement, our reputation may be harmed and we may suffer losses on an engagement.
Lack of detailed written contracts could impair our ability to recognize revenue for services performed, collect fees, protect our IP
and protect ourselves from liability to others.
We protect ourselves by entering into detailed written contracts with our clients covering the terms and contingencies of
the client engagement. In some cases, however, consistent with what we believe to be industry practice, work is performed for clients
on the basis of a limited statement of work or verbal agreement before a detailed written contract can be finalized. Revenue is not
recognized on a project prior to receiving a signed contract. To the extent that we fail to have detailed written contracts in place, our
ability to collect fees, protect our IP and protect ourselves from liability to others may be impaired.
Our corporate governance provisions may deter a financially attractive takeover attempt.
Provisions of our charter and by-laws may discourage, delay or prevent a merger or acquisition which shareholders may
consider favorable, including transactions in which shareholders would receive a premium for their shares. These provisions include
the following:
•
shareholders must comply with advance notice requirements before raising a matter at a meeting of shareholders or
nominating a director for election;
our Board of Directors is staggered into three classes and the members may be removed only for cause upon the
affirmative vote of holders of at least two-thirds of the shares entitled to vote;
•
• we would not be required to hold a special meeting to consider a takeover proposal unless holders of more than a majority
•
of the shares entitled to vote on the matter were to submit a written demand or demands for us to do so; and
our Board of Directors may, without obtaining shareholder approval, classify and issue up to 1,250,000 shares of preferred
stock with powers, preferences, designations and rights that may make it more difficult for a third party to acquire us.
In addition, our Board of Directors has adopted a shareholder rights plan. Subject to certain exceptions, in the event that a
person or group in the future becomes the beneficial owner of 15% or more of our common stock (or in the case of Liberty Wanger
Asset Management, L.P. (now known as Columbia Wanger Asset Management, L.P.) and its affiliates 20%), or commences, or
publicly announces, an intention to commence a tender or exchange offer which would result in its ownership of 15% or more of our
outstanding common stock, then the rights issued to our shareholders in connection with this plan will allow our shareholders to
purchase shares of our common stock at 50% of its then current market value. In addition, if we are acquired in a merger, or 50% or
more of our assets are sold in one or more related transactions, our shareholders would have the right to purchase the common stock of
the acquiring company at half the then current market price of such common stock.
11
We may lose large clients or may not be able to secure targeted follow-on work or client retention rates.
Our client engagements are generally short-term arrangements, and most clients can reduce or cancel their contracts for
our services with 30 days’ notice and without penalty. As a result, if we lose a major client or large client engagement, our revenue
will be adversely affected. We perform varying amounts of work for specific clients from year to year. A major client in one year may
not use our services in another year. In addition, we may derive revenue from a major client that constitutes a large portion of total
revenue for particular quarters. If we lose any major clients or any of our clients cancel programs or significantly reduce the scope of a
large engagement, our business, financial condition, and results of operations could be materially and adversely affected. Also, if we
fail to collect a large accounts receivable, we could be subjected to significant financial exposure. Consequently, you should not
predict or anticipate our future revenue based upon the number of clients we currently have or the number and size of our existing
client engagements.
We also derive a portion of our revenue from annual memberships for our Executive Advisory Programs. Our growth
prospects therefore depend on our ability to achieve and sustain renewal rates on programs and to successfully launch new programs.
Failure to achieve renewal rate levels or to successfully launch new programs and services could have an adverse effect on our
operating results.
If we are unable to protect our IP rights or infringe on the IP rights of third parties, our business may be harmed.
We rely upon a combination of nondisclosure and other contractual arrangements and trade secret, copyright and
trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license IP. Although we enter
into confidentiality agreements with our employees and limit distribution of proprietary information, there can be no assurance that the
steps we have taken in this regard will be adequate to deter misappropriation of proprietary information, or that we will be able to
detect unauthorized use and take appropriate steps to enforce our IP rights.
Although we believe that our services do not infringe on the IP rights of others and that we have all rights necessary to
utilize the IP employed in our business, we are subject to the risk of claims alleging infringement of third-party IP rights. Any claims
could require us to spend significant sums in litigation, pay damages, develop non-infringing IP or acquire licenses to the IP that is the
subject of asserted infringement.
The market price of our common stock may fluctuate widely.
The market price of our common stock could fluctuate substantially due to:
future announcements concerning us or our competitors;
quarterly fluctuations in operating results;
announcements of acquisitions or technological innovations;
changes in earnings estimates or recommendations by analysts; or
current market volatility.
•
•
•
•
•
In addition, the stock prices of many business and technology services companies fluctuate widely for reasons which may
be unrelated to operating results. Fluctuation in the market price of our common stock may impact our ability to finance our operations
and retain personnel.
We earn revenue, incur costs and maintain cash balances in multiple currencies, and currency fluctuations could adversely affect
our financial results.
We have increasing international operations, where we earn revenue and incur costs in various foreign currencies,
primarily the British Pound and the Euro. Doing business in these foreign currencies exposes us to foreign currency risks in numerous
areas, including revenue, purchases, payroll and investments. Certain foreign currency exposures are naturally offset within an
international business unit, because revenue and costs are denominated in the same foreign currency, and certain cash balances are
held in U.S. Dollar denominated accounts. However, due to the increasing size and importance of our international operations,
fluctuations in foreign currency exchange rates could materially impact our results. Currently, we do not hold any derivative contracts
that hedge our foreign currency risk, but we may adopt such strategies in the future.
Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements
considering available funds from our subsidiaries and the cost effectiveness with which these funds can be accessed. The repatriation
of cash balances from certain of our subsidiaries outside the U.S. could have adverse tax consequences and be limited by foreign
currency exchange controls. However, those balances are generally available without legal restrictions to fund ordinary business
operations. Any fluctuations in foreign currency exchange rates could materially impact the availability and amount of these funds
available for transfer.
12
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal executive offices are currently located at 1001 Brickell Bay Drive, Suite 3000, Miami, Florida 33131. The
lease on this premise covers 10,896 square feet and expires June 30, 2015. We also have offices in Atlanta, Chicago, New York,
Philadelphia, San Francisco, Frankfurt, London, Almere, Paris, Hyderabad and Sydney. As of December 31, 2010, we had operating
leases that extend through December 2016. We believe that we will be able to obtain suitable new or replacement space as needed. We
do not own real estate and do not intend to invest in real estate or real estate-related assets.
ITEM 3.
LEGAL PROCEEDINGS
We are 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 our
consolidated financial position, cash flows or results of operations.
ITEM 4.
REMOVED AND RESERVED
PART II
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock traded on the NASDAQ Stock Market (“NASDAQ”) under the NASDAQ symbol, “ANSR” since our
initial public offering on May 28, 1998 through January 31, 2008. In conjunction with our name change, we began trading on the
NASDAQ under the NASDAQ symbol, “HCKT,” effective January 31, 2008. The following table sets forth for the fiscal periods
indicated the high and low sales prices of the common stock, as reported on the NASDAQ.
2010
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2009
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
$ 4.30
$ 4.49
$ 3.79
$ 3.01
$ 3.79
$ 3.28
$ 2.63
$ 3.42
$ 3.35
$ 2.70
$ 2.65
$ 2.28
$ 2.60
$ 2.25
$ 1.97
$ 1.78
The closing sale price for the common stock on March 7, 2011 was $3.76.
As of March 7, 2011, there were approximately 323 holders of record of our common stock and 41,388,838 shares of
common stock outstanding.
Securities Authorized for Issuance under Equity Compensation Plans
Information appearing under the caption “Equity Compensation Plan Information” in the 2011 Proxy Statement is hereby
incorporated by reference.
13
Performance Graph
The following graph compares our cumulative total shareholder return since December 30, 2005 with the NASDAQ Composite
Index and two different peer group indices, the “Old Peer Group” and the “New Peer Group.” The Old Peer Group includes
BearingPoint Inc., Diamond Management & Technology Consultants, eLoyalty Corporation, Sapient Corp and Technology Solutions
Company. The New Peer Group includes Edgewater Technology, Inc., eLoyalty Corporation, FTI Consulting, Inc., Huron Consulting
Group, Inc., Information Services Group, Inc., and The Corporate Executive Board Company. The Company has elected to change its
peer group because it believes the companies included in the New Peer Group better reflect the Company’s business and therefore,
provide a more meaningful comparison of stock performance.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among The Hackett Group, Inc. and the NASDAQ Composite Index
$140
$120
$100
$80
$60
$40
$20
$0
12/30/05
12/29/06
12/28/07
1/2/09
1/1/10
12/31/10
The Hackett Group, Inc.
NASDAQ Composite
Old Peer Group
New Peer Group
*$100 invested on 12/30/05 in stock or index, including reinvestment of dividends.
Fiscal year ending December 31.
The Hackett Group, Inc.
NASDAQ Composite
New Peer Group
Old Peer Group
Company Dividend Policy
12/30/05
12/29/06
12/28/07
$ 100.00
$ 100.00
$ 100.00
$ 100.00
$ 72.47
$ 111.16
$ 108.07
$ 107.52
$ 106.35
$ 124.64
$ 128.42
$ 77.08
1/2/09
$ 67.53
$ 69.33
$ 76.34
$ 27.99
1/1/10
12/30/10
$ 65.41
$ 101.32
$ 67.83
$ 51.21
$ 82.59
$ 125.99
$ 68.40
$ 77.39
We have not paid any cash dividends on our common stock, nor do we expect to pay any in the foreseeable future.
Purchases of Equity Securities
We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock in the open
market or in negotiated transactions. As of December 31, 2010, the cumulative authorization was for up to $70.0 million, with
approximately $4.5 million available for future purchases. In 2010, we repurchased approximately $6.1 million of our common stock.
This brings our cumulative purchases under the plan to $65.5 million.
14
All repurchases are 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 and we did not make any determination to suspend or
cancel purchases under the program. The following table summarizes our share repurchases during the year ended December 31,
2010:
Period
Balance as of January 1, 2010
January 2, 2010 to October 1, 2010
October 2, 2010 to October 29, 2010
October 30, 2010 to November 26, 2010
November 27, 2010 to December 31, 2010
Total Number
of Shares
—
1,196,919
—
276,201
388,358
1,861,478
Average Price
Paid per
Share
$
$
$
$
$
$
—
3.08
—
3.63
3.53
3.26
Total Number
of Shares as
Part
of Publicly
Announced
Program
—
1,196,919
—
276,201
388,358
1,861,478
Maximum Dollar
Value That May
Yet be Purchased
Under the
Program
578,515
$
$ 6,886,195*
$ 6,886,195
$ 5,883,508
$ 4,513,383
* During the year ended December 31, 2010, our Board of Directors approved an additional $10.0 million to our share repurchase
program, thereby increasing the authorization to $70.0 million.
15
ITEM 6.
SELECTED FINANCIAL DATA
The following consolidated financial data sets forth selected financial information for Hackett as of and for each of the
years in the five-year period ended December 31, 2010, and has been derived from our audited consolidated financial statements. The
selected consolidated financial data should be read together with our consolidated financial statements and related notes thereto and
with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Total costs and operating expenses
188,896
149,740
174,202
Consolidated Statements of Operations Data:
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue (1)
Costs and expenses:
Cost of service:
Personnel costs before reimbursable
expenses
Reimbursable expenses
Total cost of service
Selling, general and administrative costs
Restructuring costs
Collections from misappropriation, net
Income (loss) from operations
Other income (expense):
Non-cash acquisition earn-out shares
re-measurement gain
Interest income, net
Loss on marketable investments
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Basic net income (loss) per common share:
Net income (loss) per common share
Weighted average common shares outstanding
Diluted net income (loss) per common share:
Net income (loss) per common share
Weighted average common and common
equivalent shares outstanding
Consolidated Balance Sheet Data:
Cash and cash equivalents
Marketable investments
Restricted cash
Working capital
Total assets
Shareholders’ equity
December 31,
2010
January 1,
2010
Year Ended
January 2,
2009
(in thousands, except per share data)
December 28,
2007
December 29,
2006
$ 180,899
20,449
$129,019
13,681
$173,217
18,884
$ 158,973
18,035
$ 162,167
18,388
201,348
142,700
192,101
177,008
180,555
112,692
20,449
133,141
55,755
—
—
84,407
13,681
98,088
46,215
5,437
—
96,844
18,884
115,728
58,474
—
—
12,452
(7,040)
17,899
1,727
22
—
14,201
(26)
—
51
(35)
(7,024)
(212)
—
442
—
18,341
465
91,853
18,035
109,888
60,746
—
(2,574)
168,060
8,948
—
775
(450)
9,273
278
96,637
18,388
115,025
63,518
6,313
341
185,197
(4,642)
—
507
—
(4,135)
913
$
14,227
$ (6,812)
$ 17,876
$
8,995
$
(5,048)
$
0.35
40,349
$
(0.18)
38,240
$
0.44
40,471
$
0.20
44,127
$
(0.11)
44,653
$
0.34
$
(0.18)
$
0.43
$
0.20
$
(0.11)
42,372
38,240
41,498
44,978
44,653
25,337
$
—
$
1,610
$
$
27,243
$ 150,801
$ 113,240
$ 15,004
$ —
$ 1,475
$ 11,435
$136,535
$ 98,252
$ 32,060
$ 1,727
$
600
$ 24,301
$133,664
$ 93,917
20,061
$
7,032
$
600
$
$
25,397
$ 135,459
98,819
$
8,832
$
10,753
$
600
$
$
26,761
$ 133,266
98,455
$
(1)
In November 2009, we acquired Archstone. As a result of the acquisition, total revenue included $5.6 million in the 2009 results
of operations.
16
ITEM 7.
Overview
MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
Hackett, originally incorporated on April 23, 1997, 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 world’s
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 is a strategic advisory firm and a world leader in best practice research, benchmarking, business transformation
and working capital management services which empirically defines and enables world-class enterprise performance. Hackett
empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis
gained through more than 5,000 benchmark studies over 18 years at over 2,800 of the world’s leading companies.
Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation (with
primary focus on strategy and operations improvement in supply chain, procurement, finance, enterprise performance management,
human resources, information technology, and 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 Oracle EPM.
Critical Accounting Policies
In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of
operations and financial position in conformity with generally accepted accounting principles in the United States. Actual results could
differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses
our most critical accounting policies. These policies require management to exercise judgment that is often difficult, subjective and
complex due to the necessity of estimating the effect of matters that are inherently uncertain.
Revenue Recognition
Our revenue is principally derived from fees for services generated on a project-by-project basis in accordance with
Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue. Revenue for
services rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis.
Revenue for time and materials contracts is recognized based on the number of hours worked by our consultants at an
agreed upon rate per hour and is recognized in the period in which services are performed.
Revenue related to fixed-fee or capped-fee contracts is recognized on the proportional performance method of accounting
based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount
of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this
calculation excludes the amount the client pays us for reimbursable expenses. There are situations where the number of hours to
complete projects may exceed our original estimate. These increases can be as a result of an increase in project scope, unforeseen
events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, our project
delivery, Office of Risk Management and finance personnel review hours incurred and estimated total labor hours to complete
projects. Any revisions in these estimates are reflected in the period in which they become known. If our estimates indicate that a
contract loss will occur, a loss provision will be recorded in the period in which the loss first becomes probable and reasonably
estimable. Contract losses are determined to be the amount by which the estimated direct costs of the contract exceed the estimated
total revenue that will be generated by the contract and are included in total cost of service.
Revenue from advisory services is recognized ratably over the life of the agreements.
Revenue for contracts with multiple elements is allocated based on the fair value of the elements and is recognized in
accordance with FASB Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, a consensus of
the FASB Emerging Issues Task Force.
Additionally, we earn revenue from the sale of software, software licenses and maintenance contracts, which is recognized
in accordance with FASB ASC Topic 985, Software. Revenue for the sale of software and software licenses is recognized upon
contract execution and customer receipt of software. Revenue from maintenance contracts is recognized ratably over the life of the
agreements.
17
Unbilled revenue represents revenue for services performed that have not been invoiced. If we do not accurately estimate
the scope of the work to be performed, or we do not manage our projects properly within the planned periods of time, or we do not
meet our clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing
contracts may need to be recognized. Any such reductions in margins or contract losses could be material to our results of operations.
Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with
no impact on revenue.
Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include
travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of
service.
The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee
based, typically allow our clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination,
the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the
termination. In addition, from time to time we enter into agreements with our clients that limit our right to enter into business
relationships with specific competitors of that client for a specific time period. These provisions typically prohibit us from performing
a defined range of services which we might otherwise be willing to perform for potential clients. These provisions are generally
limited to six to twelve months and usually apply only to specific employees or the specific project team.
Allowances for Doubtful Accounts
We maintain allowances for doubtful accounts for estimated losses resulting from our clients not making required
payments. Periodically, we review accounts receivable to assess our estimates of collectibility. Management critically reviews
accounts receivable and analyzes historical bad debts, past-due accounts, client credit-worthiness and current economic trends when
evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our clients were to deteriorate, resulting
in their inability to make payments, additional allowances may be required.
Long-Lived Assets (excluding Goodwill and Other Intangible Assets)
We account for long-lived assets in accordance with the provisions of FASB ASC Topic 360, Property, Plant and
Equipment (“ASC 360”). ASC 360 requires that long-lived assets be reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be fully recoverable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an
impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value.
Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated
future economic conditions and estimates of residual values.
Goodwill and Other Intangible Assets
All of our goodwill and intangible assets have been accounted for under the provisions of FASB ASC Topic 350,
Intangibles—Goodwill and Other (“ASC 350”). ASC 350-20 requires that goodwill and intangible assets deemed to have indefinite
lives not be amortized, but rather be tested for impairment on an annual basis, or more frequently if events or changes in
circumstances indicate potential impairment. Finite-lived intangible assets are amortized over their useful lives and are subject to
impairment evaluation under the provisions of ASC 350-30. The excess cost of the acquisition over the fair value of the net assets
acquired is recorded as goodwill.
Goodwill is tested at least annually for impairment at the reporting unit level utilizing the market and income approaches.
The reporting units consist of The Hackett Group (including Benchmarking, Business Transformation, Business Transformation
Enterprise Performance Management (“EPM”), Strategy and Operations and Executive Advisory Programs) and Hackett Technology
Solutions (including SAP, Oracle and Oracle EPM). In assessing the recoverability of goodwill and intangible assets, we make
assumptions regarding various factors to determine if impairment tests are met. These estimates contain management’s judgment,
using appropriate and customary assumptions available at the time. As of December 31, 2010, none of our reporting units were at risk
of failing step one, as pursuant to ASC 350.
Other intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the
carrying value of an asset may not be fully recoverable in accordance with ASC 350. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an
impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value.
Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated
future economic conditions and estimates of residual values. Other intangible assets arise from business combinations and consist of
customer relationships, customer backlog and trademarks that are amortized on a straight-line or accelerated basis over periods of up
to five years.
18
Stock Based Compensation
We record stock based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation
(“ASC 718”), using the modified-prospective-transition method.
ASC 718 requires entities to recognize compensation expense for awards of equity instruments to employees based on the
grant-date fair value of those awards (with limited exceptions). ASC 718 also requires the benefits of tax deductions in excess of
recognized compensation expense to be reported as a financing cash flow.
ASC 718 provides an alternative transition method of calculating the excess tax benefits available to absorb any tax
deficiencies recognized which we have elected to adopt.
Restructuring Reserves
Restructuring reserves reflect judgments and estimates of our ultimate costs of severance, closure and consolidation of
facilities and settlement of contractual obligations under our operating leases, including sublease rental rates, absorption period to
sublease space and other related costs. We reassess the reserve requirements to complete each individual plan under our restructuring
programs at the end of each reporting period. If these estimates change in the future or actual results differ from our estimates, we may
be required to record additional charges.
Income Taxes
Income taxes are accounted for in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Under ASC 740,
deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and tax bases of
assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those
differences are expected to reverse. Deferred income taxes also reflect the impact of certain state operating loss and tax credit
carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax
asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and
which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the current tax provision.
In accordance with FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740-10”), we adopted
a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken
in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of
current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting
for income taxes in interim periods and income tax disclosures. We report penalties and tax-related interest expense as a component of
income tax expense.
Contingent Liabilities
We have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue contingent
liabilities when it is probable that future expenditures will be made, and that such expenditures can be reasonably estimated. Reserves
for contingent liabilities are reflected in our consolidated financial statements based on management’s assessment, along with legal
counsel, of the expected outcome of the contingencies. If the final outcome of our contingencies differs adversely from that currently
expected, it would result in income or a charge to earnings when determined.
The foregoing list was not intended to be a comprehensive list of all of our accounting policies. In many cases, the
accounting treatment of a particular transaction is specifically dictated by accounting principles generally accepted in the United
States, with no need for us to judge the application. There are also areas in which our judgment in selecting any available alternative
would not produce a materially different result. Please see our consolidated financial statements and related notes thereto included
elsewhere in this Annual Report on Form 10-K, which contain accounting policies and other disclosures required by accounting
principles generally accepted in the United States.
19
Results of Operations
Our fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year
ends on the Friday closest to December 31. Fiscal years 2010, 2009 and 2008 ended on December 31, 2010, January 1, 2010 and
January 2, 2009, respectively. References to a year included in this document refer to a fiscal year rather than a calendar year. 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):
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue
Costs and expenses:
Cost of service:
December 31, 2010
Year Ended
January 1, 2010
January 2, 2009
$180,899
20,449
89.9%
10.1%
$129,019
13,681
201,348
100.0%
142,700
90.4%
9.6%
100.0%
$ 173,217
18,884
90.2%
9.8%
192,101
100.0%
Personnel costs before reimbursable
expenses
Reimbursable expenses
112,692
20,449
56.0%
10.1%
84,407
13,681
Total cost of service
133,141
66.1%
98,088
Selling, general and administrative costs
Restructuring costs
55,755
—
27.7%
0.0%
46,215
5,437
Total costs and operating expenses
188,896
93.8%
149,740
59.1%
9.6%
68.7%
32.4%
3.8%
104.9%
96,844
18,884
50.4%
9.8%
115,728
60.2%
58,474
—
30.4%
0.0%
174,202
90.6%
Income (loss) from operations
Other income (expense):
Non-cash acquisition earn-out shares re-
measurement gain
Interest income, net
Loss on marketable investments
Income (loss) before income taxes
Income tax (benefit) expense
Net income (loss)
Comparison of 2010 to 2009
12,452
6.2%
(7,040)
-4.9%
17,899
9.4%
1,727
22
—
0.9%
0.0%
0.0%
—
51
(35)
14,201
(26)
7.1%
0.0%
(7,024)
(212)
$ 14,227
7.1%
$ (6,812)
0.0%
0.0%
0.0%
-4.9%
-0.1%
-4.8%
—
442
—
0.0%
0.2%
0.0%
18,341
465
9.6%
0.2%
$ 17,876
9.4%
Overview. We reported net income of $14.2 million in 2010, primarily driven by improved U.S. customer demand which
generated higher consultant utilization and operating margin improvements, and from the incremental operating margin contribution
resulting from the Archstone Consulting (“Archstone”) acquisition completed in November 2009. We reported a net loss of $6.8
million in 2009, primarily related to acquisition-related restructuring charges and other one-time costs that were incurred as a result of
the Archstone acquisition, as well as the negative impact of the global recession on client demand.
Revenue. We are a global Company with operations 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. The exchange rate fluctuation did not have a significant impact on comparisons between 2010 and 2009.
20
Hackett revenue increased 41% in 2010 as compared to 2009. The following table summarizes revenue (in thousands):
The Hackett Group
Hackett Technology Solutions
Total revenue
Year Ended
December 31,
2010
January 1,
2010
$ 144,884
56,464
$ 102,055
40,645
$ 201,348
$ 142,700
Hackett Group revenue increased 42% to $144.9 million in 2010, as compared to $102.1 million in 2009. The increase in
The Hackett Group revenue was primarily as a result of the Archstone acquisition which closed in November 2009.
The Hackett Group’s international revenue accounted for 21% of the Hackett Group’s total revenue in 2010, as compared
to 25% in 2009. The decrease is mostly a result Archstone revenue, which is primarily a U.S.-based business, and from continuing
weakness in European client demand.
The Hackett Technology Solutions group revenue increased 39% to $56.5 million in 2010, as compared to $40.6 million
in 2009. The increase in Hackett Technology Solutions revenue was due to increased demand across all service groups.
Reimbursements as a percentage of revenue were comparable at 10% during 2010 and 2009. In 2010, no customer’s
revenue accounted for more than 5% of our total revenue and in 2009 one customer had revenue which accounted for 6% 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 34% to
$112.7 million in 2010 from $84.4 million in 2009. The increase in cost of service before reimbursable expenses was primarily due to
the Archstone acquisition, as well as increased hiring activities commensurate with the increased U.S. market demand.
Total cost of service as a percentage of total revenue decreased to 66% in 2010 from 69% in 2009. This decrease was
primarily due to improved consultant utilization across our service groups. The Hackett Group total revenue generated gross margins
of 37% in 2010, compared to Hackett Technology Solutions which generated gross margins of 30% for the same period. On a net
revenue basis, or revenue before reimbursements, The Hackett Group generated gross margins of 41% in 2010, as compared to 43% in
2009. This decrease was primarily driven by Archstone, which generated lower gross margins. Hackett Technology Solutions
generated gross margins on a net revenue basis of 34%, as compared to 20% in 2009. Hackett Technology Solutions margins
increased from 2009, which was adversely impacted by the global economic environment, as well as the impact of losses recognized
on a fixed price technology implementation project.
Selling, General and Administrative. Selling, general and administrative costs increased 21% to $55.8 million in 2010
from $46.2 million in 2009. The increase was primarily due to higher 2010 incentive compensation accruals and incremental expenses
resulting from the Archstone acquisition. As a percentage of revenue, selling, general and administrative costs decreased to 28% in
2010 from 32% in 2009, primarily due to the effective back-office integration of the Archstone acquisition.
Restructuring Costs. There were no restructuring costs incurred in 2010. Restructuring costs of $5.4 million in 2009 were
primarily comprised of $5.9 million resulting from the November acquisition and integration of Archstone related to discounted lease
buy-out actions, the down-sizing of facilities, and the related exit costs of those facilities and severance costs.
Income Taxes. In 2010, we recorded an income tax benefit of $26 thousand, which represented an effective tax rate benefit
of 0.2% of our income before income tax. In 2009, we recorded an income tax benefit of $212 thousand, which represented an
effective tax rate of 3.0% of our loss before income tax.
The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In
determining the need for valuation allowances we consider evidence such as history of losses and general economic conditions. We
have approximately $47.8 million of U.S. federal net operating loss carryforwards as of December 31, 2010, most of which will expire
by 2022 if not utilized. A valuation allowance has been provided primarily for all net operating loss carryforwards. Additionally, as of
December 31, 2010, we had approximately $14.0 million of foreign net operating loss carryforwards, of which $6.4 million related to
operations in the U.K., $3.1 million related to operations in France and $2.4 million related to operations in Germany. Most of the
foreign net operating losses can be carried forward indefinitely. (See Note 9 in the notes to the consolidated financial statements.)
21
Comparison of 2009 to 2008
Overview. Our results of operations in 2009 were adversely impacted by the global recessionary economic environment.
Despite our offerings being well aligned with the pressure that all organizations faced to reduce costs and optimize cash balances,
during the year we experienced delays in client decision-making and protracted sales cycles as clients rapidly reduced all of their
discretionary spending. Throughout 2009, we counteracted the economic slowdown with cost saving actions which better aligned our
resources to client demand. The economic environment drove lower client demand which resulted in lower revenue and operating
profit when compared to our 2008 results.
We reported a net loss of $6.8 million in 2009, as compared to net income of $17.9 million in 2008, which primarily
resulted from a decline in revenue as compared to 2008, and acquisition-related restructuring charges and other one-time costs that
were incurred as a result of the Archstone acquisition which closed in November 2009. The acquisition-related costs were primarily
due to the rationalization of lease obligations and integration-related severance costs. Additionally, our results were unfavorably
impacted due to losses recognized on a fixed price technology implementation project.
Revenue. The exchange rate fluctuations had an impact on our revenue comparisons between 2009 and 2008; therefore, in
the following revenue discussion we will disclose The Hackett Group revenue variances based on the U.S. Dollar reporting currency,
as well as variances excluding the impact of currency fluctuations, otherwise referred to below as constant currency. Hackett
Technology Solutions was not impacted by foreign currency rate fluctuations.
The following table summarizes revenue (in thousands):
The Hackett Group
Hackett Technology Solutions
Total revenue
Year Ended
January 1,
2010
January 2,
2009
$ 102,055
40,645
$ 130,815
61,286
$ 142,700
$ 192,101
Revenue decreased 26%, or 25% in constant currency, to $142.7 million in 2009 from $192.1 million in 2008. The
Hackett Group revenue decreased 22%, or 20% in constant currency, to $102.1 million in 2009, as compared to $130.8 million in
2008. The decrease in The Hackett Group revenue was mostly a result of delays in client decision-making and protracted sales cycles,
both domestically and internationally, which negatively impacted revenue in 2009 when compared to 2008. The Hackett Group’s
international revenue, which is primarily based on the country of the contracting entity, represented 35%, or 36% in constant currency,
of The Hackett Group’s total revenue in 2009, as compared to 38% in 2008.
The Technology Solutions group revenue decreased 34% to $40.6 million in 2009, as compared to $61.3 million in 2008.
The decrease in Hackett Technology Solutions revenue was primarily due to lower revenue from our Oracle Applications and Oracle
EPM groups resulting from the global economic environment and the impact of the loss experienced on a large fixed price contract.
Reimbursements as a percentage of revenue were comparable at 10% during 2009 and 2008. In 2009, one customer’s
revenue accounted for 6% of our total revenue and in 2008 no customer had revenue greater than 5% of our total revenue.
Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants,
subcontractor costs and reimbursable expenses associated with projects. Cost of service before reimbursable expenses decreased 13%
to $84.4 million in 2009 from $96.8 million in 2008. The decrease in cost of service before reimbursable expenses was primarily due
to lower accruals for 2009 incentive compensation awards, primarily based on Company performance, and reductions in headcount
that were made throughout 2009 to conform to market demand.
Total cost of service as a percentage of revenue increased to 69% in 2009 from 60% in 2008. This increase was primarily
due to the decreases in revenue as previously discussed. The Hackett Group generated gross margins of 39% in 2009, compared to
Hackett Technology Solutions which generated gross margins of 18% for the same period. On a net revenue, or revenue before
reimbursements basis, The Hackett Group generated gross margins as a percentage of revenue of 43% in 2009, compared to Hackett
Technology Solutions which generated gross margins as a percentage of net revenue of 20% for the same period.
Selling, General and Administrative. Selling, general and administrative costs decreased 21% to $46.2 million in 2009
from $58.5 million in 2008. The decrease was primarily due to lower 2009 incentive compensation accruals, lower commission
expense due to the decrease in revenue as previously discussed, and various other cost reduction actions taken in 2009 to counteract
the economic downturn. As a percentage of revenue, selling, general and administrative costs increased to 32% in 2009, as compared
to 30% in 2008, primarily as a result of declining revenue.
22
Restructuring Costs. Restructuring costs of $5.4 million in 2009 were primarily comprised of $5.9 million resulting from
the November acquisition and integration of Archstone related to discounted lease buy-out actions, the down-sizing of facilities, and
the related exit costs of those facilities and severance costs. No restructuring costs were incurred in 2008.
Income Taxes. In 2009, we recorded an income tax benefit of $212 thousand, which represented an effective tax rate of
3.0% of our loss before income tax. In 2008, we recorded income tax expense of $465 thousand, which represented an effective tax
rate of 2.5% of our income before income tax.
The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if,
based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In
determining the need for valuation allowances we consider evidence such as history of losses and general economic conditions. We
had approximately $53.5 million of U.S. federal net operating loss carryforwards as of January 1, 2010, most of which will expire by
2022 if not utilized. A valuation allowance has been provided primarily for all net operating loss carryforwards. Additionally, as of
January 1, 2010, we had approximately $14.8 million of foreign net operating loss carryforwards, of which $7.1 million related to
operations in the U.K. and $2.4 million related to operations in Germany. Most of the foreign net operating losses can be carried
forward indefinitely. (See Note 9 in the notes to the consolidated financial statements.)
Liquidity and Capital Resources
As of December 31, 2010 and January 1, 2010, we had $25.3 million and $15.0 million of cash and cash equivalents,
respectively. As of December 31, 2010 and January 1, 2010, we had $1.6 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 future employee
compensation agreements. These deposit accounts have been classified as restricted cash on the consolidated balance sheets.
The following table summarizes our cash flow activity (in thousands):
Operating activity cash flows
Investing activity cash flows
Financing activity cash flows
Year Ended
December 31,
2010
19,536
(3,616)
(5,626)
$
$
$
January 1,
2010
$ (8,638)
$
828
$ (9,431)
Net cash provided by operating activities was $19.5 million in 2010, as compared to net cash used in operating activities
of $8.6 million in 2009. During 2010, net cash provided by operating activities was primarily attributable to net income, non-cash
items including depreciation, amortization and stock compensation expense and the timing of other vendor payments, partially offset
by increased accounts receivable and unbilled revenue.
During 2009, net cash used in operating activities was primarily attributable to the payout of 2008 incentive compensation
awards of $8.5 million and the timing of other vendor payments and payroll cycles, partially offset by collections of accounts
receivable.
Net cash used in investing activities was $3.6 million in 2010, as compared to net cash provided by $0.8 million in 2009.
During 2010, net cash used in investing activities was primarily attributable to $3.5 million of capital expenditures.
During 2009, net cash provided by investing activities was primarily attributable to $3.0 million of cash acquired in the
acquisition of Archstone and $1.7 million of redemptions from Bank of America’s Columbia Strategic Cash Portfolio. These increases
in cash were offset by $3.0 million of capital expenditures and $0.9 million of increased restricted cash.
Net cash used in financing activities was $5.6 million in 2010, as compared to $9.4 million in 2009. During 2010, net cash
used in financing activities was primarily attributable to the repurchase of 1.9 million shares of our common stock at an average price
of $3.26 per share for $6.1 million.
During 2009, net cash used in financing activities was primarily attributable to the repurchase of 2.6 million shares of our
common stock at an average price of $2.43 per share for $6.4 million. Additionally, $3.5 million was used for the payoff of the debt
facility acquired with Archstone.
23
On July 30, 2002, we announced that our Board of Directors approved the repurchase of up to $5.0 million of our
common stock. Since the inception of our repurchase plan, our Board of Directors has approved the repurchase of an additional
aggregate $65.0 million of our common stock, thereby increasing the total program size to $70.0 million as of December 31, 2010.
Under the repurchase plan, we may buy back shares of our outstanding stock from time to time either on the open market or through
privately negotiated transactions, subject to market conditions and trading restrictions. As of December 31, 2010, we had repurchased
18.8 million shares of our common stock at an average price of $3.48 per share. We hold repurchased shares of our common stock as
treasury stock on our consolidated balance sheets.
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 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.
There were no material capital commitments as of December 31, 2010. The following summarizes our future lease
commitments under our non-cancelable operating leases as of December 31, 2010 (in thousands):
Less than 1 year
1-3 years
4-5 years
After 5 years
$ 3,320
2,551
1,748
426
$ 8,045
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of December 31, 2010.
Recently Issued Accounting Standards
For discussion of recently issued accounting standards, please see “Item 8, Financial Statements and Supplementary Data”
in Part II of this document.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of December 31, 2010, our exposure to market risk related primarily to changes in interest rates and foreign currency
exchange rate risks.
Interest Rate Risk
We invest only with high credit quality issuers and we do not use derivative financial instruments in our investment
portfolio.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates, as a significant 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.
For a discussion of the risks we face as a result of foreign currency fluctuations, please see “Item 1A, Risk Factors” in
Part I of this document.
24
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE HACKETT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Registered Certified Public Accounting Firm
Consolidated Balance Sheets as of December 31, 2010 and January 1, 2010
Consolidated Statements of Operations for the Years Ended December 31, 2010, January 1, 2010 and January 2, 2009
Consolidated Statements of Shareholders’ Equity and Comprehensive Income (Loss) for the Years Ended December 31,
2010, January 1, 2010 and January 2, 2009
Consolidated Statements of Cash Flows for the Years Ended December 31, 2010, January 1, 2010 and January 2, 2009
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts and Reserves
Page
26
27
28
29
30
31
48
25
Report of Independent Registered Certified Public Accounting Firm
Board of Directors and Shareholders
The Hackett Group, Inc.
Miami, Florida
We have audited the accompanying consolidated balance sheets of The Hackett Group, Inc. (formerly Answerthink, Inc., prior to
January 1, 2008) as of December 31, 2010 and January 1, 2010 and the related consolidated statements of operations, shareholders’
equity and comprehensive income (loss), and cash flows for each of the three years in the period ended December 31, 2010. In
connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the
accompanying index. These consolidated financial statements and schedule are the responsibility of the company’s management. Our
responsibility is to express an opinion on these consolidated financial statements and schedule based on our audits.
We conducted our audits 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, as well as evaluating the overall
presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
The Hackett Group, Inc. at December 31, 2010 and January 1, 2010, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 2010, in conformity with accounting principles generally accepted in the United States
of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken
as a whole, presents fairly, in all material respects, the information set forth therein.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The
Hackett Group, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria established in Internal
Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and
our report dated March 10, 2011 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Miami, Florida
March 10, 2011
26
THE HACKETT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable and unbilled revenue, net of allowance of $1,486 and $1,354 at
December 31, 2010 and January 1, 2010, respectively
Prepaid expenses and other current assets
Total current assets
Restricted cash
Property and equipment, net
Other assets
Goodwill, net
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other liabilities
Total current liabilities
Accrued expenses and other liabilities, non-current
Total liabilities
Commitments and contingencies
Shareholders’ equity:
Preferred stock, $.001 par value, 1,250,000 shares authorized, none issued and outstanding
Common stock, $.001 par value, 125,000,000 shares authorized; 60,099,198 and 57,652,536
shares issued at December 31, 2010 and January 1, 2010, respectively
Additional paid-in capital
Treasury stock, at cost, 18,838,310 and 16,976,832 shares at December 31, 2010 and
January 1, 2010, respectively
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
December 31,
2010
January 1,
2010
$ 25,337
$ 15,004
31,580
5,056
61,973
1,610
8,816
2,779
75,623
28,653
2,683
46,340
1,475
7,137
4,871
76,712
$ 150,801
$ 136,535
$
5,590
29,140
34,730
2,831
37,561
$ 3,674
31,231
34,905
3,378
38,283
—
—
60
308,598
57
301,366
(65,489)
(124,898)
(5,031)
(59,423)
(139,125)
(4,623)
113,240
98,252
$ 150,801
$ 136,535
The accompanying notes are an integral part of the consolidated financial statements.
27
THE HACKETT GROUP, INC.
28
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY AND COMPREHENSIVE INCOME (LOSS)
(in thousands)
Balance at December 28, 2007
Issuance of common stock
Treasury stock purchased
Issuance of restricted stock units, net of
cancellations
Stock compensation expense under
ASC 718
Amortization of restricted stock units
Net income
Foreign currency translation
Total comprehensive income
Balance at January 2, 2009
Issuance of common stock
Treasury stock purchased
Issuance of restricted stock units, net of
cancellations
Stock compensation expense under
ASC 718
Amortization of restricted stock units
Net loss
Foreign currency translation
Total comprehensive loss
Balance at January 1, 2010
Issuance of common stock
Treasury stock purchased
Issuance of restricted stock units, net of
cancellations
Amortization of restricted stock units
Net income
Foreign currency translation
Total comprehensive income
Balance at December 31, 2010
60
3,233
—
—
53 $ 281,627
757
—
—
—
—
—
—
—
—
—
Common Stock
Amount
Shares
52,762 $
646
—
—
—
—
—
—
—
53,408 $
4,245
—
—
—
—
—
—
—
57,653 $
2,446
—
—
—
—
—
—
60,099 $
—
53 $ 285,654
4
13,232
—
—
—
—
—
—
—
—
1
3,053
—
—
—
57 $ 301,366
3
4,452
—
—
—
—
—
—
—
(653)
3,433
—
—
—
60 $ 308,598
(574)
Additional
Paid in
Capital
Treasury Stock
Amount
Shares
Accumulated
Deficit
(9,883)
—
(4,469)
$ (33,940)
—
(19,101)
$
(150,189)
—
—
(23)
—
Accumulated
Other
Comprehensive
Income (Loss)
$
Total
Shareholders’
Equity
Comprehensive
Income
(Loss)
1,268 $
—
—
—
—
—
—
(7,704)
—
(6,436) $
—
—
—
—
—
—
1,813
—
(4,623) $
—
—
—
—
—
(408)
—
(5,031) $
98,819
757
(19,101)
(23)
60
3,233
17,876 $
(7,704)
— $
17,876
(7,704)
10,172
93,917
13,236
(6,382)
(574)
1
3,053
(6,812) $
1,813
— $
98,252
4,455
(6,066)
(653)
3,433
14,227 $
(408)
— $
113,240
(6,812)
1,813
(4,999)
14,227
(408)
13,819
—
—
—
—
—
—
—
—
—
17,876
—
—
$ (53,041)
—
(6,382)
$
(132,313)
—
—
$
—
—
—
—
—
—
—
—
—
(6,812)
—
—
$ (59,423)
—
(6,066)
$
(139,125)
—
—
$
—
—
—
—
—
—
—
14,227
—
—
—
—
—
—
—
(14,352)
—
(2,625)
—
—
—
—
—
—
(16,977)
—
(1,861)
—
—
—
—
—
(18,838)
$ (65,489)
$
(124,898)
$
The accompanying notes are an integral part of the consolidated financial statements.
29
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income (loss)
Adjustments to reconcile net income (loss) to net cash provided by (used in) operating
activities:
Depreciation expense
Amortization expense
Provision for doubtful accounts
Loss (gain) on foreign currency transactions
Non-cash acquisition earn-out shares and re-measurement gain
Non-cash stock compensation expense
Loss (gain) on sale of property and equipment
Loss on marketable investments
Changes in assets and liabilities:
(Increase) decrease in accounts receivable and unbilled revenue
(Increase) decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable
Increase (decrease) in accrued expenses and other liabilities
December 31,
2010
Year Ended
January 1,
2010
January 2,
2009
$ 14,227
$ (6,812)
$ 17,876
1,837
1,960
157
382
(1,727)
4,301
—
—
(3,667)
(2,319)
1,915
2,470
1,862
1,058
93
610
—
3,004
46
35
4,745
702
(2,061)
(11,920)
2,052
732
145
(2,250)
—
4,058
(23)
—
5,495
(1,191)
(259)
834
Net cash provided by (used in) operating activities
19,536
(8,638)
27,469
Cash flows from investing activities:
Purchases of property and equipment
Proceeds from sales of property and equipment
Increase in restricted cash
Proceeds from sales, calls and maturities of marketable investments
Cash acquired in acquisition of business
Net cash (used in) provided by investing activities
Cash flows from financing activities:
Repayment of borrowings acquired in acquisition
Proceeds from issuance of common stock
Repurchases of common stock
Net cash used in financing activities
Effect of exchange rate on cash
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Supplemental disclosure of non-cash investing and financing activities:
Shares issued to sellers of Archstone Consulting
(3,481)
—
(135)
—
—
(3,616)
—
440
(6,066)
(5,626)
39
(2,989)
—
(875)
1,692
3,000
(2,188)
23
—
5,305
—
828
3,140
(3,459)
410
(6,382)
—
757
(19,101)
(9,431)
(18,344)
185
(266)
10,333
15,004
(17,056)
32,060
11,999
20,061
$ 25,337
$ 15,004
$ 32,060
$
$
255
$
364
$
461
4,032
$ 12,087
$ —
The accompanying notes are an integral part of the consolidated financial statements.
30
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information
Nature of Business
The Hackett Group, Inc. (“Hackett,” or the “Company”) is a leading strategic advisory and technology consulting firm that
enables companies to achieve world-class business performance. Hackett’s combined capabilities include business advisory programs,
benchmarking, business transformation, working capital management and technology solutions, with corresponding offshore support.
On January 1, 2008, the Company changed its name from Answerthink, Inc. (“Answerthink”) to The Hackett Group, Inc. The
firm was originally incorporated on April 23, 1997. All prior references to Answerthink will now be reflected as Hackett as if the
name change was effected for all years presented.
Basis of Presentation and Consolidation
The accompanying consolidated financial statements include the Company’s accounts and those of its wholly-owned
subsidiaries which the Company is required to consolidate. The Company consolidates the assets, liabilities, and results of operations
of its entities in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic
160, Consolidation.
Fiscal Year
The Company’s fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal
year ends on the Friday closest to December 31. Fiscal years 2010, 2009 and 2008 ended on December 31, 2010, January 1, 2010 and
January 2, 2009, respectively. References to a year included in the consolidated financial statements refer to a fiscal year rather than a
calendar year.
Cash and Cash Equivalents and Restricted Cash
The Company considers all short-term investments with maturities of three months or less to be cash equivalents. Due to the
short maturity period of cash equivalents, the carrying amount of these instruments approximates fair market value. The Company
places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of
the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments. All of the Company’s non-
interest bearing cash balances were fully insured at December 31, 2010 due to a temporary federal program in effect from
December 31, 2010 through December 31, 2012. Under the program, there is no limit to the amount of insurance for eligible accounts.
Beginning in 2013, insurance coverage will revert to $250,000 per depositor at each financial institution, and our non-interest bearing
cash balances may again exceed federally insured limits.
Restricted cash in 2010 and 2009 related to deposits with financial institutions that served as collateral for letters of credit for
operating leases and for amounts related to future employee compensation agreements.
Allowance for Doubtful Accounts
The Company maintains allowances for doubtful accounts for estimated losses resulting from its clients not making required
payments. Management makes estimates of the collectibility of the accounts receivable. Management also critically reviews accounts
receivable and analyzes historical bad debts, past-due accounts, client credit-worthiness and current economic trends when evaluating
the adequacy of the allowance for doubtful accounts.
Property and Equipment, Net
Property and equipment are recorded at cost. Depreciation is calculated to amortize the depreciable assets over their useful lives
using the straight-line method and commences when the asset is placed in service. The range of estimated useful lives is three to seven
years. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful life of the
improvement, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for
betterments and major improvements are capitalized. The carrying amount of assets sold or retired and related accumulated
depreciation are removed from the balance sheet in the year of disposal and any resulting gains or losses are included in the statements
of operations.
31
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
The Company capitalizes the costs of internal-use software in accordance with FASB ASC Topic 350-40, Internal-Use Software
(“ASC 350-40”). ASC 350-40 provides guidance on applying generally accepted accounting principles in the United States in
addressing whether and under what conditions the costs of internal-use software should be capitalized. The Company capitalizes
certain costs, which generally include hardware, software, and payroll-related costs for employees who are directly associated with,
and who devote time, to the development of internal-use computer software.
Long-Lived Assets (excluding Goodwill and Other Intangible Assets)
The Company accounts for long-lived assets in accordance with the provisions of FASB ASC Topic 360, Property, Plant and
Equipment (“ASC 360”). ASC 360 requires that long-lived assets be reviewed for impairment whenever events or circumstances
indicate that the carrying amount of an asset may not be fully recoverable. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an
impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value.
Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated
future economic conditions and estimates of residual values.
Goodwill and Other Intangible Assets
All of the Company’s goodwill and intangible assets have been accounted for under the provisions of FASB ASC Topic 350,
Intangibles—Goodwill and Other (“ASC 350”). ASC 350-20 requires that goodwill and intangible assets deemed to have indefinite
lives not be amortized, but rather be tested for impairment on an annual basis, or more frequently if events or changes in
circumstances indicate potential impairment. Finite-lived intangible assets are amortized over their useful lives and are subject to
impairment evaluation under the provisions of ASC 350-30. The excess cost of the acquisition over the fair value of the net assets
acquired is recorded as goodwill.
Goodwill is tested at least annually for impairment at the reporting unit level utilizing the market and income approaches. The
reporting units consist of The Hackett Group (including Benchmarking, Business Transformation, Business Transformation Enterprise
Performance Management (“EPM”), Strategy and Operations and Executive Advisory Programs) and Hackett Technology Solutions
(including SAP, Oracle and Oracle EPM). In assessing the recoverability of goodwill and intangible assets, the Company makes
assumptions regarding various factors to determine if impairment tests are met. These estimates contain management’s judgment,
using appropriate and customary assumptions available at the time. The Company performed its annual impairment test of goodwill in
the fourth quarter of fiscal years 2010 and 2009 and determined that goodwill was not impaired. The carrying amount and activity of
goodwill attributable to The Hackett Group and Hackett Technology Solutions was as follows (in thousands):
Balance at January 2, 2009
Additions (see Note 2)
Foreign currency translation adjustment
Balance at January 1, 2010
Additions/adjustments (see Note 2)
Foreign currency translation adjustment
The
Hackett
Group
$ 32,283
11,744
1,352
45,379
(358)
(731)
Hackett
Technology
Solutions
$ 31,333
—
—
31,333
—
—
Total
$ 63,616
11,744
1,352
76,712
(358)
(731)
Balance at December 31, 2010
$ 44,290
$ 31,333
$ 75,623
Other intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the
carrying value of an asset may not be fully recoverable in accordance with ASC 350. If an evaluation is required, the estimated future
undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an
impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value.
Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated
future economic conditions and estimates of residual values. Other intangible assets arise from business combinations and consist of
customer relationships, customer backlog and trademarks that are amortized on a straight-line or accelerated basis over periods of up
to five years.
32
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
Other intangible assets, included in other assets in the accompanying consolidated balance sheets, consist of the following (in
thousands):
Gross carrying amount
Less accumulated amortization
December 31,
2010
$ 10,847
(8,414)
2,433
$
January 1,
2010
$ 10,847
(6,438)
$ 3,786
Revenue Recognition
Revenue is principally derived from fees for services generated on a project-by-project basis in accordance with Financial
Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) Topic 605, Revenue. Revenue for services
rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis.
Revenue for time and materials contracts is recognized based on the number of hours worked by our consultants at an agreed
upon rate per hour and is recognized in the period in which services are performed.
Revenue related to fixed-fee or capped-fee contracts is recognized on the proportional performance method of accounting based
on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the
project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation
excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects
may exceed the original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the
inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, project delivery, Office of Risk
Management and finance personnel review hours incurred and estimated total labor hours to complete projects. Any revisions in these
estimates are reflected in the period in which they become known. If the Company estimates indicate that a contract loss will occur, a
loss provision will be recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are
determined to be the amount by which the estimated direct costs of the contract exceed the estimated total revenue that will be
generated by the contract and are included in total cost of service.
Revenue from advisory services is recognized ratably over the life of the agreements.
Revenue for contracts with multiple elements is allocated based on the fair value of the elements and is recognized in
accordance with FASB Accounting Standards Update (“ASU”) 2009-13, Multiple-Deliverable Revenue Arrangements, a consensus of
the FASB Emerging Issues Task Force.
Additionally, the Company earns revenue from the sale of software, software licenses and maintenance contracts, which is
recognized in accordance with FASB ASC Topic 985, Software. Revenue for the sale of software and software licenses is recognized
upon contract execution and customer receipt of software. Revenue from maintenance contracts is recognized ratably over the life of
the agreements.
Unbilled revenue represents revenue for services performed that have not been invoiced. If the Company does not accurately
estimate the scope of the work to be performed, or does not manage its projects properly within the planned periods of time, or does
not meet clients expectations under the contracts, then future consulting margins may be negatively affected or losses on existing
contracts may need to be recognized. Any such reductions in margins or contract losses could be material to the Company’s results of
operations.
Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no
impact on revenue.
Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and
out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.
33
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based,
typically allow clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client
is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the
termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business
relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from
performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are
generally limited to six to twelve months and usually apply only to specific employees or the specific project team.
Stock Based Compensation
The Company records stock based compensation in accordance with FASB ASC Topic 718, Compensation-Stock Compensation
(“ASC 718”), using the modified-prospective-transition method.
ASC 718 requires entities to recognize compensation expense for awards of equity instruments to employees based on the grant-
date fair value of those awards (with limited exceptions). ASC 718 also requires the benefits of tax deductions in excess of recognized
compensation expense to be reported as a financing cash flow.
ASC 718 provides an alternative transition method of calculating the excess tax benefits available to absorb any tax deficiencies
recognized which the Company has elected to adopt.
Income Taxes
Income taxes are accounted for in accordance with FASB ASC Topic 740, Income Taxes (“ASC 740”). Under ASC 740,
deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and tax bases of
assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those
differences are expected to reverse. Deferred income taxes also reflect the impact of certain state operating loss and tax credit
carryforwards. A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the
deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in
circumstances, and which causes a change in the Company’s judgment about the realizability of the related deferred tax asset, is
included in the current tax provision.
In accordance with FASB ASC Topic 740-10, Accounting for Uncertainty in Income Taxes (“ASC 740-10”), the Company
adopted a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be
taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of
current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting
for income taxes in interim periods and income tax disclosures. The Company reports penalties and tax-related interest expense as a
component of income tax expense.
Net Income (Loss) per Common Share
Basic net income (loss) per common share is computed by dividing net income (loss) by the weighted average number of
common shares outstanding during the period. With regard to restricted stock units issued to employees, the calculation includes only
the vested portion of such stock. Net income per share, assuming dilution, is computed by dividing the net income by the weighted
average number of common shares outstanding, and will increase by the assumed conversion of other potentially dilutive securities
during the period.
34
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
The following table reconciles basic and dilutive weighted average shares:
December 31,
2010
Year Ended
January 1,
2010
January 2,
2009
Basic weighted average common shares outstanding
40,348,749
38,240,460
40,471,451
Effect of dilutive securities:
Unvested restricted stock units and common stock
subject to vesting requirements issued to employees
1,531,367
—
913,019
Common stock issuable upon the exercise of stock
options
Acquisition-related unregistered shares held in escrow
Dilutive weighted average common shares outstanding
41,822
450,300
42,372,238
—
—
38,240,460
113,325
—
41,497,795
Dilutive securities not included in diluted weighted average
common shares outstanding:
Unvested restricted stock units issued to employees
Common stock issuable upon the exercise of stock
options
Acquisition-related unregistered shares held in escrow
—
—
—
—
616,435
22,980
150,100
789,515
—
—
—
—
There were approximately 1.0 million, 1.1 million, and 1.3 million shares of common stock excluded from the above
reconciliation for the years ended 2010, 2009, and 2008, respectively, as their inclusion would have had an anti-dilutive effect on
diluted net income (loss) per share.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable and unbilled
revenue, accounts payable and accrued expenses and other liabilities.
As of January 2, 2009, the Company had a net balance of $1.7 million invested in Bank of America’s Columbia Strategic Cash
Portfolio (“Portfolio”) which was closed to redemptions and new investors as of December 2007. The balance was fully redeemed in
2009. As of December 31, 2010 and January 1, 2010, there was no balance on the consolidated balance sheets.
As of December 31, 2010 and January 1, 2010, the fair value of all financial instruments approximated their carrying value due
to the short-term nature and maturity of these instruments.
Concentration of Credit Risk
The Company provides services primarily to Global 2000 companies and other sophisticated buyers of business consulting and
information technology services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for
potential credit losses. In 2010 and 2008, no customer accounted for more than 5% of total revenue and in 2009, one customer
accounted for 6% of total revenue.
Management’s Estimates
The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires
management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting
period. Actual results could differ from those estimates.
35
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
Other Comprehensive Income (Loss)
The Company reports its comprehensive income (loss) in accordance with FASB ASC Topic 220, Comprehensive Income,
which establishes standards for reporting and presenting comprehensive income and its components in a full set of financial
statements. Other comprehensive income (loss) consists of unrealized gains and losses on available-for-sale securities, and cumulative
currency translation adjustments.
Translation of Non-U.S. Currency Amounts
The assets and liabilities held by the Company’s foreign entities that have a functional currency other than the U.S. Dollar are
translated into U.S. Dollars at exchange rates in effect at the end of each reporting period. Foreign entity revenue and expenses are
translated into U.S. Dollars at the average rates that prevailed during the period. The resulting net translation gains and losses are
reported as foreign currency translation adjustments in shareholders’ equity as a component of accumulated other comprehensive
income (loss). Gains and losses from foreign currency transactions are included in net income (loss).
Segment Reporting
The Company reports business segment information under the provisions of FASB ASC Topic 280, Segment Reporting (“ASC
280”). In accordance with ASC 280, the Company engages in business activities in one operating segment, which provides business
and technology consulting services.
Recent Accounting Pronouncements
In October 2009, the FASB issued 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 Company’s consolidated
financial statements.
In February 2010, the FASB issued ASU No. 2010-09, Amendments to Certain Recognition and Disclosure Requirements,
(“ASU 2010-09”) which amends FASB ASC Topic 855, Subsequent Events, to address certain implementation issues related to an
entity’s 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 Company’s consolidated financial statements.
In December 2010, the FASB issued ASU 2010-28, Intangibles - Goodwill and Other (Topic 350): When to Perform Step 2 of
the Goodwill Impairment Test for Reporting Units with Zero or Negative Carrying Amounts (“ASU 2010-28”). ASU 2010-28
modifies Step 1 of the goodwill impairment test for reporting units with zero or negative carrying amounts. For those reporting units,
an entity is required to perform Step 2 of the goodwill impairment test if it is more likely than not that a goodwill impairment exists. In
determining whether it is more likely than not that a goodwill impairment exists, an entity should consider whether there are any
adverse qualitative factors indicating that an impairment may exist. ASU 2010-28 is effective for fiscal years, and interim periods
within those years, beginning after December 15, 2010. The Company is currently evaluating the impact that the adoption of ASU
2010-28 will have on its consolidated financial statements.
In December 2010, the FASB issued ASU 2010-29, Business Combinations (Topic 805): Disclosure of Supplementary Pro
Forma Information for Business Combinations, a consensus of the FASB Emerging Issues Task Force (“ASU 2010-29”). The
objective of ASU 2010-29 is to address diversity in practice relating to the interpretation of pro forma revenue and earnings disclosure
requirements for business combinations. Under ASU 2010-29, comparative financial statements should disclose revenue and earnings
of the combined entity as if the business combinations that have occurred during the current year had been in effect as of the
beginning of the comparable prior annual reporting period only. Additionally, ASU 2010-29 expands the supplemental pro forma
disclosures under Topic 805 to include a description of the nature and amount of material, nonrecurring pro forma adjustments directly
attributable to the business combinations included in reported pro forma revenue and earnings. ASU 2010-29 is effective prospectively
for business combinations acquired on or after the beginning of the first annual reporting period beginning on or after December 15,
2010. The Company is currently evaluating the impact that the adoption of ASU 2010-29 will have on its consolidated financial
statements.
36
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
Reclassifications
Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to
current period presentation.
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 Archstone’s consulting business. The results
of Archstone’s operations have been included in the Company’s consolidated financial statements since November 10, 2009.
Archstone, a company with operations in the United States, United Kingdom and Netherlands, specializes in supply chain,
procurement and enterprise performance management consulting. Archstone primarily serves the consumer products, retail,
pharmaceutical, financial services and manufacturing industry sectors. Archstone brings to Hackett strategic synergies through its
highly skilled workforce and will provide Hackett with new industry-focused supply chain and procurement consulting capabilities
which will strongly compliment Hackett’s general and administrative and working capital offerings.
The acquisition of Archstone was accounted for in accordance with FASB ASC Topic 805, Business Combinations (“ASC
805”). The purchase price for the assets acquired and liabilities assumed was 5.2 million unregistered shares of the Company’s
common stock, of which 1.7 million unregistered shares were subject to an earn-out based on revenue achieved in 2010. The value of
the unregistered shares was determined as $3.48 per share, the closing value of the Hackett’s common stock on the effective date of
acquisition. The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair
values (in thousands, except price per share):
Purchase Price Consideration:
Unregistered shares transferred, net of earn-out shares
Contingent earn-out shares
Total share consideration
Closing share price on November 9, 2009
Total fair value of share consideration
Less estimated future share registration cost
Total consideration
Allocation of Purchase Price:
Cash
Accounts receivable
Prepaid expenses and other current assets
Total current assets acquired
Property and equipment
Intangible assets
Goodwill
Total assets acquired
Accrued expenses and other liabilities, current
Line of credit
Total current liabilities acquired
Accrued expenses and other liabilities, non-current
Total liabilities assumed
Net assets acquired
3,502
1,655
5,157
$ 3.48
$ 17,946
100
$ 17,846
$ 3,000
8,327
364
11,691
254
4,171
11,744
$ 27,860
$ 5,055
3,459
8,514
1,500
$ 10,014
$ 17,846
With the exception of accounts receivable and long-lived assets, assets and liabilities were valued at the respective carrying
amounts which approximates fair value.
37
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. Acquisitions and Investing Activities (Continued)
The purchase price allocation resulted in $11.7 million that exceeded the estimated fair value of tangible and intangible assets
and liabilities and 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.
The acquired intangible assets with definite lives are amortized over periods ranging from 2 years to 5 years. The following
table presents the intangible assets acquired from Archstone as of December 31, 2010 and January 1, 2010:
Category
Customer base
Customer backlog
Tradename
Amount
(in thousands)
3,028
$
983
160
$
4,171
Weighted Average
Useful Life
(in years)
2.92
0.58
1.01
2.30
The Company only acquired certain assets and assumed certain liabilities from Archstone. The following unaudited pro forma
information includes the operations of Archstone (excluding a division divested in 2008) and is provided assuming the acquisition had
occurred as of January 3, 2009 and as of December 29, 2007, respectively (in thousands):
Year Ended
January 1, 2010
January 2, 2009
Total revenue
Net (loss) income
$
$
(unaudited)
$
182,073
(12,073)
254,727
$
14,906
On the acquisition date, the Company recorded a liability for the 1,655,000 earn-out unregistered shares based on the closing
price on the date of acquisition. Based on actual net revenue achievements in 2009 and the 2010 annual planning process presented to
the Company’s Board of Directors, which is also the basis for performance compensation, as of January 1, 2010 the Company
estimated that the $45.0 million revenue target would be met by Archstone.
On May 11, 2010, prior to the end of the earn-out measurement period, 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 the Sellers. As a result of the fluctuation in the Company’s share price and in accordance with ASC 805, the
Company recorded a $1.7 million non-cash re-measurement gain during the year ended December 31, 2010 in the consolidated
statement of operations.
As a result of the acquisition, the Company recorded $261 thousand of acquisition-related costs which were included in selling,
general and administrative costs in the consolidated statements of operations for the year ended January 1, 2010.
In addition, the Company issued 941 thousand unregistered shares to former Archstone executives as new employees of the
Company that will vest over a two to five year period and are contingent on continued employment. The aggregate grant date fair
value of these awards is $3.5 million. The fair value of these shares is accounted for as compensation expense over the vesting
periods.
The Company includes its acquired intangible assets with definite lives in other assets, net in the accompanying consolidated
balance sheets. As of December 31, 2010 and January 1, 2010, intangible assets totaled $2.4 million and $4.4 million, respectively,
which is net of accumulated amortization of $12.3 million and $10.3 million, respectively, and foreign currency fluctuations for
intangible assets denominated in the British Pound. All of the Company’s intangible assets are expected to be fully amortized by the
end of 2014. The estimated future amortization expense of intangible assets as of December 31, 2010 is as follows: $0.8 million in
2011, $0.5 million in 2012, $0.6 million in 2013 and $0.5 million in 2014.
38
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3. Fair Value Measurement
The Company records its assets and liabilities in accordance with FASB ASC Topic 820, Fair Value Measurements and
Disclosures (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a
liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market
participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of
observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three
levels of inputs that may be used to measure fair value:
Level 1: Quoted market prices in active markets for identical assets or liabilities
Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data
Level 3: Unobservable inputs that are not corroborated by market data
As of December 31, 2010 and January 1, 2010 the carrying value of cash and cash equivalents, restricted cash, accounts
receivable and unbilled revenue, accounts payable, leases and accrued expenses and other liabilities, approximated the respective fair
value due to the short-term nature and maturity of these instruments.
As of January 2, 2009, the Company had an investment in Bank of America’s Columbia Strategic Cash Portfolio (“Portfolio”).
The Portfolio units were no longer trading and, therefore, had little or no observable market data. During 2009, the Company’s
remaining balance in the Portfolio was redeemed and as a result the Company recorded an additional loss on the marketable
investments of $35 thousand. Based on the valuation methodology used to determine the fair value, the Company categorized the
Portfolio as a Level 3 financial asset.
4. Accounts Receivable and Unbilled Revenue, Net
Accounts receivable and unbilled revenue, net, consists of the following (in thousands):
Accounts receivable
Unbilled revenue
Allowance for doubtful accounts
December 31,
2010
$ 22,115
10,951
(1,486)
$ 31,580
January 1,
2010
$ 22,340
7,667
(1,354)
$ 28,653
Accounts receivable as of December 31, 2010 and January 1, 2010, is net of uncollected advanced billings. Unbilled revenue as
of December 31, 2010 and January 1, 2010, includes recognized recoverable costs and accrued profits on contracts for which billings
had not been presented to clients.
5. Property and Equipment, net
Property and equipment, net, consists of the following (in thousands):
Equipment
Software
Leasehold improvements
Furniture and fixtures
Automobile
Less accumulated depreciation
$
December 31,
2010
10,667
15,836
1,654
940
26
29,123
(20,307)
8,816
$
January 1,
2010
$ 10,626
12,824
1,654
677
33
25,814
(18,677)
$ 7,137
Depreciation expense for the years ended December 31, 2010, January 1, 2010, and January 2, 2009 was $1.8 million, $1.9
million, and $2.1 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated
statements of operations.
39
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
6. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
Accrued compensation and benefits
Accrued bonuses
Accrued restructuring related expenses
Deferred revenue
Accrued sales, use, franchise and VAT tax
Contingent consideration for earn-out shares
Other accrued expenses
Current accrued expenses and other liabilities
Accrued restructuring related expenses - non-current
Other accrued expenses - non-current
Non-current accrued expenses and other liabilities
December 31,
2010
$
$
5,610
9,354
1,732
6,716
1,802
—
3,926
29,140
265
2,566
2,831
January 1,
2010
$ 4,994
2,049
5,296
6,800
1,736
5,759
4,597
$ 31,231
1,836
1,542
3,378
Total accrued expenses and other liabilities
$
31,971
$ 34,609
7. Restricted Cash
As of December 31, 2010 and January 1, 2010, the Company had $1.6 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 future employee
compensation agreements.
8. Lease Commitments
The Company has operating lease agreements for its premises that expire on various dates through December 2016. Rent
expense, net of subleases for the years ended December 31, 2010, January 1, 2010, and January 2, 2009 was $1.8 million, $1.7 million
and $1.8 million, respectively.
Future minimum lease commitments and sublease receipts under non-cancelable operating leases as of December 31, 2010 are
as follows (in thousands):
2011
2012
2013
2014
2015
Thereafter
Total
9. Income Taxes
Rental
Payments
$ 3,320
1,444
1,107
991
757
426
$ 8,045
Sublease
Receipts
$ 474
—
—
—
—
—
$ 474
The Company files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. A number of
years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome
or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the
most probable outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and
circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax
rate in the period of resolution. The Company is no longer subject to examinations of its federal income tax returns by the Internal
Revenue Service for years through 2006. All significant state, local and foreign matters have been concluded for years through 2006.
40
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income Taxes (Continued)
The components of income (loss) before income taxes are as follows (in thousands):
Domestic
Foreign
Income (loss) before income taxes
December 31,
2010
14,204
(3)
$
$
14,201
Year Ended
January 1,
2010
$
(325)
(6,699)
$ (7,024)
January 2,
2009
$ 14,967
3,374
$ 18,341
The components of income tax (benefit) expense are as follows (in thousands):
Current tax (benefit) expense
Federal
State
Foreign
Deferred tax (benefit) expense
Federal
State
Foreign
Income tax (benefit) expense
December 31,
2010
Year Ended
January 1,
2010
January 2,
2009
$
$
(191)
239
(74)
(26)
—
—
—
—
(26)
$
$
(294)
72
10
(212)
—
—
—
—
(212)
$
$
278
164
23
465
—
—
—
—
465
A reconciliation of the federal statutory tax rate with the effective tax rate is as follows:
U.S statutory income tax expense (benefit) rate
State income taxes, net of federal income tax benefit
Valuation allowance (reduction)
Meals and entertainment
Intangible amortization
Foreign exchange loss (gain)
Other, net
Effective tax rate
December 31,
2010
35.0%
1.1
(36.7)
1.5
0.7
0.4
(2.2)
(0.2)%
Year Ended
January 1,
2010
(35.0)%
0.7
15.4
2.5
1.6
3.7
8.1
(3.0)%
January 2,
2009
35.0%
0.6
(32.8)
1.1
0.7
(5.4)
3.3
2.5%
41
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income Taxes (Continued)
The components of the net deferred income tax asset (liability) are as follows (in thousands):
Deferred income tax assets:
Purchased research and development
Allowance for doubtful accounts
Net operating loss and tax credits carryforward
Accrued expenses and other liabilities
Valuation allowance
Deferred income tax liabilities:
Depreciation and amortization
Tax over book amortization on goodwill
Other items
Net deferred income tax asset (liability)
December 31,
2010
January 1,
2010
$
$
184
587
23,910
5,694
30,375
(21,337)
9,038
(2,002)
(6,883)
(153)
(9,038)
—
$
290
535
26,587
6,218
33,630
(26,545)
7,085
(1,073)
(5,502)
(510)
(7,085)
$ —
As of December 31, 2010, the Company had approximately $47.8 million of U.S. federal net operating loss carryforwards
available for tax purposes, primarily resulting from a worthless stock deduction taken in 2002, most of which expire by 2022 if not
utilized. Additionally, at December 31, 2010, the Company had approximately $14.0 million of foreign net operating loss
carryforwards, of which approximately $6.4 million related to operations in the UK, $3.1 million related to operations in France and
$2.4 million related to operations in Germany. Most of the foreign net operating losses may be carried forward indefinitely.
The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based
on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In
determining the need for valuation allowances the Company considers evidence such as history of losses and general economic
conditions. At December 31, 2010 and January 1, 2010, the Company had established a valuation allowance of approximately $21.3
million and $26.5 million, respectively, to reduce deferred income tax assets primarily related to net operating loss and tax credit
carryforwards.
Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended December 31,
2010, January 1, 2010 and January 2, 2009 the total amount of accrued income tax-related interest and penalties was $170 thousand,
$170 thousand and $254 thousand, respectively.
In accordance with ASC 740-10, the Company prescribes a more-likely-than-not threshold for financial statement recognition
and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-
recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for
interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures.
The following table sets forth the detail and activity of the ASC 740-10 liability during the twelve months ended December 31,
2010 and January 1, 2010 (in thousands):
Beginning balance
Additions
Reduction due to lapse of applicable statute of limitations
Other
Ending balance
December 31,
2010
January 1,
2010
$
$
370
—
(185)
(15)
170
$
768
6
(221)
(183)
$
370
42
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Income Taxes (Continued)
As of December 31, 2010 and January 1, 2010, the ASC 740-10 liability of $170 thousand and $370 thousand, respectively, was
classified as a current liability and included in the current portion of the accrued expenses and other liabilities in the accompanying
consolidated balance sheets. The Company does not believe there will be any material changes in its unrecognized tax positions over
the next twelve months. The reversal of ASC 740-10 tax liabilities as of December 31, 2010 and January 1, 2010 of $170 thousand
and $370 thousand, respectively, would have a favorable impact on the effective tax rate in future periods.
10. Stock Based Compensation
Stock Plans
Total share based compensation included in net income for the year ended December 31, 2010 was $4.3 million. The number of
shares available for future issuance under the plans as of December 31, 2010 were 8,168,915. The Company issues new shares as
shares are required to be delivered under the plan.
Stock Options
The Company has granted stock options to employees and directors of the Company at exercise prices equal to the market value
of the stock at the date of grant. The options generally vest ratably over four years, based on continued employment, with a maximum
term of ten years.
Stock option activity under the Company’s stock option plans for the year ended December 31, 2010 is summarized as follows:
Outstanding as of January 1, 2010
Exercised
Forfeited or expired
Outstanding as of December 31, 2010
Option Shares
1,202,380
(17,553)
(202,499)
982,328
Exercisable at December 31, 2010
981,870
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
$
Weighted Average
Exercise Price
5.88
2.68
7.45
$
$
5.62
5.62
$
$
2.59
$ 173,214
2.59
$ 173,214
A summary of the Company’s stock option activity for the years ended January 1, 2010 and January 2, 2009 was as follows:
Outstanding at beginning of year
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
January 1, 2010
January 2, 2009
Option Shares
1,327,497
(5,500)
(119,617)
1,202,380
1,201,672
Weighted Average
Exercise Price
$
$
$
6.03
2.10
7.81
5.88
5.88
Option Shares
1,567,598
(63,939)
(176,162)
1,327,497
1,321,247
Weighted
Average
Exercise Price
5.97
$
3.60
6.31
$
$
6.03
6.04
Other information pertaining to stock option activity during the years ended December 31, 2010, January 1,
2010, and January 2, 2009 was as follows (in thousands):
December 31, 2010
Year Ended
January 1, 2010 January 2, 2009
— $
718
8 $
102
— $
11 $
Total fair value of stock options vested
Total intrinsic value of stock options exercised
$
$
43
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock Based Compensation (Continued)
The following table summarizes information about the Company’s stock options outstanding as of December 31, 2010:
Options Outstanding
Weighted Average
Remaining
Contractual Life
(Years)
2.4
2.7
0.9
0.0
2.6
Number
Outstanding
181,356
759,314
40,400
1,258
982,328
Range of Exercise Prices
$0.00 - $4.06
$4.07 - $8.13
$8.14 - $12.19
$12.20 - $24.38
Restricted Stock Units
Options Exercisable
$
Weighted Average
Exercise Price
2.62
6.09
9.52
21.63
Number
Exercisable
180,898
759,314
40,400
1,258
$
5.62
981,870
$
Weighted
Average Exercise
Price
$
2.62
6.09
9.52
21.63
5.62
Under the stock plans, participants may be granted restricted stock units, each of which represents a conditional right to receive
a common share in the future. The restricted stock units granted under this plan generally vest over one of the following vesting
schedules: (1) a four-year period, with 50% vesting on the second anniversary and 25% of the shares vesting on the third and fourth
anniversaries of the grant date, (2) a four-year period, with 25% vesting on the first, second, third and fourth anniversary, or (3) a
three-year period with 33% vesting on the first, second and third anniversary. Upon vesting, the restricted stock units will convert into
an equivalent number of shares of common stock. The amount of expense relating to the restricted stock units is based on the closing
market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the applicable
requisite service period. Restricted stock unit activity for the year ended December 31, 2010 was as follows:
Nonvested balance as of January 1, 2010
Granted
Vested
Forfeited
Nonvested balance as of December 31, 2010
Number of
Restricted Stock
Units
2,461,208
833,396
(906,474)
(176,543)
2,211,587
Weighted Average
Grant-Date Fair
Value
$
$
3.11
2.98
3.24
3.88
2.95
The Company recorded restricted stock unit based compensation expense of $3.6 million, $2.6 million and $3.9 million in 2010,
2009 and 2008, respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock
units and the fair market value of the stock on the grant date. As of December 31, 2010, there was $2.9 million of total restricted stock
unit compensation related to the nonvested awards not yet recognized, which is expected to be recognized over a weighted average
period of 1.73 years.
Common Stock Subject to Vesting Requirements
Shares of common stock subject to vesting requirements were issued to employees of Archstone and REL. Employees of these
acquired companies vest in these shares over a period of up to five years. Compensation was based on the market value of the
Company’s common stock at the time of grant and is recognized on a straight-line basis. The activity for common stock subject to
vesting requirements for the year ended December 31, 2010 was as follows:
Nonvested balance as of January 1, 2010
Granted
Vested
Forfeited
Number of Shares
of Common Stock
Subject to Vesting
Requirements
1,027,454
340,941
(127,579)
(398,912)
Nonvested balance as of December 31, 2010
841,904
$
44
Weighted Average
Grant-Date Fair
Value
$
3.78
2.73
3.86
3.67
3.40
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Stock Based Compensation (Continued)
Recorded compensation expense of $663 thousand, $381 thousand and $290 thousand, during the years ended December 31,
2010, January 1, 2010 and January 2, 2009, respectively, related to common stock subject to vesting requirements. As of
December 31, 2010, there was $1.4 million of total stock based compensation related to common stock subject to vesting requirements
not yet recognized, which is expected to be recognized over a weighted average period of 2.92 years.
11. Shareholders’ Equity
Employee Stock Purchase Plan
Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have
completed three months of service as of the beginning of an offering period an opportunity to purchase shares of its common stock
through payroll deductions. Purchases on any one grant are limited to 10% of eligible compensation. Shares of the Company’s
common stock may be purchased by employees at six-month intervals at 95% of the fair market value on the last trading day of each
six-month period. The aggregate fair market value, determined as of the first trading date of the offering period, of shares purchased
by an employee may not exceed $25,000 annually. The Employee Stock Purchase Plan expires on July 1, 2018. A total of 4,275,000
shares of common stock are available for purchase under the plan with a limit of 400,000 shares of common stock to be issued per
offering period. For plan years 2010, 2009 and 2008, 132,015 shares, 168,887 shares and 136,988 shares, respectively, were issued.
Treasury Stock
On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of the
Company’s common stock. Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an
additional $65.0 million of the Company’s common stock, thereby increasing the total program size to $70.0 million. 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. As of December 31, 2010 and January 1, 2010,
the Company had repurchased 18.8 million shares and 17.0 million shares of its common stock, respectively, at an average price of
$3.48 and $3.50 per share, respectively. As of December 31, 2010, the Company had approximately $4.5 million available under the
Company’s buyback program. The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury
stock under the cost method.
Shareholder Rights Plan
On February 13, 2004, the Company’s Board of Directors adopted a Shareholder Rights Plan. Under the Plan, a dividend of one
preferred share purchase right (a “Right”) was declared for each share of common stock of the Company that was outstanding on
February 26, 2004. Each Right entitles the holder to purchase from the Company one one-thousandth of a share of Series A Junior
Preferred Stock at a purchase price of $32.50, subject to adjustment.
The Rights will trade automatically with the common stock and will not be exercisable until a person or group has become an
“acquiring person” by acquiring 15% or more of the Company’s outstanding common stock, or a person or group commences, or
publicly announces a tender offer that will result in such a person or group owning 15% or more of the Company’s outstanding
common stock. However, Liberty Wanger Asset Management, L.P. (now known as Columbia Wanger Asset Management, L.P.),
together with its affiliates and associates will be permitted to acquire up to 20% of the common stock without making the rights
exercisable. Upon announcement that any person or group has become an acquiring person, each Right will entitle all rightholders
(other than the acquiring person) to purchase, for the exercise price of $32.50, a number of shares of the Company’s common stock
having a market value equal to twice the exercise price. Rightholders would also be entitled to purchase common stock of the
acquiring person having a value of twice the exercise price if, after a person had become an acquiring person, the Company were to
enter into certain mergers or other transactions. If any person becomes an acquiring person, the Board of Directors may, at its option
and subject to certain limitations, exchange one share of common stock for each Right.
The Rights have certain anti-takeover effects, in that they would cause substantial dilution to a person or group that attempts to
acquire a significant interest in the Company on terms not approved by the Board of Directors. In the event that the Board of Directors
determines a transaction to be in the best interests of the Company and its shareholders, the Board of Directors may redeem the Rights
for $0.001 per share at any time prior to a person or group becoming an acquiring person. The Rights will expire on February 13,
2014.
45
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Benefit Plan
The Company maintains a 401(k) plan covering all eligible employees. Subject to certain dollar limits, eligible employees may
contribute up to 15% of their pre-tax annual compensation to the plan. The Company may make discretionary contributions on an
annual basis. During fiscal years 2010, 2009 and 2008, the Company made matching contributions of 25% of employee contributions
up to 4% of their gross salaries. The Company’s matching contributions were $0.3 million in each of the fiscal years ended
December 31, 2010, January 1, 2010, and January 2, 2009.
13. Restructuring Costs
The Company recorded restructuring costs in 2001 and 2002 primarily related to reductions in consultants and functional
support and for the closure and consolidation of facilities and related exit costs. In 2003, 2004, 2005 and 2006, the Company increased
these reserves as a result of additional closures and consolidation of facilities, lower than expected sublease rates and longer than
expected time estimates to sublease excess facilities. In 2005 and 2006, the Company recorded restructuring costs for the
consolidation of facilities and related exit costs as a result of the REL acquisition. In 2009, the Company recorded restructuring costs
resulting from the acquisition and integration of Archstone related to discounted lease buy-out actions, the down-sizing of facilities
and the related exit costs of those facilities and severance costs (see Note 2).
No restructuring costs were incurred in 2010 and 2008.
The following tables set forth the detail and activity in the restructuring expense accruals (in thousands):
Severance and
Other Employee
Costs
Exit, Closure and
Consolidation of
Facilities
Accrual balance at December 28, 2007
$
2009 Additions, net
2008 Expenditures
2009 Expenditures
2010 Expenditures
$
147
3,048
(147)
(1,051)
(1,826)
Accrual balance at December 31, 2010
$
171
$
5,539
2,378
(1,246)
(1,536)
(3,309)
1,826
Total
$ 5,686
5,426
(1,393)
(2,587)
(5,135)
$ 1,997
14. Transactions with Related Parties
In connection with the Company’s repurchase of common stock in 2010 and 2009, the Board of Directors approved the
Company’s buy back of 103,492 shares and 3,931 shares, respectively, of outstanding common stock from employees of the Company
and Board of Directors at an average price of $3.47 and $2.53 per share, respectively. These shares were included in the Company’s
treasury stock on the accompanying consolidated balance sheets at December 31, 2010 and January 1, 2010.
15. 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
Company’s consolidated financial position, cash flows or results of operations.
16. Geographic and Service Group Information
Revenue, which is primarily based on the country of the Company’s contracting entity, is attributed to geographic areas as
follows (in thousands):
December 31,
2010
Year Ended
January 1,
2010
January 2,
2009
Revenue:
North America
International (primarily European countries)
Total revenue
$ 158,231
43,117
$ 106,865
35,835
$ 141,906
50,195
$ 201,348
$ 142,700
$ 192,101
46
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Geographic and Service Group Information (Continued)
Long-lived assets are attributed to geographic areas as follows (in thousands):
Long-Lived Assets:
North America
International (primarily European countries)
Total long-lived assets
December 31,
2010
January 1,
2010
$
$
71,625
15,593
87,218
$ 73,742
14,978
$ 88,720
As of December 31, 2010, foreign assets included $15.0 million of goodwill related to the REL and Archstone acquisitions and
$0.2 million of intangible assets related to the Archstone acquisition. 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.
The Company’s revenue is derived from the following service groups (in thousands):
The Hackett Group
Hackett Technology Solutions
Total revenue
December 31,
2010
$ 144,884
56,464
$ 201,348
Year Ended
January 1,
2010
$ 102,055
40,645
$ 142,700
January 2,
2009
$ 130,815
61,286
$ 192,101
17. Quarterly Financial Information (unaudited)
The following table presents unaudited supplemental quarterly financial information for the years ended December 31, 2010 and
January 1, 2010 (in thousands, except per share data):
Quarter Ended
Total revenue
Income from operations
Income before income taxes
Net income
Basic and diluted net income per common share
Diluted net income per common share
Total revenue
Income (loss) from operations
Income (loss) before income taxes
Net income (loss)
April 2,
2010
$ 46,728
$ 1,859
$ 2,808
$ 2,698
$ 0.07
$ 0.07
April 3,
2009
$ 39,516
877
$
902
$
839
$
July 2,
2010
$ 53,685
$ 3,752
$ 4,540
$ 4,423
$ 0.11
$ 0.10
July 3,
2009
$ 34,616
210
$
186
$
160
$
October 1,
2010
$ 52,305
$ 3,914
$ 3,921
$ 4,107
$
$
0.10
0.10
October 2,
2009
$ 34,003
790
$
796
$
816
$
Quarter Ended
December 31,
2010
$ 48,630
2,927
$
2,932
$
2,999
$
$
$
0.07
0.07
January 1,
2010
$ 34,565
(8,917)
$
(8,908)
$
(8,627)
$
Basic and diluted net income (loss) per common
share
Diluted net income (loss) per common share
$ 0.02
$ 0.02
$ 0.00
$ 0.00
$
$
0.02
0.02
$
$
(0.22)
(0.22)
Quarterly basic and diluted net income (loss) per common share were computed independently for each quarter and do not
necessarily total to the year to date basic and diluted net income (loss) per common share.
During the fourth quarter of 2009, the Company acquired Archstone (see Note 2) and recorded revenue of $5.6 million and
restructuring costs of $5.9 million related to the acquisition (see Note 13).
47
THE HACKETT GROUP, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 31, 2010, JANUARY 1, 2010 AND JANUARY 2, 2009
(in thousands)
Allowance for Doubtful Accounts
Year Ended December 31, 2010
Year Ended January 1, 2010
Year Ended January 2, 2009
Balance at
Beginning
of Year
$ 1,354
$ 1,631
$ 1,484
Charge to
Expense
$
$
$
157
93
145
Write-offs,
net of
Recoveries
Balance at
End of
Year
$
$
$
(25)
$ 1,486
(370)
$ 1,354
2
$ 1,631
48
ITEM 9.
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
ITEM 9A. CONTROLS AND PROCEDURES
Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our principal executive officer and
principal financial officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule
13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended (the Exchange Act). Based on this evaluation, our
principal executive officer and our principal financial officer concluded that our disclosure controls and procedures were effective as
of the end of the period covered by this Annual Report on Form 10-K.
Changes in Internal Control over Financial Reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation
required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the three months ended December 31, 2010
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
Management’s Report on Internal Control Over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such
term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our
principal executive officer and principal financial officer, we conducted an evaluation of the effectiveness of our internal control over
financial reporting based on the framework in “Internal Control – Integrated Framework” issued by the Committee of Sponsoring
Organizations of the Treadway Commission as of and for the year ended December 31, 2010. Based on our evaluation under the
framework in “Internal Control – Integrated Framework,” our management concluded that our internal control over financial reporting
was effective as of the end of the period covered by this Annual Report.
The Company’s independent registered certified public accounting firm has audited our internal control over financial
reporting as of December 31, 2010 and has expressed an unqualified opinion thereon.
49
Report of Independent Registered Certified Public Accounting Firm
Board of Directors and Shareholders
The Hackett Group, Inc.
Miami, Florida
We have audited The Hackett Group, Inc.’s internal control over financial reporting as of December 31, 2010, based on criteria
established in Internal Control – Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission (the COSO criteria). The Hackett Group, Inc.’s management is responsible for maintaining effective internal control over
financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the
accompanying “Item 9A, Control and Procedures – Management’s Report on Internal Control over Financial Reporting”. Our
responsibility is to express an opinion on the company’s internal control over financial reporting based on our audit.
We conducted our audit 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 effective internal control over
financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness
of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in
the circumstances. We believe that our audit provides a reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of
financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting
principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in
accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in
accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The Hackett Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 31, 2010, based on the COSO criteria.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheets of The Hackett Group, Inc. as of December 31, 2010 and January 1, 2010 and the related consolidated
statements of operations, shareholders’ equity and comprehensive income (loss), and cash flows for each of the three years in the
period ended December 31, 2010 and our report dated March 10, 2011 expressed an unqualified opinion thereon.
/s/ BDO USA, LLP
Miami, Florida
March 10, 2011
50
ITEM 9B. OTHER INFORMATION
None
PART III
ITEM 10.
DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information responsive to this Item is incorporated herein by reference to the Company’s definitive 2011 Proxy Statement
for the 2011 Annual Meeting of Shareholders.
ITEM 11.
EXECUTIVE COMPENSATION
Information responsive to this Item is incorporated herein by reference to the Company’s definitive 2011 Proxy Statement
for the 2011 Annual Meeting of Shareholders.
ITEM 12.
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
Information responsive to this Item is incorporated herein by reference to the Company’s definitive 2011 Proxy Statement
for the 2011 Annual Meeting of Shareholders.
ITEM 13.
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
Information responsive to this Item is incorporated herein by reference to the Company’s definitive 2011 Proxy Statement
for the 2011 Annual Meeting of Shareholders.
ITEM 14.
PRINCIPAL ACCOUNTING FEES AND SERVICES
Information appearing under the caption “Fees Paid to Independent Accountants” in the 2011 Proxy Statement is hereby
incorporated by reference.
ITEM 15.
(a) The following documents are filed as a part of this Form:
EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
1. Financial Statements
PART IV
The Consolidated Financial Statements filed as part of this report are listed and indexed on page 25. Schedules other than
those listed in the index have been omitted because they are not applicable or the required information has been included elsewhere in
this report.
2. Financial Statement Schedules
Schedule II — Valuation and Qualifying Accounts and Reserves are included in this report. Schedules other than those
listed in the index have been omitted because they are not applicable or the information required to be set forth therein is contained, or
incorporated by reference, in the Consolidated Financial Statements of The Hackett Group, Inc. or notes thereto.
3. Exhibits: See Index to Exhibits on page 53
The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report.
51
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) 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, in the City of Miami, State of Florida, on March 10,
2011.
THE HACKETT GROUP, INC.
By: /s/ Ted A. Fernandez
Ted A. Fernandez
Chief Executive Officer and Chairman
Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed by the following persons on behalf
of the Registrant in the capacities and on the date indicated.
Signatures
Title
Date
/s/ Ted A. Fernandez
Ted A. Fernandez
/s/ Robert A. Ramirez
Robert A. Ramirez
/s/ David N. Dungan
David N. Dungan
/s/ Terence M. Graunke
Terence M. Graunke
/s/ Richard Hamlin
Richard Hamlin
/s/ John R. Harris
John R. Harris
/s/ Edwin A. Huston
Edwin A. Huston
/s/ Alan T. G. Wix
Alan T. G. Wix
Chief Executive Officer and Chairman
(Principal Executive Officer)
March 10, 2011
Executive Vice President, Finance and
Chief Financial Officer (Principal Financial
and Accounting Officer)
March 10, 2011
Chief Operating Officer and Director
March 10, 2011
Director
Director
Director
Director
Director
March 10, 2011
March 10, 2011
March 10, 2011
March 10, 2011
March 10, 2011
52
Exhibit
No.
2.1
2.2
3.1
3.2
3.3
3.4
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
INDEX TO EXHIBITS
Exhibit Description
Share Purchase Agreement dated November 29, 2005 between The Hackett Group Limited, Answerthink, Inc. and the
Sellers of REL Consultancy Group Limited (incorporated herein by reference to the Registrant’s Form 8-K dated
December 1, 2005).
Asset Purchase Agreement acquiring Archstone Consulting, LLC. In accordance with the instructions to Item 601(b)(2) of
Regulation S-K, the schedules and exhibits to the Asset Purchase Agreement are not filed herewith. The Asset Purchase
Agreement identifies such schedules and exhibits, including the general nature of their content. The Company undertakes
to provide such schedules and exhibits to the Securities and Exchange Commission upon request (incorporated by
reference to the Registrant’s Form 8-K filed on November 13, 2009).
Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference
to the Registrant’s Form 10-K for the year ended December 29, 2000).
Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant’s
Form 10-K for the year ended December 29, 2000).
Articles of Amendment of the Third Amended and Restated Articles of Incorporation of the Registrant (incorporated
herein by reference to the Registrant’s Form 10-K for the year ended December 28, 2007).
Amendment to Amended and Restated Bylaws of The Hackett Group (incorporated by reference to the Registrant’s Form
8-K filed on March 31, 2008).
Registrant’s 1998 Stock Option and Incentive Plan (incorporated herein by reference to the Registrant’s Registration
Statement on Form S-8 (333-64542)).
Amendment to Registrant’s 1998 Stock Option and Incentive Plan (incorporated herein by reference to the Registrant’s
Form 10-K for the year ended December 28, 2001).
Form of Employment Agreement entered into between the Registrant and Mr. Dungan (incorporated herein by reference
to the Registrant’s Form 10-K for the year ended December 28, 2001).
Form of Employment Agreement entered into between the Registrant and each of Messrs. Fernandez, Frank and Knotts
(incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (333-48123)).
AnswerThink Consulting Group, Inc. Employee Stock Purchase Plan, as amended (incorporated herein by reference to the
Registrant’s Registration Statement on Form S-8 (333-108640)).
Amendment to Registrant’s Employee Stock Purchase Plan (incorporated herein by reference to the Registrant’s Form 10-
K/A filed on February 15, 2007).
Securities Purchase Agreement by and among THINK New Ideas, Inc., Capital Ventures International and Marshall
Capital Management, Inc. (incorporated herein by reference to THINK New Ideas, Inc.’s Form 8-K dated March 12,
1999).
Registration Rights Agreement dated as of March 3, 1999 by and among THINK New Ideas, Inc., Capital Ventures
International and Marshall Capital Management, Inc. (incorporated herein by reference to THINK New Ideas, Inc.’s
Form 8-K dated March 12, 1999).
Amendment to Employment Agreement between Answerthink, Inc. and Ted A. Fernandez (incorporated herein by
reference to the Registrant’s Form 10-Q dated November 10, 2004).
Amendment to Employment Agreement between Answerthink, Inc. and David N. Dungan (incorporated herein by
reference to the Registrant’s Form 10-Q dated November 10, 2004).
Lawson Software & The Hackett Group Advisory Alliance Agreement dated May 9, 2005 (incorporated herein by
reference to the Registrant’s Form 8-K dated May 13, 2005).
Amendment dated June 10, 2005 to Executive Agreement between Answerthink, Inc. and Ted A. Fernandez (incorporated
herein by reference to the Registrant’s Form 8-K dated June 16, 2005).
53
10.13
10.15
10.16
10.17
10.18
21.1
23.1
31.1
31.2
32
Employment Agreement dated November 9, 2005 between the Registrant and Grant M. Fitzwilliam (incorporated herein
by reference to the Registrant’s Form 10-Q dated November 9, 2005).
First Amendment to Employment Agreement between Answerthink, Inc. and Grant M. Fitzwilliam, effective August 1,
2007 (incorporated herein by reference to the Registrant’s Form 10-Q dated July 31, 2007).
Employment Agreement dated August 1, 2007 between the Registrant and Robert A. Ramirez (incorporated herein by
reference to the Registrant’s Form 10-Q dated July 31, 2007).
Third Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by
reference to the Registrant’s Form 8-K dated January 2, 2009).
Third Amendment to Employment Agreement between the Registrant and David N. Dungan (incorporated herein by
reference to the Registrant’s Form 8-K dated January 2, 2009).
Subsidiaries of the Registrant (exhibits filed herewith).
Consent of BDO USA, LLP (exhibits filed herewith).
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
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).
54
Corporate Headquarters
The Hackett Group, Inc.
1001 Brickell Bay Drive, Suite 3000
Miami, FL 33131
Telephone: 305-375-8005
Facsimile: 305-379-8810
www.thehackettgroup.com
Board of Directors
Ted A. Fernandez
Chairman & Chief Executive Officer
The Hackett Group, Inc.
David N. Dungan
Vice Chairman & Chief Operating Officer
The Hackett Group, Inc.
Annual Meeting
The Hackett Group shareholders
are invited to attend our Annual Meeting
on Friday, May 6, 2011 at 11:00 am at:
Corporate Headquarters
1001 Brickell Bay Drive, Suite 3000
Miami, FL 33131
Transfer Agent
Computershare Trust Company, NA
PO Box 43078
Providence, RI 02940-3078
1-877-282-1168
http://www.computershare.com/investor
Independent Auditors
BDO Seidman, LLP
Miami, FL
Richard N. Hamlin
Retired Partner, KPMG LLP
John R. Harris
Operating Partner
glendonTodd Capital LLC &
Chief Executive Officer
Chemical Information Services
Edwin A. Huston
Retired Vice Chairman
Ryder System, Inc.
Terence M. Graunke
Chairman & Co-founder
Lake Capital Management, LLC
Alan T.G. Wix
Former Chairman of the Board
Fiva Marketing, Ltd.
We made great progress in 2010… and are pleased
with our strong performance as well as the prospects
for 2011. When you consider our powerful brand, our
unique ability to combine our proprietary intellectual
capital with our terrific talent as depicted in our new
Hackett Performance Exchange dashboard offerings,
we are eager to see what 2011 offers.
Ted A. Fernandez
Chairman and Chief Executive Officer
1001 Brickell Bay Drive
Suite 3000
Miami, FL 33131
www.thehackettgroup.com