2014
Annual
Report
I believe that we have never been in a better position
strategically. The unique value of our IP and the
potential it offers when coupled with our terrific talent
and improving execution are strong proof points.
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. We reported strong operating results, with rev-
enue of $236.7 million, an increase of 6% over last year. Pro
forma diluted net earnings per share for 2014 was $0.56, up
37% over 2013.
Having said that, it is important to look back on the year to ful-
ly appreciate how much we accomplished. Our 2013 results
were severely disrupted in the fourth quarter by the significant
drop in European revenues offset the solid gains achieved in
the U.S. during that year. The weak European performance car-
ried into 2014, so we acted swiftly and took the necessary ac-
tions in Europe to reduce our operating costs consistent with
that marketplace’s demand volatility. In the first quarter we also
closed an important acquisition in the application managed
services area which strongly complements our market leading
Enterprise Performance Management (“EPM”) transformation
and technology implementation capabilities. These actions
along with other investments we had made in 2013 to increase
our sales investment in our strategically important Benchmark-
ing and Executive Advisory groups, which further impacted
the performance of our Business Transformation groups in the
U.S., positioned a large part of our success during 2014.
On the balance sheet side, in the fourth quarter of 2014 our
Board of Directors approved and paid an annual dividend of
12 cents which represented a 20% increase over the amount
paid in the prior year. In early 2015, the Board also approved
a further increase to our annual dividend program, raising the
annual dividend to 14 cents or an additional 17%, which will
now be paid semi-annually. This increase was to continue to
reflect our desire to reward those shareholders that are long-
term holders of our stock as part of our overall strategy to re-
turn capital to shareholders.
On the investment front, we benefitted from the synergies
from our EPM Application Management Services acquisition.
Additionally, we continued to develop and attract talent and
expand our brand by continuing to build our proprietary Best
Practices Intellectual Property. Our investment in Intellectual
Property (“IP”) has expanded from the technology and perfor-
mance analytics capabilities we developed in launching the
Hackett Performance Exchange (“HPE”) which automatically
extracts information from leading ERP systems to how we use
the benchmarking performance data and best practice imple-
mentation insight and accelerators to create value for our cli-
ents and potential partners.
As we look forward, we expect continued growth from our
US business across nearly all of our groups. We also expect
activity to be stable to slightly improving internationally as we
expand our offerings abroad even if it comes with a more vol-
atile decision-making environment when compared to the US.
Strategically, we will continue to look for ways to leverage our
IP to help differentiate and support the sale and delivery of our
Executive Advisory and Consulting offerings. What is clearly
different as we enter 2015 is that we now see the potential to
leverage our IP through new external channels by using it to
help others sell and deliver their offerings. In the same way we
use it to help differentiate our capabilities, we are now explor-
ing ways to share this IP to help other solution providers to do
the same.
One of the key drivers for our success in the U.S. has been the
focus on growing our Benchmarking and Executive Advisory
”wedge offerings”, which we accomplished by expanding our
dedicated sales channel and our offerings. Both of these of-
ferings are highly differentiated in the marketplace and pro-
vide significant access to leading global companies and cre-
ate cross-selling leverage for our other business transformation
and technology services.
The other key driver of our growth strategy has been to contin-
ue to expand our market leading Enterprise Performance Man-
agement business. In 2014, we were recognized as Oracle’s
top EPM influence partner of the year in North America for the
second year in a row. EPM now represents approximately 46%
of our North American Hackett Group revenues. Additionally,
our new EPM Application Managed Services group provides
us with both the opportunity for recurring application man-
aged services (“AMS”) revenue as well as the opportunity to
leverage offshore resources to deliver our EPM implementa-
tion services more cost effectively. Both the extension of ca-
pability in this area and the ability to leverage highly trained
offshore resources very effectively add strongly to our ability
to transform and implement EPM solutions. Equally important
has been the significant AMS capability we have built in our
SAP ERP practice. The AMS capability in both our EPM and
ERP Groups allows us to maintain a post implementation re-
curring revenue relationship with clients which has strengthen
both of these groups significantly.
As we said throughout 2014, we believe that some of our in-
ternational volatility may be a result of a more limited solution
offering in Europe. We will continue to invest in the expansion
of our EPM capability in Europe. We believe by more closely
mirroring our US capabilities in Europe we can improve our
ability to grow in Europe and also further strengthen our glob-
al delivery capabilities which are important for large multi-
national engagements.
Our strategy is to continue to build our brand by building
new offerings and capabilities around our unmatched
IP
in order to serve clients strategically and, whenever possible,
continuously.
We believe clients that leverage our IP are more likely to allow
us to serve them more broadly. IP-based services enhance our
opportunities to serve clients remotely, continuously and more
profitably. Our goal is to use our unique
IP
to establish a
strategic relationship with our clients directly or through
strategic alliances and channels and to further use that entry
point to introduce our business transformation and technology
consulting and AMS capabilities. Specific to new channels
we are now seeing new opportunities to use our IP to do
more than enable us to differentiate our offerings and improve
the sale and delivery of our offerings. We now also believe we
can use our IP to help others sell and deliver their offerings more
powerfully and thereby extending their value add delivered to
clients. These opportunities are in the early stage but we hope
to be able to provide specific examples in the upcoming year.
s,
This strategy would allow us to increase our client base, profit-
ability and increase revenue per client. It would also represent
an increase in recurring revenue due to the way these services
are provided and contracted. The best example of this strategy
continues to be the revenue leverage we have experienced
from our Executive Advisory client base.
Specific to Executive Advisory client base, our long-term goal
is to be able to ascribe an increasing percentage of our to-
tal annual revenues to clients who are continuously engaged
with us through our Executive Advisory programs, and eventu-
ally through our Hackett Performance Exchange. At the end
of 2014 our Executive Advisory members totaled 930
across 285 clients. or the year, over 40% of our Hackett
sales were to
Advisory clients, which continues to
Executive
the leverage of this entry or IP wedge offering.
demonstrate
F
On the Hackett Performance Exchange front, we continue to
build our pipeline as we learn how best to sell and leverage
this new capability. We also continue to explore alliances
that could allow us to expand the sale of this unique offering.
We now know that this new platform will become a critical
component of all of our Benchmarking offerings over the next
several years and will help us further differentiate our market
leading Benchmarking offerings
Lastly, even though we believe that we have the client base,
offerings and market coverage to grow our business, we con-
tinue to look for acquisitions and alliances that can strategical-
ly leverage our IP and add scope, scale or capabilities which
can accelerate our growth.
In summary, we reported strong annual results. We are also
optimistic that the changes and investments we have made
extending
throughout the year, in our IP, our sales channel, and in
EPM capabilities will lead to improving results.
our
More importantly, I believe that we have never been in a bet-
ter position strategically. The unique value of our IP and the
potential it offers when coupled with our terrific talent and
improving execution are strong proof points.
As always, let me close by thanking our associates and share-
holders for your ongoing support and commitment to our or-
ganization.
Ted A. Fernandez
Chairman & CEO
The Hackett Group, Inc.
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 January 2, 2015
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 No.)
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 Website, 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:95) 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.
Large Accelerated Filer (cid:133)
Non-accelerated Filer (cid:133) (Do not check if a smaller reporting company)
Accelerated Filer
(cid:95)
Smaller reporting company (cid:133)
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 $132,322,230 on June 27, 2014 based on the last
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 10, 2015 was 29,842,993.
DOCUMENTS INCORPORATED BY REFERENCE
Part III of this Annual Report on Form 10-K incorporates by reference certain portions of the registrant’s proxy statement for its 2015 Annual Meeting of
Shareholders filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.
THE HACKETT GROUP, INC.
TABLE OF CONTENTS
FORM 10-K
PART I
ITEM 1.
Business
ITEM 1A. Risk Factors
ITEM 1B. Unresolved Staff Comments
ITEM 2.
Properties
ITEM 3.
Legal Proceedings
ITEM 4. Mine Safety Disclosures
ITEM 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
PART II
Securities
ITEM 6.
Selected Financial Data
ITEM 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
ITEM 7A. Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
Financial Statements and Supplementary Data
ITEM 9.
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. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
ITEM 13. Certain Relationships and Related Transactions, and Director Independence
ITEM 14. Principal Accounting Fees and Services
ITEM 15. Exhibits and Financial Statement Schedules
PART IV
Signatures
Index to Exhibits
Page
3
9
12
12
12
12
13
16
17
24
25
51
51
53
55
55
55
55
55
55
56
57
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 could 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, foreign
exchange rates and interest rates. An additional description of our risk factors is described in Part I – 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.
BUSINESS
GENERAL
PART I
In this Annual Report on 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. We were originally incorporated on April 23, 1997.
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 11,000 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 (“Archstone”), Hackett offers Strategy and
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 Enterprise Resource Planning Solutions group (“ERP Solutions”), Hackett offers business application
consulting services that help maximize returns on investments for SAP technologies. Hackett has worked with over 5,000 major
corporations and government agencies, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and
51% of the FTSE 100.
Although we continued to experience gradual economic improvement in the U.S. during 2014, corporate decision making
in Western Europe decision continued to be volatile throughout the year. As we enter 2015, we expect U.S. market conditions to
continue to be healthy. Relative to International, which is primarily Western Europe, we expect activity to be stable to improving.
However, we continue to expect decision making to remain volatile when compared to the U.S. marketplace. We expect 2.0% to
3.0% GDP growth in the U.S.; however, we remain cautious about our expectations for improved demand in Western Europe but we
know most recent growth revision for the region calls for 1+% GDP growth. Global organizations continue to recognize the need to
drive sustainable productivity improvement as they look to be competitive in the growing but complex global economy. Global
growth opportunities require organizations to build global standards and to drive operating excellence based on the regional growth
opportunities defined by the markets that they serve. We believe that many organizations have yet to make the global and regional
organizational changes commensurate with the varying regional market conditions. We believe that our offerings are well aligned with
the demands that all organizations will continue to experience during a period of slow and volatile economic growth. We will continue
to ensure that our clients understand that our unique intellectual capital along with our expanding implementation capabilities will
enable them to identify and implement necessary performance improvement initiatives in a targeted and timely manner.
Specifically, organizations must make certain 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 while both leveraging global standards and resources, and executing based on the specific
regional requirements. 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, we believe that our Company is
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 an
actionable 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 organizational 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 utilize Capability Maturity Models to better understand
our client’s capabilities and organizational maturity, so that we can determine the level of performance that they can realistically
pursue. In addition, we utilize Hackett’s 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 on a project to ensure that best practices are identified and implemented, whenever
possible. This coordinated approach addresses people, process, information and technology.
Because Hackett solutions are based on Hackett-Certified™ best 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 and reduced implementation risk.
The BPI approach often begins with a clear understanding of current performance, which is normally 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 seven key business components which include organization and
governance, process design, process sourcing, service placement, information, enabling technology and skills and talent, 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™ best 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 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 best of breed software, while limiting customization. BPI establishes the foundation for improved
performance.
We believe the combination of optimized processes, best practice-based business applications 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 international accounting firms; international, national and regional strategic consulting and systems
implementation 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 acknowledge that
many of our competitors are larger but 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 and Executive Advisory offerings.
In spite of our size relative to our competitor group, we believe our competitive position is distinct. With Hackett’s best
practice intellectual capital and its direct link to our BPI approach, we believe we can empirically and objectively assist our clients.
Our ability to apply best practices to client operations via proven techniques is at the core of our competitive standing.
Similarly, we believe that Hackett is the definitive source for best practice performance metrics and strategies. Hackett is
the only organization that has conducted more than 11,000 benchmark studies over 21 years at over 3,500 clients, generating
proprietary data sets spanning performance metrics and correlating best practices with superior performance. The combination of
4
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, 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. We believe that 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 client 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 upon
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. What is clearly different as we enter 2015 is that we now see the potential
to leverage our IP through new external channels. We are now exploring ways to use our IP to help others sell and deliver their
offerings, thereby extending the value add they deliver to their clients, and perhaps also providing us with an opportunity to
introduce our other services.
Introduce New IP–centric Offerings. We have developed a new performance management dashboard called the “Hackett
Performance Exchange”,” HPE.” In 2013 and 2012, we worked closely with our participating launch member clients to validate
our targeted functionality and value proposition. This new dashboard offering should allow us to benchmark and monitor the
performance improvement opportunity of key operating processes. This offering securely extracts operating information directly
from a client’s ERP system which allows them to measure and compare their performance to Hackett peer and world class
standards. For clients that run current versions of Oracle and SAP software, this solution is fully automated, requiring limited
client time to set up and populate and also provides for electronic access over various devices. In addition to HPE, we also
continue to look for ways to leverage our proprietary “IP” through new offerings and other external channels.
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 and performance gains and improved returns on their organizational and
technology investments. Many 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 innovation in business process
automation. In 2015, we expect to further invest in the automation and further integration of our various metrics, best practices
and best practice acceleration tools.
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 growth will be our ability to attract, retain, develop and motivate associates. We continue to
invest in associate development programs that are specifically targeted to improve our go-to-market and delivery execution.
Leverage our offshore capabilities. Leveraging an offshore resource capability to support the delivery of our offerings has been
a key strategy for our organization. Our facilities in Hyderabad, India and Montevideo, Uruguay (Oracle EPM business acquired
in 2014) allow us to increase operational efficiencies and build targeted key capabilities that can appropriately support the
delivery of our offerings and internal functional teams.
5
•
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 plan to pursue acquisitions that are accretive or have strong
growth prospects, and 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.
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 5,000 organizations globally. This includes 93% of the Dow Jones Industrials, 86% of the Fortune 100,
87% of the DAX 30 and 51% of the FTSE 100. Ongoing studies are conducted in a wide range of areas, including selling, general and
administrative, finance, human resources, information technology, procurement, enterprise performance management, shared service
centers and working capital management. Hackett has identified over 2,000 best practices for over 105 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 flow 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.
ERP Solutions
Our ERP Solutions professionals help clients choose and deploy the software applications that best meet their needs and
objectives. Our expertise is focused on SAP ERP (with primary focus on Life Sciences and Consumer Goods). 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 ERP
Solutions 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 off-shore application development and
6
Application Maintenance and Support (“AMS”) services. These services include post-implementation support for select business
application and infrastructure platforms. Our ERP Solutions group also includes a division responsible for the sale of the SAP suite of
ERP applications.
During the quarter ended March 29, 2013, we exited the Oracle ERP implementation business practice, which is separate
and distinct from our Oracle Enterprise Performance Management (“EPM”) practice.
See Note 1 and Note 17 to our consolidated financial statements included in this Annual Report on Form 10-K regarding
segment reporting and geographic and service group information.
CLIENTS
We focus on developing long-term client relationships with Global 2000 firms and other sophisticated buyers of business
and IT consulting services. During 2014, 2013 and 2012, our ten most significant clients accounted for 21%, 20% and 18% of
revenue, respectively, and during each year one client generated 3% of total revenue for each year. 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 that 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. We have
a regional sales and market development effort in both North America and Europe, so we can better coordinate the sales and
marketing messages from our 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. Our
technology 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, 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
thereby helping us expand our business within existing accounts.
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.
7
•
Strategic Alliance Accounts are accounts that allow us to partner with organizations of greater scale or different skill sets
or with software developers enabling 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, our partners and 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 January 2, 2015, we had 904 associates, excluding subcontractors, 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 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 Councils, which operate in each of the cities where we have offices, is to strive to make 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.
INTELLECTUAL PROPERTY
We have obtained trademark registrations for The Hackett Group and Book of Numbers and various other names and
logos, and we own registrations for certain of our other trademarks in the United States and abroad. We believe that the establishment
of these marks is an important part to our strategy of expanding the brand recognition we have built around our empirical knowledge
capital.
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 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 charters for the Audit
Committee, Compensation Committee and Nominating and Governance 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.
8
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 and regional economic conditions.
Global and regional economic conditions may affect our clients’ businesses and the markets they serve. A substantial or
prolonged economic downturn, weak or uncertain economic conditions or similar factors 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.
If we are unable to maintain our reputation and expand our brand 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 2014, our ten largest clients accounted for 21% 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.
9
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 acquire in the future may demand time and attention from our senior management.
Integrating businesses we 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.
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. We may be
unsuccessful in negotiating with clients regarding changes to the cost, scope or duration of specific engagements. To the extent we do
10
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.
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 a 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 expected 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 secrets, 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 our IP, 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;
11
•
•
•
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, the Euro and the Australian Dollar. 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.
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.
ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal executive office is 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, 2020. We also have offices in Atlanta, Chicago, New York,
Philadelphia, San Francisco, Frankfurt, London, Amsterdam, Paris, Montevideo, Hyderabad and Sydney. As of January 2, 2015, we
had operating leases that expire on various dates through December 2022. 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.
MINE SAFETY DISCLOSURES
Not applicable.
12
ITEM 5.
MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND
ISSUER PURCHASES OF EQUITY SECURITIES
Our common stock is traded under the NASDAQ symbol, "HCKT". 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:
PART II
2014
High
Low
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2013
$
$
$
$
$
$
$
$
9.37 $
6.41 $
6.48 $
6.30 $
5.82
5.80
5.78
5.76
High
Low
7.48 $
7.13 $
5.30 $
5.09 $
5.47
5.14
4.42
3.89
The closing sale price for the common stock on March 10, 2015, was $8.97.
As of March 10, 2015, there were 284 holders of record of our common stock and 29,842,993 shares of common stock
outstanding.
Securities Authorized for Issuance under Equity Compensation Plans
Information appearing under the caption “Equity Compensation Plan Information” in the 2015 Proxy Statement is hereby
incorporated by reference.
13
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(cid:3)(cid:3)
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(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:7)(cid:19)(cid:17)(cid:20)(cid:19)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)(cid:82)(cid:85)(cid:3)(cid:7)(cid:22)(cid:17)(cid:20)(cid:3)(cid:80)(cid:76)(cid:79)(cid:79)(cid:76)(cid:82)(cid:81)(cid:3)(cid:87)(cid:82)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:75)(cid:82)(cid:79)(cid:71)(cid:72)(cid:85)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:85)(cid:72)(cid:70)(cid:82)(cid:85)(cid:71)(cid:3)(cid:68)(cid:86)(cid:3)(cid:82)(cid:73)(cid:3)(cid:70)(cid:79)(cid:82)(cid:86)(cid:72)(cid:3)(cid:82)(cid:73)(cid:3)(cid:69)(cid:88)(cid:86)(cid:76)(cid:81)(cid:72)(cid:86)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:20)(cid:19)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:22)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)(cid:39)(cid:72)(cid:70)(cid:72)(cid:80)(cid:69)(cid:72)(cid:85)(cid:3)(cid:21)(cid:19)(cid:15)(cid:3)
(cid:21)(cid:19)(cid:20)(cid:21)(cid:15)(cid:3)(cid:85)(cid:72)(cid:86)(cid:83)(cid:72)(cid:70)(cid:87)(cid:76)(cid:89)(cid:72)(cid:79)(cid:92)(cid:17)(cid:3)(cid:54)(cid:88)(cid:69)(cid:86)(cid:72)(cid:84)(cid:88)(cid:72)(cid:81)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:45)(cid:68)(cid:81)(cid:88)(cid:68)(cid:85)(cid:92)(cid:3)(cid:21)(cid:15)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:15)(cid:3)(cid:90)(cid:72)(cid:3)(cid:68)(cid:81)(cid:81)(cid:82)(cid:88)(cid:81)(cid:70)(cid:72)(cid:71)(cid:3)(cid:68)(cid:81)(cid:3)(cid:76)(cid:81)(cid:70)(cid:85)(cid:72)(cid:68)(cid:86)(cid:72)(cid:3)(cid:76)(cid:81)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:3)(cid:73)(cid:85)(cid:82)(cid:80)(cid:3)(cid:7)(cid:19)(cid:17)(cid:20)(cid:21)(cid:3)(cid:87)(cid:82)(cid:3)(cid:7)(cid:19)(cid:17)(cid:20)(cid:23)(cid:3)(cid:83)(cid:72)(cid:85)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:15)(cid:3)(cid:90)(cid:75)(cid:76)(cid:70)(cid:75)(cid:3)
(cid:90)(cid:76)(cid:79)(cid:79)(cid:3)(cid:69)(cid:72)(cid:3)(cid:83)(cid:68)(cid:76)(cid:71)(cid:3)(cid:82)(cid:81)(cid:3)(cid:68)(cid:3)(cid:86)(cid:72)(cid:80)(cid:76)(cid:16)(cid:68)(cid:81)(cid:81)(cid:88)(cid:68)(cid:79)(cid:3)(cid:69)(cid:68)(cid:86)(cid:76)(cid:86)(cid:3)(cid:76)(cid:81)(cid:3)(cid:21)(cid:19)(cid:20)(cid:24)(cid:17)(cid:3)(cid:50)(cid:88)(cid:85)(cid:3)(cid:70)(cid:85)(cid:72)(cid:71)(cid:76)(cid:87)(cid:3)(cid:68)(cid:74)(cid:85)(cid:72)(cid:72)(cid:80)(cid:72)(cid:81)(cid:87)(cid:3)(cid:70)(cid:82)(cid:81)(cid:87)(cid:68)(cid:76)(cid:81)(cid:86)(cid:3)(cid:85)(cid:72)(cid:86)(cid:87)(cid:85)(cid:76)(cid:70)(cid:87)(cid:76)(cid:82)(cid:81)(cid:86)(cid:3)(cid:82)(cid:81)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:68)(cid:69)(cid:76)(cid:79)(cid:76)(cid:87)(cid:92)(cid:3)(cid:87)(cid:82)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:72)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:68)(cid:81)(cid:71)(cid:3)
(cid:85)(cid:72)(cid:83)(cid:88)(cid:85)(cid:70)(cid:75)(cid:68)(cid:86)(cid:72)(cid:3)(cid:86)(cid:75)(cid:68)(cid:85)(cid:72)(cid:86)(cid:17)(cid:3)(cid:3)(cid:55)(cid:75)(cid:72)(cid:3)(cid:71)(cid:72)(cid:70)(cid:79)(cid:68)(cid:85)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:71)(cid:76)(cid:89)(cid:76)(cid:71)(cid:72)(cid:81)(cid:71)(cid:86)(cid:3)(cid:86)(cid:75)(cid:68)(cid:79)(cid:79)(cid:3)(cid:68)(cid:87)(cid:3)(cid:68)(cid:79)(cid:79)(cid:3)(cid:87)(cid:76)(cid:80)(cid:72)(cid:86)(cid:3)(cid:69)(cid:72)(cid:3)(cid:86)(cid:88)(cid:69)(cid:77)(cid:72)(cid:70)(cid:87)(cid:3)(cid:87)(cid:82)(cid:3)(cid:87)(cid:75)(cid:72)(cid:3)(cid:73)(cid:76)(cid:81)(cid:68)(cid:79)(cid:3)(cid:71)(cid:72)(cid:87)(cid:72)(cid:85)(cid:80)(cid:76)(cid:81)(cid:68)(cid:87)(cid:76)(cid:82)(cid:81)(cid:3)(cid:82)(cid:73)(cid:3)(cid:82)(cid:88)(cid:85)(cid:3)(cid:37)(cid:82)(cid:68)(cid:85)(cid:71)(cid:3)(cid:82)(cid:73)(cid:3)(cid:39)(cid:76)(cid:85)(cid:72)(cid:70)(cid:87)(cid:82)(cid:85)(cid:86)(cid:3)(cid:87)(cid:75)(cid:68)(cid:87)(cid:3)(cid:68)(cid:3)
(cid:3)
(cid:20)(cid:23)(cid:3)
dividend is prudent at that time in consideration of the needs of the business and other factors including the ability to pay dividends
under our credit agreement.
Purchases of Equity Securities
On October 15, 2013, we completed a tender offer to purchase approximately 1.0 million shares of our common stock at a
purchase price of $7.00 per share, for an aggregate cost of $6.9 million, excluding fees and expenses related to the tender offer. The
1.0 million shares accepted for purchase represented approximately 3% of our issued and outstanding shares of common stock at that
time. See Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K.
On March 21, 2012, we completed a tender offer to purchase 11.0 million shares of our common stock at a purchase price
of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses related to the tender offer. The
11.0 million shares accepted for purchase represented approximately 27% of our issued and outstanding shares of common stock at
that time. See Note 12 to our consolidated financial statements included in this Annual Report on Form 10-K.
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, excluding the above mentioned tender offer transaction. The repurchase plan was first announced
on July 30, 2002. 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 January
2, 2015:
Period
Balance as of December 27, 2013
December 28, 2013 to September 26, 2014
September 27, 2014 to October 24, 2014
October 25, 2014 to November 21, 2014
November 22, 2014 to January 2, 2015
Total Number
of Shares
Purchased
Average
Price Paid
per Share
— $
1,692,254 $
108,113 $
— $
— $
1,800,367 $
—
6.07
6.08
—
—
6.07
Total Number
of Shares Purchased
as Part of Publicly
Announced
Program
Maximum Dollar
Value of Shares That
May Yet be Purchased
Under the
Program
— $
1,692,254 $
108,113 $
— $
— $
1,800,367
4,594,028
4,321,933
3,665,104
3,665,104
3,665,104
During 2014, our Board of Directors authorized an additional $10.0 million to repurchase shares of our common stock. As
of January 2, 2015, the cumulative authorization was for up to $95.0 million with cumulative purchases under the plan of $91.3
million, leaving $3.7 million available for future purchases.
15
ITEM 6.
SELECTED FINANCIAL DATA
The following consolidated financial data sets forth our selected financial information as of and for each of the years in
the five-year period ended January 2, 2015, and has been derived from our audited consolidated financial statements. The selected
consolidated financial data should be read together with our consolidated financial statements, related notes thereto and with
“Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
Consolidated Statement of Operations Data:
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue (1)
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses (2)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs
Bargain purchase gain from acquisition (3)
Restructuring costs (benefit)
Total costs and operating expenses
Operating income
Other income (expense):
Non-cash acquisition earn-out shares re-measurement gain
Interest (expense) income, net (4)
Income from continuing operations before income taxes
Income tax expense (benefit) (5)
Income from continuing operations
(Loss) income from discontinued operations
Net income
Basic net income per common share:
Income per common share from continuing operations
(Loss) income per common share from discontinued operations
Net income per common share
Diluted net income per common share:
Income per common share from continuing operations
(Loss) income per common share from discontinued operations
Net income per common share
Weighted average common shares outstanding:
Basic
Diluted
Consolidated Balance Sheet Data:
Cash and cash equivalent
Restricted cash
Working capital
Total assets
Long-term debt
Shareholders' equity
Dividends paid per share
January 2,
2015
December 27, December 28, December 30, December 31,
Year Ended
2013
2012
(in thousands, except per share data)
2011
2010
$
213,519 $
23,218
236,737
200,391 $
23,439
223,830
199,749 $
22,987
222,736
186,676 $
22,387
209,063
171,302
18,966
190,268
138,958
23,218
162,176
61,386
(3,015)
3,604
224,151
12,586
—
(620)
11,966
2,255
9,711
—
9,711 $
0.34 $
—
0.34 $
0.33 $
—
0.33 $
130,456
23,439
153,895
54,208
—
—
208,103
15,727
—
(465)
15,262
6,398
8,864
(135)
8,729 $
0.29 $
—
0.29 $
0.28 $
(0.01)
0.27 $
125,912
22,987
148,899
56,997
—
(211)
205,685
17,051
—
(610)
16,441
(478)
16,919
(222)
16,697 $
0.54 $
(0.01)
0.53 $
0.51 $
(0.01)
0.50 $
115,719
22,387
138,106
54,058
—
—
192,164
16,899
—
33
16,932
(4,495)
21,427
342
21,769 $
0.54 $
0.01
0.55 $
0.51 $
0.01
0.52 $
105,334
18,966
124,300
53,774
—
—
178,074
12,194
1,727
22
13,943
(26)
13,969
258
14,227
0.34
0.01
0.35
0.33
0.01
0.34
28,718
29,881
30,283
32,116
31,704
33,511
39,895
41,875
40,349
42,372
14,608 $
— $
18,246 $
152,786 $
18,263 $
89,788 $
0.12 $
18,199 $
354 $
25,897 $
150,318 $
19,029 $
93,176 $
0.10 $
16,906 $
683 $
23,761 $
153,921 $
22,105 $
94,726 $
0.10 $
32,936 $
885 $
42,013 $
167,426 $
— $
130,248 $
— $
25,337
1,610
27,243
150,801
—
113,240
—
$
$
$
$
$
$
$
$
$
$
$
$
(1)
(2)
(3)
(4)
(5)
In January 2014, we acquired Technolab, an EPM AMS business. As a result of the acquisition, our 2014 results of operations
included $10.3 million in total revenue from Technolab.
Fiscal year 2014 includes acquisition-related compensation expense of $4.3 million from the acquisition of Technolab, an EPM
AMS business.
Fiscal year 2014 includes a bargain purchase gain from the acquisition of Technolab, an EPM AMS business. See Note 16 to
our consolidated statements included in this Annual Report.
Interest expense relates to the Credit Facility which was entered into in February 2012.
Fiscal years 2012 and 2011 include the benefit for the release of $6.7 million and $5.3 million, respectively, of deferred income
tax asset valuation allowance.
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 11,000 benchmark studies over 21 years at over 3,500 of the world’s leading companies.
Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation working
capital management and technology solutions, with corresponding offshore support.
In the following discussion, “Hackett” represents our total company. “The Hackett Group” encompasses our
Benchmarking, Business Transformation, Executive Advisory, Enterprise Performance Management (“EPM”) and EPM Application
Maintenance and Support (“AMS”) groups. “ERP Solutions” encompasses our SAP ERP Technology and SAP Maintenance groups.
During the first quarter of 2013, we exited the Oracle ERP implementation practice, which is separate and distinct from
our Oracle EPM practice. The transaction was not material to our consolidated financial statements, however, the following
information has been recast to exclude activity related to the business.
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 (“GAAP”). 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 on issues that are 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. 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 be recognized 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, 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. These costs are included in total cost of service.
Revenue from advisory services is recognized ratably over the life of the client agreements.
Additionally, we earn revenue from the resale of software licenses and maintenance contracts. Revenue for the resale 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.
Revenue for contracts with multiple elements is allocated based on the respective selling price of the individual elements.
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.
17
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, 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 collectability. 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)
Long-lived assets are 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.
Business Combinations
We account for business combinations using the acquisition method of accounting. This method requires the use of fair
values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at
acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are
recorded as expenses as they are incurred. Fair values are subject to refinement for up to one year after the closing date of an
acquisition as information relative to closing date fair values become available. A bargain purchase gain on an acquisition occurs
when the net of the estimated fair value of the assets acquired and liabilities assumed exceeds the consideration paid.
Goodwill and Other Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are 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 evaluations. 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. The reporting units are The Hackett Group
(including Benchmarking, Business Transformation, Business Transformation EPM, Strategy and Operations and Executive Advisory
Programs) and Hackett Technology Solutions (including SAP ERP and AMS, Oracle EPM and EPM AMS). In assessing the
recoverability of goodwill and intangible assets, we make estimates based on 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 January 2, 2015, neither of our reporting units were at risk of failing step one.
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. 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 recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of
those awards, with limited exceptions, over the requisite service period.
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
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.
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 when 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 GAAP, 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. 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 GAAP.
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 2014, 2013 and 2012 ended on January 2, 2015, December 27, 2013 and
December 28, 2012, respectively. References to a year included in this document refer to a fiscal year rather than a calendar year.
Adjusted non-GAAP information is provided to enhance the understanding of the Company’s financial performance and is
reconciled to the Company’s GAAP information in the tables below. In our quarterly earnings announcements, we refer to adjusted
non-GAAP information as “pro forma”, which is unaudited.
References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense, intangible asset
amortization expense, other one-time acquisition related income and expense, restructuring charges and assumes a normalized tax rate.
The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue
before reimbursements of such results (in thousands, except per share amounts), as well as related adjusted non-GAAP information.
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue
Costs and expenses:
Cost of service:
Personnel costs
Non-cash stock compensation expense
Acquisition-related stock compensation expense
Acquisition consideration reflected as compensation expense
Reimbursable expenses
Total cost of service
Selling, general and administrative costs
Non-cash stock compensation expense
Acquisition related costs
Amortization of intangible assets
Twelve Months Ended
January 2,
2015
December 27,
2013
December 28,
2012
$
213,519 100%
23,218
236,737
$
200,391 100%
$
199,749 100%
23,439
223,830
22,987
222,736
131,962 62%
2,656
900
3,440
23,218
162,176
56,240 26%
2,814
120
2,212
127,172 63%
122,922 62%
2,453
831
-
23,439
153,895
2,198
792
-
22,987
148,899
50,583 25%
53,926 27%
2,835
188
602
2,524
-
547
Total selling, general, and administrative expenses
61,386 29%
54,208 27%
56,997 29%
Bargain purchase gain from acquisition
Restructuring costs (benefit)
Total costs and operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Income from continuing operations before income taxes
Income tax expense (benefit)
Income from continuing operations
Loss from discontinued operations
Net income
Diluted net income per common share
(3,015)
3,604
224,151
12,586 6%
6
(626)
11,966 6%
2,255 1%
9,711
-
-
-
208,103
15,727 8%
7
(472)
15,262 8%
6,398 3%
8,864
(135)
$
$
9,711 5%
$
8,729 4%
0.33
$
0.27
$
$
-
(211)
205,685
17,051 9%
20
(630)
16,441 8%
(478) 0%
16,919
(222)
16,697 8%
0.50
20
Twelve Months Ended
January 2,
2015
December 27,
2013
December 28,
2012
Adjusted non-GAAP data (unaudited):
Income from continuing operations before income taxes
Bargain purchase gain from acquisition
Non-cash stock compensation expense
Acquisition-related stock compensation expense
Acquisition-related compensation expense
Acquisition-related costs
Restructuring costs (benefit)
Amortization of intangible assets
Adjusted non-GAAP income before income taxes
Adjusted non-GAAP income tax expense
Adjusted non-GAAP net income
Adjusted non-GAAP diluted net income per share
Adjusted non-GAAP gross margin (1)
$
$
$
$
11,966
(3,015)
5,470
900
3,440
120
3,604
2,212
24,697
7,847 32%
16,850
0.56
$
$
$
15,262
$
16,441
-
5,288
831
-
188
-
602
22,171
8,868 40%
-
4,722
792
-
-
(211)
547
22,291
8,916 40%
13,303
$
13,375
81,557 38%
$
73,219 37%
0.41
$
$
0.40
76,827 39%
(1) Adjusted non-GAAP gross margin is revenue before reimbursable expenses less personnel costs before reimbursable expenses.
Comparison of 2014 to 2013
Overview. We are a global company with operations primarily in the United States and Western Europe. Our revenue is
denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by
currency exchange rate fluctuations. The exchange rate fluctuations did not have a significant impact on comparisons between 2014
and 2013. Revenues are analyzed based on geographic location of engagement team personnel.
Revenue. Our 2013 results were severely disrupted in the fourth quarter by the significant drop in European revenues
offset the solid gains achieved in the U.S. during that year. The weak European performance carried into 2014, so we acted swiftly and
took the necessary actions in Europe to reduce our operating costs consistent with the marketplace’s demand volatility. In the first
quarter we also closed an important acquisition in the Application Managed Services (“AMS”) area which strongly complements our
market leading Enterprise Performance Management (“EPM”) transformation and technology implementation capabilities. These
actions, along with other investments we made in 2013 to increase our sales in our strategically important Benchmarking and
Executive Advisory groups, which further impacted the performance of our Business Transformation groups in the U.S., helped to
position us for success in 2014.
Total Company revenue increased 6% to $236.7 million in 2014 from $223.8 million in 2013. Excluding the acquisition
of the EPM AMS business purchased in 2014, North American revenues were up approximately 4%, with International revenues down
9% for the fiscal year. The Company’s international revenues accounted for 19% and 20% in 2014 and 2013, respectively.
Reimbursements as a percentage of total revenue were 10% during both 2014 and 2013. In 2014 and 2013, no customer
accounted for more than 5% of our total revenue.
Total Cost of Service. Cost of service consists of personnel costs, which are comprised of salaries, benefits incentive
compensation for consultants and subcontractor fees; acquisition related compensation costs relating to the EPM AMS business
acquired in January 2014; non-cash stock compensation expense; and reimbursable expenses associated with projects.
Personnel costs increased 4% to $132.0 million, or 62% of net revenues, in 2014 from $127.2 million, or 63% of net
revenues in 2013. The increase was primarily a result of the increased headcount due to the acquisition of the EPM AMS business in
January 2014. Excluding the incremental personnel costs as a result of the acquisition, total personnel costs decreased less than 1% to
$126.9 million, or 62% of net revenues. This decrease was primarily due to lower European personnel costs and the transition to a
more traditional resource model.
As a result, total Company adjusted non-GAAP gross margin was 38% of net revenues, as compared to 37% in the
previous year.
21
Selling, General and Administrative. Selling, general and administrative costs increased 11% to $56.2 million in 2014, or
26% of net revenues, from $50.6 million, or 25% of net revenues, in 2013. The one percent increase is primarily due to increased
incentive compensation accruals and selling costs commensurate with our improved Company performance.
Amortization of Intangible Assets. Amortization expense increased to $2.2 million in 2014, as compared to $0.6 million in
2013, as a result of intangible assets acquired as part of the EPM AMS acquisition in January 2014.
Bargain Purchase Gain from Acquisition. During the first quarter of 2014, we acquired and accounted for certain assets
and liabilities of Technolab International Corporation (“Technolab”). At closing, the Seller received $3.0 million in cash, not subject
to vesting, and $1.0 million in stock, subject to service vesting. Additionally, the seller had the ability to earn up to $8.0 million in a
combination of cash, not subject to service vesting, and stock, subject to service vesting, based on a one year profitability based earn-
out. Subsequent to year end, the amounts paid to the Seller at closing in stock, as well as the amounts earned as part of the earn-out
due to the Seller in cash, not subject to service vesting, and stock, subject to service vesting, which were originally treated as purchase
consideration were re-characterized and accounted for as compensation expense.
After these adjustments, of the total $12.0 million of Technolab purchase consideration, we reflected $3.0 million as
purchase consideration and will reflect $9.0 million as compensation expense, of which $4.3 million was recognized in 2014. These
adjustments resulted in the bargain purchase gain of $3.0 million, which is reflected in our financial statements.
Restructuring Costs. During 2014, we recorded restructuring costs of $3.6 million, primarily for reductions in consultants
and office leases in Europe. These actions were taken as a result of our continued volatility in demand in our European markets.
Income Taxes. In 2014, we recorded income tax expense of $2.3 million, which reflected an effective tax rate of 18.8% for
certain federal, foreign and state taxes. Excluding the one-time purchase accounting benefit from the 2014 acquisition, our effective
tax rate was 30.7%. In 2013, we recorded income tax expense of $6.4 million, which reflected an effective tax rate of 42.3% for
certain federal, foreign and state taxes. The decrease from 2014 was primarily the result of a more favorable geographical mix of
taxable income.
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.
For tax purposes, as of January 2, 2015, we had a total of $23.7 million of U.S. federal and foreign net operating loss
carryforwards of which $12.0 million related to U.S. and $11.7 million relate to foreign operations, primarily in the U.K. Additionally,
as of January 2, 2015, we had $3.1 million of U.S. state net operating loss carryforwards.
Comparison of 2013 to 2012
Overview. Our revenue is denominated in multiple currencies, mostly the U.S. Dollar, British Pound, Euro and Australian
Dollar, and as a result is affected by currency exchange rate fluctuations. The exchange rate fluctuations did not have a significant
impact on comparisons between 2013 and 2012.
Revenue. Total Company revenue increased slightly to $223.8 million in 2013, from $222.7 million in 2012. After solid
performance through the first three quarters of the fiscal year, weak performance from our European and Australian operations offset
solid gains achieved in North America. We experienced improvements in our Hackett U.S. business throughout the year, with growth
across most of our groups. This improvement was somewhat offset by slower growth from our ERP group.
The Company's 2013 North American revenue increased 4% from 2012, while the international revenue decreased 12%
during the same time period. The Company’s international revenue, accounted for 20% and 23% of total Company revenue in 2013
and 2012, respectively.
Reimbursements as a percentage of total revenue were 10% during both 2013 and 2012. In 2013 and 2012, no customer
accounted for more than 5% of our total revenue.
Total Cost of Service. Cost of service consists of personnel costs, which are comprised of salaries, benefits incentive
compensation for consultants, subcontractor fees, and reimbursable expenses associated with projects.
Personnel costs increased 3% to $127.2 million, or 63% of net revenues, in 2013 from $122.9 million, or 62% of net
revenues in 2012. The increase in personnel costs was primarily due to greater utilization of subcontractors in our SAP ERP and
Oracle EPM technology implementation groups.
As a result, total Company adjusted non-GAAP gross margin was 37% of net revenues, as compared to 39% in the
previous year.
22
Selling, General and Administrative. Selling, general and administrative costs decreased 6% to $50.6 million in 2013 from
$53.9 million in 2012. As a percentage of revenue before reimbursements, selling, general and administrative costs decreased to 25%
in 2013 from 27% in 2012, primarily due to cost containment initiatives implemented in 2013.
Income Taxes. In 2013, we recorded income tax expense of $6.4 million, which reflected an effective tax rate of 42.3% for
certain federal, foreign and state taxes. In 2012, we reported an income tax benefit of $0.5 million. This resulted from a $6.7 million
tax benefit due to the release of valuation allowances related to the net operating loss carryforwards not previously recognized.
For tax purposes, as of December 27, 2013, we had a total of $36.7 million of U.S. and foreign net operating loss
carryforwards, of which $16.5 million related to U.S. and $20.2 million related to foreign operations, primarily in the U.K.
Additionally, as of December 27, 20013, we had $3.1 million of U.S. state net operating loss carryforwards.
Liquidity and Capital Resources
As of January 2, 2015 and December 27, 2013, we had $14.6 million and $18.2 million of cash and cash equivalents,
respectively.
The following table summarizes our cash flow activity (in thousands):
Cash flows provided by operating activities
Cash flows used in investing activities
Cash flows used in financing activities
Cash Flows from Operating Activities
Year Ended
January 2,
2015
December 27,
2013
$
$
$
16,012
$
(5,098) $
(14,535) $
24,259
(1,739)
(21,249)
Net cash provided by operating activities was $16.0 million in 2014, as compared to $24.3 million in 2013. The decrease
in the cash flows from operations primarily related to an increase in accounts receivable and unbilled revenue, and an additional
payroll cycle in 2014 resulting from a 53 week fiscal year, and higher incentive compensation payments when compared to the
previous year.
Cash Flows from Investing Activities
Net cash used in investing activities was $5.1 million in 2014, as compared to $1.7 million in 2013. The increase in the
usage of cash was primarily attributable to net cash consideration paid for the EPM AMS acquisition and higher capital expenditures
in 2014 related to the global rollout of new laptops for our associates, which occurs every three to four years.
Cash Flows from Financing Activities
Net cash used in financing activities was $14.5 million in 2014 and $21.2 million in 2013. In 2014, cash was utilized to
repurchase stock for $11.0 million, pay dividends of $3.5 million, and a net pay down debt of $1.0 million. In 2013, cash was utilized
to repurchase stock for $13.0 million, a net pay down of debt of $6.0 million, and dividend payments of $3.1 million. Strategically,
we continue to leverage our strong balance sheet and cash flow to return capital to our shareholders by repurchasing stock and by the
issuance of dividends when strategic acquisitions are not available.
We currently believe that available funds (including the cash on hand and funds available for borrowing under the
revolving line of credit of $20.0 million), 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.
23
There were no material capital commitments as of January 2, 2015. The following table summarizes our future Amended
Term Loan principal payments and lease commitments under our non-cancelable operating leases as of January 2, 2015 (in
thousands):
Contractual Obligations
Short-term debt obligations (1)
Long-term debt obligations (1)
Operating lease obligations
Total
Total
— $
18,263
8,027
26,290 $
$
$
Less Than
1 Year
1-3 Years
4-5 Years
More Than
5 Years
— $
—
1,933
1,933 $
— $
11,622
3,072
14,694 $
— $
6,641
1,871
8,512 $
—
—
1,151
1,151
(1)
Excludes interest charges on borrowings and the fee on the amount of any unused commitment that we may be obligated to pay
under our Revolver or Amended Term Loan, as such amounts vary and cannot be estimated. See Note 9 to our consolidated
financial statements included in this Annual Report on Form 10-K.
Off-Balance Sheet Arrangements
We did not have any off-balance sheet arrangements as of January 2, 2015.
Recently Issued Accounting Standards
For discussion of recently issued accounting standards, see Note 1 to our consolidated financial statements included in this
Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
As of January 2, 2015, our exposure to market risk related primarily to changes in interest rates and foreign currency
exchange rate risks.
Interest Rate Risk
Our exposure to market risk for changes in interest rates relates primarily to the Credit Facility, which is subject to
variable interest rates. The interest rates per annum applicable to loans under the Credit Facility will be, at our option, equal to either a
base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin
percentage. A 100 basis point increase in our interest rate under our Credit Facility would not have had a material impact on our 2014
results of operations.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates, as a portion of our revenue, expenses, assets
and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian
Dollar. 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, see “Item 1A. Risk Factors” in Part I of
this report.
24
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE HACKETT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Report of Independent Registered Public Accounting Firm
Consolidated Balance Sheets as of January 2, 2015 and December 27, 2013
Consolidated Statements of Operations for the Years Ended January 2, 2015, December 27, 2013 and December 28, 2012
Consolidated Statements of Comprehensive Income for the Years Ended January 2, 2015, December 27, 2013
and December 28, 2012
Consolidated Statements of Shareholders’ Equity for the Years Ended January 2, 2015, December 27, 2013
and December 28, 2012
Consolidated Statements of Cash Flows for the Years Ended January 2, 2015, December 27, 2013 and December 28,
2012
Notes to Consolidated Financial Statements
Schedule II—Valuation and Qualifying Accounts and Reserves
Page
26
27
28
29
30
31
32
50
25
Report of Independent Registered 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. as of January 2, 2015 and December 27,
2013 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of
the three years in the period ended January 2, 2015. In connection with our audits of the financial statements, we have also audited the
financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the
Company’s management. Our responsibility is to express an opinion on these 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 January 2, 2015 and December 27, 2013, and the results of its operations and its cash flows for each of the
three years in the period ended January 2, 2015, 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 January 2, 2015, based on criteria established in Internal Control –
Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our
report dated March 18, 2015 expressed an adverse opinion thereon.
Miami, Florida
March 18, 2015
/s/ BDO USA, LLP
Certified Public Accountants
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 $1,330 and $1,674
at January 2, 2015 and December 27, 2013, respectively
Deferred tax asset, net
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
Non-current deferred tax liability, net
Long-term debt
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; 53,203,395 and 52,143,103
shares issued at January 2, 2015 and December 27, 2013, respectively
Additional paid-in capital
Treasury stock, at cost, 23,989,776 and 22,189,409 shares at January 2, 2015 and
December 27, 2013, respectively
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
January 2,
2015
December 27,
2013
$
14,608 $
18,199
37,421
2,828
2,199
57,056
—
13,753
6,548
75,429
152,786
7,909 $
30,901
38,810
5,925
18,263
62,998
34,011
5,130
2,283
59,623
354
13,019
1,039
76,283
150,318
8,080
25,646
33,726
4,387
19,029
57,142
—
—
53
264,912
(91,335)
(77,677)
(6,165)
89,788
152,786 $
52
261,861
(80,406)
(83,880)
(4,451)
93,176
150,318
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
27
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except per share data)
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses
(includes $3,556, $3,284 and $2,990 of stock compensation
expense in 2014, 2013 and 2012, respectively)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs
(includes $2,814, $2,835 and $2,524 of stock compensation
expense in 2014, 2013 and 2012, respectively)
Bargain purchase gain from acquisition
Restructuring cost (benefit)
Total costs and operating expenses
Operating income
Other income (expense):
Interest income
Interest expense
Income from continuing operations before income taxes
Income tax expense (benefit)
Income from continuing operations
Loss from discontinued operations
Net income
Basic net income per common share:
Income per common share from continuing operations
Loss per common share from discontinued operations
Net income per common share
Diluted net income per common share:
Income per common share from continuing operations
Loss per common share from discontinued operations
Net income per common share
Weighted average common shares outstanding:
Basic
Diluted
January 2,
2015
Year Ended
December 27,
2013
December 28,
2012
$
213,519 $
23,218
236,737
200,391 $
23,439
223,830
199,749
22,987
222,736
138,958
23,218
162,176
130,456
23,439
153,895
125,912
22,987
148,899
61,386
(3,015)
3,604
224,151
12,586
54,208
—
—
208,103
15,727
6
(626)
11,966
2,255
9,711
—
9,711 $
0.34 $
—
0.34 $
0.33 $
—
0.33 $
7
(472)
15,262
6,398
8,864
(135)
8,729 $
0.29 $
—
0.29 $
0.28 $
(0.01)
0.27 $
56,997
—
(211)
205,685
17,051
20
(630)
16,441
(478)
16,919
(222)
16,697
0.54
(0.01)
0.53
0.51
(0.01)
0.50
28,718
29,881
30,283
32,116
31,704
33,511
$
$
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
28
December 28,
2012
16,697
938
17,635
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
January 2,
2015
Year Ended
December 27,
2013
Net income
Foreign currency translation adjustment
Total comprehensive income
$
$
9,711 $
(1,714)
7,997 $
8,729 $
53
8,782 $
The accompanying notes are an integral part of the consolidated financial statements.
29
Balance at December 30, 2011
Issuance of common stock
Common stock purchased through
Tender Offer
Amortization of restricted stock units
and common stock subject to
vesting requirements
Dividend payment
Net income
Foreign currency translation
Balance at December 28, 2012
Issuance of common stock
Treasury stock purchased
Common stock purchased through
Tender Offer
Amortization of restricted stock units
and common stock subject to
vesting requirements
Dividend payment
Net income
Foreign currency translation
Balance at December 27, 2013
Issuance of common stock
Treasury stock purchased
Amortization of restricted stock units
and common stock subject to
vesting requirements
Dividend payment
Net income
Foreign currency translation
Balance at January 2, 2015
—
—
—
(3,081)
16,697
—
(89,513) $
—
—
—
—
(3,096)
8,729
—
(83,880) $
—
—
Total
Shareholders'
Equity
(5,442) $
—
130,248
233
—
(55,587)
—
—
—
938
(4,504) $
—
—
5,278
(3,081)
16,697
938
94,726
(94)
(5,962)
—
(7,170)
—
—
—
53
(4,451) $
—
—
—
—
—
(1,714)
(6,165) $
5,990
(3,096)
8,729
53
93,176
(1,836)
(10,929)
4,888
(3,508)
9,711
(1,714)
89,788
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common Stock
Shares
Amount
Additional
Paid in
Capital
61,315 $
1,921
61 $
2
313,202
231
Treasury Stock
Shares
(21,171) $
—
Amount
(74,444) $
—
Accumulated Comprehensive
Income (Loss)
Deficit
(103,129) $
Accumulated
Other
(11,000)
(11)
(55,576)
—
—
—
—
—
—
52,236 $
890
—
—
—
—
—
52 $
1
—
5,278
—
—
—
263,135
(95)
—
—
—
—
—
(21,171) $
—
(1,018)
—
—
—
—
(74,444) $
—
(5,962)
(983)
(1)
(7,169)
—
—
—
—
—
—
52,143 $
1,060
—
—
—
—
—
53,203 $
—
—
—
—
52 $
1
—
—
—
—
—
53 $
5,990
—
—
—
261,861
(1,837)
—
—
—
—
—
(22,189) $
—
(1,800)
—
—
—
—
(80,406) $
—
(10,929)
4,888
—
—
—
264,912
—
—
—
—
(23,989) $
—
—
—
—
(91,335) $
—
(3,508)
9,711
—
(77,677) $
The accompanying notes are an integral part of the consolidated financial statements.
30
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation expense
Amortization expense
Amortization of debt issuance costs
Provision for doubtful accounts
Loss (gain) on foreign currency transaction
Restructuring costs (benefit)
Non-cash stock compensation expense
Bargain purchase gain from acquisition
Deferred income tax expense (benefit)
Changes in assets and liabilities, net of acquisition:
(Increase) decrease in accounts receivable and unbilled revenue
Decrease in prepaid expenses and other assets
(Decrease) increase in accounts payable
Decrease in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Cash consideration paid for acquisition
Cash acquired in acquisition
Decrease in restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Debt proceeds
Payment of debt proceeds
Debt issuance costs
Dividends paid
Proceeds from issuance of common stock
Repurchases of common stock
Net cash used in financing activities
Effect of exchange rate on cash
Net (decrease) increase 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
Cash paid for interest
January 2,
2015
Year Ended
December 27,
2013
December 28,
2012
$
9,711 $
8,729 $
16,697
2,357
2,212
95
785
8
3,604
6,370
(3,015)
1,949
(2,848)
42
(171)
(5,087)
16,012
(3,097)
(2,877)
522
354
(5,098)
1,883
602
96
742
(4)
—
6,119
—
5,705
1,841
514
369
(2,337)
24,259
(2,068)
—
—
329
(1,739)
10,500
(11,487)
(22)
(3,508)
937
(10,955)
(14,535)
30
(3,591)
18,199
14,608 $
11,002
(16,974)
(129)
(3,096)
1,080
(13,132)
(21,249)
22
1,293
16,906
18,199 $
2,080
547
82
657
187
(211)
5,522
—
(1,191)
(2,317)
95
278
(2,074)
20,352
(3,252)
—
—
202
(3,050)
40,000
(15,000)
(482)
(3,081)
752
(55,587)
(33,398)
66
(16,030)
32,936
16,906
893 $
538 $
684 $
338 $
230
547
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
31
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 global strategic advisory firm and a leader in best practice
advisory, benchmarking, and transformation consulting services, including shared services, offshoring and outsourcing advice.
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.
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 2014, 2013 and 2012 ended on January 2, 2015, December 27, 2013 and
December, 28, 2012, 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.
Restricted cash in 2013 and 2012 related to future employee compensation agreements. As of January 2, 2015, the Company did
not have any restricted cash balances.
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 collectability of 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. If the financial condition of the Company’s clients were to deteriorate, resulting
in their inability to make payments, additional allowances may be required.
Dividends
In December 2012, the Company’s Board of Directors approved the initiation of an annual cash dividend program in the
amount of $0.10 per share. In 2014, the Company’s Board of Directors approved an increase in the dividend payment from $0.10 per
share to $0.12 per share. Subsequent to fiscal 2014, the Company’s Board of Directors approved a semi-annual dividend program and
an increase in the dividend to $0.14 per share. The Company’s dividend policy is reviewed periodically by the Board of Directors. The
amount and timing of all dividend payments is subject to the discretion of the Board of Directors and will depend upon business
conditions, contractual obligations, legal restrictions, results of operations, financial conditions and other factors.
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
consolidated statements of operations.
The Company capitalizes the costs of internal-use software, which generally includes 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.
32
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
Long-Lived Assets (excluding Goodwill and Other Intangible Assets)
Long-lived assets are 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.
Business Combinations
The Company accounts for business combinations using the acquisition method of accounting. This method requires the use of
fair values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at
acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are
recorded as expenses as they are incurred. Fair values are subject to refinement for up to one year after the closing date of an
acquisition as information relative to closing date fair values become available. A bargain purchase gain on an acquisition occurs
when the net of the estimated fair value of the assets acquired and liabilities assumed exceeds the consideration paid.
Goodwill and Other Intangible Assets
Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are 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. 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 approach. 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 ERP and SAP Application Maintenance and Support (“AMS”), Oracle EPM and EPM AMS). In assessing the recoverability of
goodwill and intangible assets, the Company utilizes the market approach and makes estimates based on assumptions regarding
various factors to determine if impairment tests are met. The market approach utilizes valuation multiples based on operating data
from publicly traded companies within the same industry. Multiples derived from guideline companies provide an indication of how
much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are then applied to the
Company’s reporting units to arrive at an indication of value. This approach contains management’s judgment, using appropriate and
customary assumptions available at the time.
During the year ended December 27, 2013, the Company exited its Oracle ERP implementation business practice and as a result
allocated $0.2 million of related goodwill to this transaction. The Oracle ERP implementation business is separate and distinct from
the Company's Oracle EPM business and was included in the Hackett Technology Solutions reporting unit.
The Company performed its annual impairment test of goodwill in the fourth quarter of fiscal years 2014 and 2013 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 December 28, 2012
Allocation of goodwill related to discontinued operations
Foreign currency translation adjustment
Balance at December 27, 2013
Foreign currency translation adjustment
Balance at January 2, 2015
The Hackett
Group
Hackett
Technology
Solutions
$
$
44,887 $
—
262
45,149
(854)
44,295 $
31,333 $
(199)
—
31,134
—
31,134 $
Total
76,220
(199)
262
76,283
(854)
75,429
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. 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.
33
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
Accumulated amortization
Foreign currency translation adjustment
January 2,
2015
December 27,
2013
$
$
22,448 $
(16,472)
33
6,009 $
14,699
(14,260)
6
445
All of the Company’s intangible assets are expected to be fully amortized by the end of 2018. The estimated future amortization
expense of intangible assets as of January 2, 2015 is as follows: $2.2 million in 2015, $1.2 million in 2016, $1.3 million in 2017 and
$1.3 million in 2018. See Note 16 for further discussion.
Revenue Recognition
Revenue is principally derived from fees for services generated on a project-by-project basis. 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.
Additionally, the Company earns revenue from the resale of software licenses and maintenance contracts. Revenue for the resale
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.
Revenue for contracts with multiple elements is allocated based on the respective selling price of the individual elements and is
recognized in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 605-25,
Multiple-Deliverable Revenue Arrangements, a consensus of the FASB Emerging Issues Task Force.
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.
34
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 recognizes compensation expense for awards of equity instruments to employees based on the grant-date fair
value of those awards, with limited exceptions, over the requisite service period.
Restructuring Reserves
Restructuring reserves reflect judgments and estimates of the Company’s ultimate costs of severance, closure and consolidation
of facilities and settlement of contractual obligations under its operating leases, including sublease rental rates, absorption period to
sublease space and other related costs. The Company reassesses the reserve requirements to complete each individual plan under the
restructuring programs at the end of each reporting period. If these estimates change in the future or actual results differ from the
Company’s estimates, additional charges may be required.
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 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 per Common Share
Basic net income per common share is computed by dividing net income by the weighted average number of common shares
outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to
employees, the calculation includes only the vested portion of such stock.
The potential issuance of common shares upon the exercise, conversion or vesting of unvested restricted stock units, common
stock subject to vesting, stock options and stock appreciation right units ("SARs"), as calculated under the treasury stock method, may
be dilutive. Diluted net income per share 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.
The following table reconciles basic and diluted weighted average shares:
Basic weighted average common shares outstanding
Effect of dilutive securities:
Unvested restricted stock units and common stock subject
to vesting requirements issued to employees
Common stock issuable upon the exercise of stock options
Dilutive weighted average common shares outstanding
35
January 2,
2015
Year Ended
December 27,
2013
28,718,263
30,283,298
December 28,
2012
31,703,544
1,152,974
9,765
29,881,002
1,809,565
22,802
32,115,665
1,765,351
41,817
33,510,712
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (Continued)
There were 0.3 million, 0.8 million, and 3.9 million shares of awards granted excluded from the above reconciliation for the
years ended 2014, 2013, and 2012, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per
share. The decrease in 2013 of anti-dilutive shares is due to the issuance of performance-based options granted during the quarter
ended March 30, 2012, which were surrendered and replaced with SARs in 2013. See Note 11 for further detail.
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, accrued expenses and other liabilities and debt. As of January 2, 2015 and December 27, 2013, the
carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-
term nature and maturity of these instruments.
The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance)
that it believes market participants would use in pricing debt. The fair value of the debt approximated its carrying amount using Level
2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach.
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 2014, 2013 and 2012 no customer accounted for more than 5% of total revenue.
Management’s Estimates
The preparation of financial statements in conformity with U.S. GAAP 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.
Other Comprehensive Income
The Company reports its comprehensive income 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 consists of net income 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. Gains and losses from foreign currency transactions are included in net income.
Segment Reporting
The Company engages in business activities in one operating segment, which provides business and technology consulting
services.
Recent Accounting Pronouncements
In May 2014, the FASB issued guidance on revenue recognition, which provides for a single, principles-based model for
revenue recognition and replaces the existing revenue recognition guidance. The guidance is effective for annual and interim periods
beginning on or after December 15, 2016 and will replace most existing revenue recognition guidance under U.S. GAAP when it
becomes effective. It permits the use of either a retrospective or cumulative effect transition method and early adoption is not
permitted. The Company has not yet selected a transition method and is in the process of evaluating the effect this standard will have
on its consolidated financial statements and related disclosures.
Reclassifications
Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to
current period presentation.
36
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2. 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 January 2, 2015 and December 27, 2013, the carrying value of cash and cash equivalents, restricted cash, accounts
receivable and unbilled revenue, accounts payable, leases and accrued expenses and other liabilities, with the exception of debt,
approximated the respective fair value due to the short-term nature and maturity of these instruments.
The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance)
that it believes market participants would use in pricing debt. The fair value of the debt approximated its carrying amount using Level
2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach.
3. 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
January 2,
2015
December 27,
2013
$
$
28,154 $
10,597
(1,330)
37,421 $
27,147
8,538
(1,674)
34,011
Accounts receivable as of January 2, 2015 and December 27, 2013, is net of uncollected advanced billings. Unbilled revenue as
of January 2, 2015 and December 27, 2013 includes recognized recoverable costs and accrued profits on contracts for which billings
had not been presented to clients.
4. Property and Equipment, net
Equipment
Software
Leasehold improvements
Furniture and fixtures
Less accumulated depreciation
January 2,
2015
December 27,
2013
$
$
6,044 $
21,604
454
498
28,600
(14,847)
13,753 $
4,814
19,815
518
609
25,756
(12,737)
13,019
Depreciation expense for the years ended January 2, 2015, December 27, 2013 and December 28, 2012, was $2.4 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.
5. Restricted Cash
As of December 27, 2013, the Company had $0.4 million on deposit with financial institutions that served as collateral for
amounts related to certain employee compensation agreements. As of January 2, 2015, the Company did not have any restricted cash
balances.
37
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 Technolab earnout liability
Accrued sales, use, franchise and VAT tax
Other accrued expenses
Total accrued expenses and other liabilities
7. Lease Commitments
January 2,
2015
December 27,
2013
$
$
3,266 $
7,682
270
8,896
3,440
1,977
5,370
30,901 $
5,163
5,899
134
8,345
—
1,393
4,712
25,646
The Company has operating lease agreements for its premises that expire on various dates through December 2022. Rent
expense, net of subleases, for the years ended January 2, 2015, December 27, 2013 and December 28, 2012 was $2.2 million, $1.9
million and $2.1 million, respectively.
Future minimum lease commitments under non-cancelable operating leases as of January 2, 2015, are as follows (in thousands):
2015
2016
2017
2018
2019
Thereafter
Total
Rental
Payments
1,933
1,846
1,226
969
902
1,151
8,027
$
$
8. Restructuring Costs
During 2014, the Company recorded restructuring costs of $3.6 million, primarily for reductions in consultants and functional
support personnel in Europe. These actions were taken as a result of the continued decline in demand in the Company’s European
markets. The Company effected these changes to reduce its costs to better align the overall cost structure and organization with
anticipated demand for the Company services.
As of January 2, 2015, the Company had $0.3 million remaining in commitments relating to employee severance costs and
down-sizing of office leases. As of December 27, 2013, the remaining restructuring reserves related to early vendor termination fees.
The following tables set forth the detail and activity in the restructuring expense accruals (in thousands):
Accrual balance at December 28, 2012
2013 expenditures
Accrual balance at December 27, 2013
2014 additions
2014 expenditures
Accrual balance at January 2, 2015
Severance and
Other
Employee
Costs
Exit, Closure
and
Consolidation
of Facilities
$
$
$
— $
—
— $
3,534
(3,313)
221 $
246 $
(112)
134 $
70
(155)
49 $
Total
246
(112)
134
3,604
(3,468)
270
38
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Credit Facility
On February 21, 2012, the Company entered into a credit agreement with Bank of America, N.A. Under the credit agreement,
Bank of America, N.A. agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up
to $30.0 million pursuant to a term loan (the “Term Loan,” and together with the Revolver, the “Credit Facility”).
On August 27, 2013, the Company amended and restated the credit agreement (the "Credit Agreement") with Bank of America
to finance a tender offer for shares of its common stock completed in October 2013. See Note 12 for further detail. The Credit
Agreement was amended and restated to:
•
•
provide for up to additional $17.0 million of borrowing under the Term Loan (the "Amended Term Loan" and together
with the Revolver, the "Amended Credit Facility") and
extend the maturity date on the Revolver and the Amended Term Loan to August 27, 2018, five years from the date of the
amendment and restatement of the Credit Agreement.
As of January 2, 2015 the Company had $18.3 million principal amount outstanding on the Amended Term Loan and a zero
balance outstanding on the Revolver. As of December 27, 2013, the Company had $19.0 million principal amount outstanding on the
Amended Term Loan and a zero balance outstanding on the Revolver.
The obligations of the Company under the Amended Credit Facility are guaranteed by active existing and future material U.S.
subsidiaries of the Company and are secured by substantially all of the existing and future property and assets of the Company
(subject to certain exceptions).
The interest rates per annum applicable to loans under the Amended Credit Facility will be at the Company’s option, equal to
either a base rate or a LIBOR base rate, plus an applicable margin percentage. As of January 2, 2015, the interest rate per annum was
1.92%. The applicable margin percentage is based on the consolidated leverage ratio. As of January 2, 2015, the applicable margin
percentage was 1.75% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 1.00% per annum,
in the case of base rate advances.
The Company is subject to certain covenants and exceptions, including total consolidated leverage, fixed cost coverage and
liquidity requirements.
In connection with the Credit Facility, the Company incurred $0.6 million of debt issuance costs. These costs are amortized over
the remaining life of the Credit Facility and are included in Other Assets in the consolidated balance sheet.
The Revolver matures on August 27, 2018, whereas the Amended Term Loan requires amortization of principal in equal
quarterly payment installments from December 31, 2013 through August 27, 2018. As of January 2, 2015, the Company had prepaid
$6.6 million of the Amended Term Loan mandatory principal amortization and did not have an outstanding balance on its Revolver.
The future schedule of annual amortization of principal is as follows (in thousands):
2015
2016
2017
2018
Total
Principal
Amortization
$
Payments
—
4,981
6,641
6,641
$ 18,263
10. Income Taxes
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 2010 and all significant state, local and foreign matters have been concluded for years
through 2010.
39
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes (Continued)
The components of income before income taxes are as follows (in thousands):
Domestic
Foreign
Income before income taxes
January 2,
2015
Year Ended
December 27,
2013
December 28,
2012
$
$
6,549 $
5,417
11,966 $
15,823 $
(696)
15,127 $
15,269
950
16,219
The components of income tax expense (benefit) are as follows (in thousands):
Current tax expense (benefit)
Federal
State
Foreign
Deferred tax expense (benefit)
Federal
State
Foreign
Income tax expense (benefit)
January 2,
2015
Year Ended
December 27,
2013
December 28,
2012
$
$
155 $
131
132
418
200
(238)
1,875
1,837
2,255 $
10 $
530
103
643
6,450
394
(1,089)
5,755
6,398 $
(314)
961
66
713
4,532
(3,587)
(2,136)
(1,191)
(478)
The income tax benefits in 2012 included the release of valuation allowance of $6.7 million.
A reconciliation of the federal statutory tax rate with the effective tax rate is as follows:
U.S statutory income tax expense rate
State income taxes, net of federal income tax expense
Valuation reduction
Meals and entertainment
Foreign rate differential
Bargain purchase gain
Foreign exchange loss
Other, net
Effective tax rate
January 2,
2015
35.0 %
(0.6)
(1.0)
2.0
(10.6)
(8.7)
0.1
2.6
18.8 %
Year Ended
December 27,
2013
35.0 %
4.0
(0.5)
1.7
1.0
—
0.4
0.7
42.3 %
December 28,
2012
35.0 %
8.0
(47.7)
1.5
(0.2)
—
0.1
0.3
(3.0) %
The components of the net deferred income tax asset (liability) are as follows (in thousands):
Year Ended
January 2,
2015
December 27,
2013
Deferred income tax assets:
Allowance for doubtful accounts
Net operating loss and tax credits carryforward
Accrued expenses and other liabilities
Valuation allowance
Deferred income tax liabilities:
Depreciation
Tax over book amortization on goodwill and intangibles
Other items
$
518 $
9,283
3,160
12,961
(1,452)
11,509
(4,628)
(9,872)
(106)
(14,606)
Net deferred income tax asset (liability)
$
(3,097) $
40
661
12,855
3,967
17,483
(1,569)
15,914
(4,614)
(10,546)
(11)
(15,171)
743
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Income Taxes (Continued)
As of January 2, 2015 the Company had $12.0 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 will expire by 2022 if not utilized. As of
January 2, 2015, the Company had $3.1 million of U.S. state net operating loss carryforwards. Additionally, at January 2, 2015, the
Company had $11.7 million of foreign net operating loss carryforwards, of which $5.5 million related to operations in the U.K., $1.3
million related to operations in France and $0.6 million related to operations in Germany. A significant amount 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 January 2, 2015 and December 27, 2013, the Company had a valuation allowance of $1.5 million and $1.6 million to
reduce deferred income tax assets primarily related to foreign and state net operating loss and tax credit carryforwards.
The undistributed earnings in foreign subsidiaries of approximately $2.0 million are permanently invested abroad and will not
be repatriated to the U.S. in the foreseeable future. Because they are considered to be indefinitely reinvested, no U.S. federal or state
deferred income taxes have been provided on these earnings. Upon distribution of those earnings, in the form of dividends or
otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding
taxes payable to the various foreign countries in which it operates. Because of the availability of U.S. foreign tax credits, it is not
practicable to determine the U.S. foreign income tax liability that would be payable if such earnings were not reinvested indefinitely.
Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended January 2,
2015 and December 27, 2013 the total amount of accrued income tax-related interest and penalties was $357 thousand and $226
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 January 2,
2015 and December 27, 2013 (in thousands):
Beginning balance
Additions based on tax positions
Reduction for prior year tax deductions
Ending balance
Year Ended
January 2,
2015
December 27,
2013
$
$
716 $
76
—
792 $
1,015
—
(299)
716
As of January 2, 2015 and December 27, 2013, the ASC 740-10 liability of $0.8 million and $0.7 million, 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 January 2, 2015 and December 27, 2013 would have a
favorable impact on the effective tax rate in future periods.
11. Stock Based Compensation
Stock Plans
Total share based compensation included in net income for the year ended January 2, 2015 was $6.4 million. The number of
shares available for future issuance under the Company's stock plans as of January 2, 2015 were 1,726,938. The Company issues new
shares as shares are required to be delivered under the plan.
Stock Options and SARs
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.
41
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Based Compensation (Continued)
Stock option activity under the Company’s stock option plans for the year ended January 2, 2015 is summarized as follows:
Outstanding as of December 27, 2013
Exercised
Forfeited or expired
Outstanding as of January 2, 2015
Exercisable at January 2, 2015
Option Shares
Weighted Average
Exercise Price
366,714 $
(8,750)
(60,297)
297,667 $
17,667 $
4.39
4.04
6.35
4.00
3.96
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
6.79 $
0.44 $
1,399,979
83,798
A summary of the Company’s stock option activity for the years ended December 27, 2013 and December 28, 2012 was as
follows:
Outstanding at beginning of year
Granted (1)
Exercised
Forfeited or expired (1)
Outstanding at end of year
Exercisable at end of year
December 27, 2013
December 28, 2012
Option Shares
3,898,864 $
—
(109,683)
(3,422,467)
366,714 $
86,714 $
Weighted Average
Exercise Price
Option Shares
Weighted Average
Exercise Price
4.34
—
4.29
4.33
4.39
5.63
867,375 $
3,196,563
(76,986)
(88,088)
3,898,864 $
702,301 $
5.53
4.00
2.53
5.46
4.34
5.86
(1)
Includes 2,916,563 of unvested performance-based stock options granted in 2012 and subsequently surrendered and replaced with SARs in
2013 and 470,000 vested stock options surrendered in 2013 and replaced with SARs. See SARs discussion below.
The fair value of the SARs and stock options is estimated using the Black-Scholes option pricing valuation model. The
determination of fair value is affected by the Company's stock price, expected stock price volatility, expected term of the award and
the risk-free rate of interest. The weighted average fair value of the stock options granted in 2012 was $1.31. The following
assumptions were used to determine the fair value of the stock options granted to employees in 2012:
Expected volatility
Risk-free rate
Expected term (in years)
43%
0.35%
2-6
Other information pertaining to stock option activity during the years ended January 2, 2015, December 27, 2013 and
December 28, 2012 was as follows (in thousands):
Total intrinsic value of stock options exercised
$
36 $
163 $
January 2, 2015
Year Ended
December 27, 2013
December 28, 2012
177
The following table summarizes information about the Company’s stock options outstanding:
Range of Exercise Prices
$0.00 - $4.00
Number
Outstanding
297,667
Options Outstanding
Weighted Average
Remaining
Contractual Life
(Years)
Options Exercisable
Weighted Average
Exercise Price
Number
Exercisable
Weighted Average
Exercise Price
6.79 $
4.00
17,667 $
3.96
42
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Based Compensation (Continued)
On February 8, 2012, the Compensation Committee approved the fiscal year 2012 through 2015 equity compensation target for
the Chief Executive Officer and Chief Operating Officer. Under this target, a single performance-based option grant was made to the
Company’s Chief Executive Officer and the Chief Operating Officer of 1,912,500 options and 1,004,063 options, respectively,
totaling 2,916,563 options, each with an exercise price of $4.00 and a fair value of $1.31. One-half of the options vest upon the
achievement of at least 50% growth of pro forma earnings per share and the remaining half vest upon the achievement of at least 50%
pro forma EBITDA growth. Each metric can be achieved at any time during the six-year term of the award based on a trailing twelve
month period measured quarterly. The grants will expire if neither target is achieved during the six-year term. The base year for the
performance calculation is fiscal 2011 for both pro forma earnings per share and pro forma EBITDA performance targets.
In March of 2013, the performance-based stock option grants were surrendered by the Company’s Chief Executive Officer and
Chief Operating Officer and replaced with SARs, totaling 2,916,563, equal in number to the number of options granted to each of
them in 2012. The terms and conditions and the specific performance targets that must be achieved in order for the SARs to vest are
the same as those of the surrendered options, with the exception that the SARs will be settled in cash, stock or any combination
thereof, at the Company’s discretion.
In addition, 470,000 vested stock options were surrendered and replaced with SARs with an extended life during 2013.
Subsequently, in 2014, the extended life of the SARS was rescinded and the SARS expired unexercised.
SAR activity for the year ended January 2, 2015 was as follows:
Outstanding as of December 27, 2013
Expired
Outstanding as of January 2, 2015
Exercisable at January 2, 2015
Number of SARs
Weighted Average
Exercise Price
Weighted Average
Fair Value
3,386,563 $
(470,000)
2,916,563 $
— $
4.31 $
6.25
4.00 $
— $
0.99
1.23
0.96
—
The following assumptions were used to determine the fair value of the SARs granted to employees in 2013:
Expected volatility
Risk-free rate
Expected term (in years)
43%
0.35%
2
As of January 2, 2015, 100% of total outstanding options and SARs were performance-based. The Company has recorded $0.5
million of compensation expense in 2014 and 2013 and $0.6 million in 2012, related to these options and SARs in accordance with
ASC 718, "Stock Compensation".
Restricted Stock Units
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 January 2, 2015, was as follows:
Number of
Restricted
Stock Units
Weighted Average
Grant-Date
Fair Value
Nonvested balance as of December 27, 2013
Granted
Vested
Forfeited
Nonvested balance as of January 2, 2015
2,910,304 $
914,233
(1,321,949)
(187,375)
2,315,213 $
4.17
6.00
3.95
6.51
5.41
43
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
11. Stock Based Compensation (Continued)
The Company recorded restricted stock units based compensation expense of $5.0 million, $4.8 million and $4.2 million in
2014, 2013 and 2012, 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 January 2, 2015, there was $6.5 million of total restricted
stock units compensation related to the nonvested awards not yet recognized, which is expected to be recognized over a weighted
average period of 1.94 years.
Common Stock Subject to Vesting Requirements
Shares of common stock subject to vesting requirements were issued to employees of acquired companies. These shares vest
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 January 2,
2015 was as follows:
Nonvested balance as of December 27, 2013
Granted
Vested
Nonvested balance as of January 2, 2015
Number of Shares of
Common Stock
Subject to Vesting
Requirements
Weighted Average
Grant-Date
Fair Value
177,647 $
164,474
(77,647)
264,474 $
3.31
6.04
2.73
7.54
The Company recorded compensation expense of $0.9 million, $0.8 million and $0.7 million, during the years ended January 2,
2015, December 27, 2013 and December 28, 2012, respectively, related to common stock subject to vesting requirements. As of
January 2, 2015, there was $1.0 million of total stock based compensation related to granted common stock subject to vesting
requirements not yet recognized, which is expected to be recognized over a weighted average period of 3.0 years.
Common stock subject to vesting requirements of $4.6 million will be issued in 2015 in relation to the equity portion of the
Technolab earn-out. These shares will be subject to a four year vesting period. Compensation expense of $0.7 million was recorded
in 2014 for these shares.
12. Shareholders’ Equity
Tender Offer
On August 28, 2013, the Company announced a tender offer to purchase up to $35.75 million in value of shares of its common
stock, $0.001 par value per share, at a price not greater than $6.50 nor less than $5.75 per share, to the seller in cash, less any
applicable withholding taxes and without interest (the "Offer"). On September 26, 2013, the Company amended the Offer (the
"Amended Offer") to increase the price range at which it would purchase its common stock to a range of not greater than $7.00 nor
less than $6.50 per share and to decrease the dollar amount of the Offer to $25.0 million. The Amended Offer was completed on
October 15, 2013, with the Company purchasing approximately 1.0 million shares of its common stock at a purchase price of $7.00
per share, for an aggregate cost of approximately $6.9 million, excluding fees and expenses related to the Amended Offer. The 1.0
million shares represented approximately 3% of the Company's issued and outstanding shares of common stock at that time. The
Company financed the Amended Offer from borrowings under the Amended Term Loan under its existing Credit Facility. See Note 9
for further detail.
On March 21, 2012, the Company completed a tender offer to purchase 11.0 million shares of its common stock at a purchase
price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses relating to the tender offer.
The 11.0 million shares accepted for purchase represented approximately 27% of the Company’s issued and outstanding shares of
common stock at that time.
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 2014, 2013 and 2012, 94,333 shares, 113,905 shares and 117,757 shares, respectively, were issued.
44
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
12. Shareholders’ Equity (Continued)
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 $90.0 million of the Company’s common stock, thereby increasing the total program size to $95.0 million as of January 2,
2015. As of January 2, 2015, the Company had effected cumulative purchases under the plan of $91.3 million, leaving $3.7 million
available for future purchases. 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,
excluding the above mentioned tender offers.
During 2014 and 2013, the Company repurchased 1.8 million and 1.0 million shares of its common stock, respectively, at an
average price per share of $6.07 and $5.86, respectively, for a total cost of $11.0 million and $6.0 million, respectively. As of January
2, 2015 and December 27, 2013, the Company had repurchased 24.0 million and 22.2 million shares of its common stock,
respectively, at an average price of $3.81 and $3.62 per share, respectively. As of January 2, 2015, the Company had $3.7 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.
Dividends
On December 7, 2012, the Company’s Board of Directors adopted a dividend policy pursuant to which the Company intended to
pay annual cash dividends on its common stock. In December 2014, the Board of Directors declared and paid annual cash dividends of
$0.12 per common share, or a total of $3.5 million, to holders of the Company’s common stock. In December 2013 and 2012, the
Board of Directors declared and paid annual cash dividends of $0.10 per common share, or a total of $3.1 million, to holders of the
Company’s common stock. These dividends were paid from U.S. domestic sources and are accounted for as an increase to retained
deficit.
Subsequent to January 2, 2015, the Company’s Board of Directors announced that its annual dividend would increase $0.14 per
common share and be paid semi-annually.
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.
The Rights had certain anti-takeover effects, in that they would have caused substantial dilution to a person or group that
attempted to acquire a significant interest in the Company on terms not approved by the Board of Directors. The Rights expired on
February 13, 2014.
13. 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 2014, 2013 and 2012, 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 for each of the fiscal years ended January 2,
2015, December 27, 2013 and December 28, 2012.
45
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Transactions with Related Parties
There were no related party transactions in 2014, 2013 or 2012.
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. Acquisition
During the quarter ended March 28, 2014, the Company acquired the U.S., Canada and Uruguay operations of Technolab
International Corporation ("Technolab"), an EPM AMS business.
Management's initial purchase consideration was $3.0 million in cash and $1.0 million in shares of the Company’s common
stock, which are subject to vesting. In addition, the Sellers had the ability to earn an additional $8.0 million in contingent
consideration in cash and stock subject to an earn-out based on actual results achieved. The cash was not subject to vesting, however
the stock was subject to service vesting.
During the fourth quarter of 2014, measurement period adjustments related to the Technolab acquisition were finalized. Also,
during the fourth quarter of 2014, $9.0 million of cash and equity which were previously accounted for as purchase consideration will
now be reflected as compensation expense over the respective vesting period; $4.3 million of which was reflected as compensation
expense in 2014. This re-characterization of purchase consideration to compensation expense resulted in a bargain purchase gain of
$3.0 million on the acquisition, a deferred tax liability of $1.9 million and intangible assets with definite lives of $7.7 million; which
will be amortized over periods ranging from 2 years to 5 years. The adjustments mentioned above are reflected in Note 18 for each of
the 2014 fiscal quarters.
The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values
(in thousands):
Total consideration
Allocation of purchase price
Cash
Accounts receivable
Total current assets acquired
Intangible assets
Total assets acquired
Accrued expenses and other liabilities
Deferred tax liability
Total liabilities acquired
Net assets identifiable assets
Bargain purchase gain on acquisition
Purchase Price
Allocation
3,000
522
1,346
1,868
7,749
9,617
1,711
1,891
3,602
6,015
3,015
$
$
$
The application of the acquisition method of accounting resulted in a bargain purchase gain of approximately $3.0 million.
Pro forma results of Technolab have not been presented as the acquisition closed at the beginning of 2014 and therefore, the full
year results of Technolab are included in the Company’s consolidated financial results. Technolab contributed total revenue of $10.3
million and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes of $3.3 million.
46
16. Acquisition (Continued)
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table
presents the intangible assets acquired from Technolab as of January 2, 2015:
Category
Amount
(in thousands)
Useful Life
(in years)
Customer Base
Trade Name
Customer Backlog
Non-Compete
$
$
4,727
115
2,031
876
7,749
5
2
2
5
17. 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):
Revenue:
North America
International (primarily European countries)
Total revenue
January 2,
2015
Year Ended
December 27,
2013
December 28,
2012
$
$
190,050 $
46,687
236,737 $
179,539 $
44,291
223,830 $
173,650
49,086
222,736
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
January 2,
2015
December 27,
2013
December 28,
2012
$
$
80,152 $
15,578
95,730 $
74,095 $
16,246
90,341 $
74,407
16,270
90,677
As of January 2, 2015, December 27, 2013 and December 28, 2012, foreign assets included $15.0 million, $15.8 million and
$15.6 million, respectively, of goodwill related to the REL and Archstone acquisitions.
In the following table, The Hackett Group service group encompasses Benchmarking, Business Transformation and Executive
Advisory groups, and includes EPM Technologies. The ERP Solutions group encompasses SAP ERP (in thousands):
The Hackett Group
ERP Solutions
Total revenue
January 2,
2015
196,145 $
40,592
236,737 $
Year Ended
December 27,
2013
184,112 $
39,718
223,830 $
December 28,
2012
187,787
34,949
222,736
$
$
47
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Quarterly Financial Information (unaudited)
The following table presents unaudited supplemental quarterly financial information for the years ended January 2, 2015 and
December 27, 2013 (in thousands, except per share data):
Total revenue
Operating income (loss) (2)(3)
Income (loss) from continuing operations (2)(3)
Income (loss) from discontinued operations (4)
Net income (loss) (2)(3)
Quarter Ended (1)
March 28,
2014
June 27,
2014
September 26,
2014
January 2,
2015
54,905 $
(1,680) $
(2,046) $
— $
(2,046) $
61,052 $
5,026 $
3,475 $
— $
3,475 $
60,437 $
5,059 $
3,591 $
— $
3,591 $
60,343
4,181
4,691
—
4,691
$
$
$
$
$
Basic net income (loss) per common share:
Income (loss) per common share from continuing operations
Income (loss) per common share from discontinued operations(4)
$
Net income (loss) per common share
$
Diluted net income (loss) per common share:
Income (loss) per common share from continuing operations
Income (loss) per common share from discontinued operations(4)
$
Net income (loss) per common share
Total revenue
Operating income
Income from continuing operations
Income (loss) from discontinued operations
Net income (5)
Basic net income per common share:
Income per common share from continuing operations
Income (loss) per common share from discontinued operations
Net income per common share
Diluted net income per common share:
Income per common share from continuing operations
Income (loss) per common share from discontinued operations
Net income per common share
$
$
$
$
$
$
$
$
$
$
(0.07) $
—
(0.07) $
(0.07) $
—
(0.07) $
0.12 $
—
0.12 $
0.12 $
—
0.12 $
0.13 $
—
0.13 $
0.12 $
—
0.12 $
0.17
—
0.17
0.16
—
0.16
Quarter Ended
March 29,
2013
June 28,
2013
September 27,
2013
December 27,
2013
54,349 $
3,529 $
2,029 $
(71) $
1,958 $
58,961 $
5,085 $
2,930 $
— $
2,930 $
57,916 $
4,717 $
2,699 $
(64) $
2,635 $
52,604
2,396
1,206
—
1,206
0.06 $
—
0.06 $
0.07 $
(0.01)
0.06 $
0.10 $
—
0.10 $
0.09 $
—
0.09 $
0.09 $
—
0.09 $
0.08 $
—
0.08 $
0.04
—
0.04
0.04
—
0.04
(1)
(2)
(3)
(4)
(5)
The fiscal 2014 quarters presented above, are as previously reported. See table below which restates the 2014 Statement of Operations by
quarter for the impact of the Technolab EPM AMS acquisition-related purchase consideration reflected as compensation expense, as well as
other acquisition-related adjustments recorded in the fourth quarter of 2014, as mentioned in Note 16.
The fiscal quarter ended March 28, 2014, includes restructuring costs of $3.6 million.
The fiscal quarter ended January 2, 2015, includes a bargain purchase gain from the acquisition of the Technolab EPM AMS of $3.0 million.
There were no discontinued operations in fiscal year 2014.
The quarter ended December 28, 2012 included the benefit of the release of $6.7 million of deferred income tax asset valuation allowance.
Quarterly basic and diluted net income per common share were computed independently for each quarter and do not necessarily total to the
year to date basic and diluted net income per common share.
48
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
18. Quarterly Financial Information (unaudited) (Continued)
The following table presents the restated 2014 Statement of Operations by quarter for the impact of the acquisition-related purchase
consideration reflected as compensation expense, as well as other acquisition-related adjustments recorded in the fourth quarter of 2014 as discussed
in Note 16 (in thousands, except per share amounts):
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses (1)
(includes $686, $999, $842 and $1,029 of stock
compensation expense in Q1, Q2, Q3 and Q4 2014)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs (2)
(includes $653, $691, $814 and $656 of stock
compensation expense in Q1, Q2, Q3 and Q4 2014)
Bargain purchase gain from acquisition (1) (2)
Restructuring costs
Total costs and operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Income from continuing operations before income taxes
Income tax (benefit) expense (3)
Net income
Basic net income per common share
Weighted average common shares outstanding
Diluted net income per common share
Diluted
Quarter Ended
March 28,
2014
June 27,
2014
September 27,
2014
January 2,
2015
(unaudited)
$
49,418
$
55,000
$
54,550
$
5,487
54,905
6,052
61,052
5,887
60,437
54,551
5,792
60,343
34,184
5,487
39,671
14,235
(3,015)
3,604
54,495
410
1
(124)
287
(118)
405
0.01
29,120
$
$
$
35,427
6,052
41,479
35,142
5,887
41,029
34,205
5,792
39,997
15,607
15,422
16,122
-
-
57,086
3,966
1
(166)
3,801
973
2,828
0.10
28,939
$
$
$
$
-
-
56,451
3,986
2
(173)
3,815
879
2,936
0.10
28,558
$
$
0.01
$
0.10
$
0.10
$
29,869
29,984
29,800
-
-
56,119
4,224
2
(163)
4,063
521
3,542
0.13
28,257
0.12
29,871
(1) The cost of service adjustments reflect the re-characterization of cash and equity which were previously accounted for as purchase consideration
and are now reflected as compensation expense. These adjustments contributed to a bargain purchase gain from the Technolab acquisition.
(2) The selling, general and administrative costs reflect adjustments related to the acquired intangible assets and amortization expense of those assets.
These adjustments contributed to a bargain purchase from the Technolab acquisition.
(3) The income tax expense (benefit) reflect adjustments related to the Technolab acquisition which were finalized and re-characterized in the fourth
quarter of 2014.
49
THE HACKETT GROUP, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED JANUARY 2, 2015, DECEMBER 27, 2013, AND DECEMBER 28, 2012
(in thousands)
Allowance for Doubtful Accounts
Year Ended January 2, 2015
Year Ended December 27, 2013
Year Ended December 28, 2012
Balance at
Beginning
of Year
$
$
$
1,674
1,251
799
Charge to
Expense
Write-offs
785
742
657
(1,129) $
(319) $
(205) $
Balance at
End of Year
1,330
1,674
1,251
50
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
Not applicable.
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 January 2, 2015 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 (2013)” issued by the Committee of
Sponsoring Organizations of the Treadway Commission (COSO) as of and for the year ended January 2, 2015.
Based on our evaluation, utilizing the criteria set forth in “Internal Control – Integrated Framework issued by COSO in
2013,” our management concluded that our internal control over financial reporting was effective as of the end of the period covered
by this Annual Report on Form 10-K.
The Company’s independent registered certified public accounting firm has audited our internal control over financial
reporting as of January 2, 2015 and has expressed an adverse opinion thereon, specifically as it relates to accounting for business
combinations. We would like to elaborate on the weakness identified by our auditors:
During the first quarter of 2014, we acquired and accounted for certain assets and liabilities of Technolab International
Corporation (“Technolab”). At closing, the Seller received $3.0 million in cash, not subject to vesting, and $1.0 million in stock,
subject to service vesting, with the ability to earn up to $8.0 million in a combination of stock, subject to service vesting, and cash, not
subject to service vesting, based on a one year profitability based earn out. Subsequent to year end, the amounts paid to the Seller at
closing in stock, subject to service vesting, as well as the amounts earned as part of the earn out due to the Seller in cash, not subject to
service vesting, and stock, subject to service vesting, which were originally treated as purchase consideration were adjusted and
accounted for as compensation expense. These adjustments were recorded in the fourth quarter of 2014 and resulted in an increase in
compensation expense of $4.3 million, an increase in amortization of intangibles of $0.5 million and a related tax benefit of $2.1
million offset by a bargain purchase gain of $3.0 million. These adjustments did not have a material impact on our year end GAAP
results.
After these adjustments, of the total $12.0 million of Technolab purchase consideration, the Company reflected $3.0
million as purchase consideration and will reflect $9.0 million as compensation expense, of which $4.3 million was recognized in
2014. These adjustments resulted in the bargain purchase gain reflected in our financial statements.
No issues were raised by our external auditors during their initial review of the transaction during their first quarter review
of the acquisition. However, that position changed subsequent to year end during the course of their annual audit. Correspondingly,
we do not believe that the weakness identified rises to the level of a material weakness as identified by our external auditors and
expressed in their opinion. However, consistent with the recommendation of our auditors, we will consider retaining additional third-
party support for future acquisitions in order to prevent potential differences in the accounting for business combinations.
51
Report of Independent Registered 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 January 2, 2015, based on criteria
established in Internal Control – Integrated Framework (2013) 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, 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.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting, such that there is a
reasonable possibility that a material misstatement of the company’s annual or interim financial statements will not be prevented or
detected on a timely basis. We have identified the following material weakness that has not been identified as a material weakness in
management’s assessment: Management did not design and maintain controls to analyze and record appropriate adjustments related to
accounting for Business Combinations. This material weakness resulted in audit adjustments the Company recorded in the fourth
quarter as well as additional disclosures in the consolidated financial statements. This material weakness was considered in
determining the nature, timing, and extent of audit tests applied in our audit of the 2014 consolidated financial statements, and this
report does not affect our report dated March 18, 2015 on those consolidated financial statements.
In our opinion, The Hackett Group, Inc. did not maintain, in all material respects, effective internal control over financial reporting as
of January 2, 2015, based on the COSO criteria.
We do not express an opinion or any other form of assurance on management’s statements referring to any corrective actions taken by
the company after the date of management’s assessment.
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 January 2, 2015 and December 27, 2013, and the related consolidated
statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the three years in the period ended
January 2, 2015 and our report dated March 18, 2015 expressed an unqualified opinion thereon.
Miami, Florida
March 18, 2015
/s/ BDO USA, LLP
Certified Public Accountants
52
ITEM 9B. OTHER INFORMATION
Subsequent to the filing of the Form-8K on February 24, 2015, management recorded an additional adjustment related to
the acquisition of Technolab which re-characterized the cash related to the earn-out, without vesting conditions, to compensation
expense. The impact of these adjustments resulted in an increase in compensation expense and bargain purchase gain with an
offsetting decrease to the tax provision.
Quarter Ended January 2, 2015
Twelve Months Ended January 2, 1015
Purchase
Consideration
Reflected as
Compensation
Per Form
8-K
Purchase
Revised
Per Form
10-K
Per Form
8-K
Consideration
Reflected as
Compensation
Revised
Per Form
10-K
(unaudited)
$
54,551 $
5,792
60,343
- $
-
-
54,551 $
5,792
60,343
213,519 $
23,218
236,737
- $
-
-
213,519
23,218
236,737
Revenue:
Revenue before reimbursements
Reimbursements
Total revenue
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses (1)
(includes $1,528 and $3,556 of stock compensation expense
in the quarter and year end, respectively) (3)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs (2)
(includes $656 and $2,814 of stock compensation expense
in the quarter and year end, respectively)
Bargain purchase gain from acquisition
Restructuring costs
Total costs and operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Income from continuing operations before income taxes
Income tax expense (benefit)
Net income
Basic net income per common share
Weighted average common shares outstanding
Diluted net income per common share
Diluted
33,844
5,792
39,636
16,309
(1,847)
-
54,098
6,245
2
(163)
6,084
1,391
4,693 $
0.17 $
28,257
0.16 $
29,871
$
$
$
3,440
-
3,440
37,284
5,792
43,076
135,518
23,218
158,736
3,440
-
3,440
138,958
23,218
162,176
(208)
(1,168)
-
2,064
(2,064)
-
-
(2,064)
(2,062)
(2) $
16,101
(3,015)
-
56,162
4,181
61,594
(1,847)
3,604
222,087
14,650
2
(163)
4,020
(671)
4,691 $
6
(626)
14,030
4,317
9,713 $
- $
0.17 $
0.34 $
(208)
(1,168)
-
2,064
(2,064)
-
-
(2,064)
(2,062)
(2) $
- $
28,257
28,257
28,718
28,718
- $
0.16 $
0.33 $
- $
29,871
29,871
29,881
29,881
61,386
(3,015)
3,604
224,151
12,586
6
(626)
11,966
2,255
9,711
0.34
28,718
0.33
29,881
53
Pro forma data:
Income from continuing operations before income taxes
Bargain purchase gain from acquisition
Performance-related stock compensation expense
Acquisition-related stock compensation expense
Acquisition purchase consideration reflected as compensation
Acquisition-related costs
Restructuring costs
Amortization of intangible assets
Pro forma income before income taxes
Pro forma income tax expense
Pro forma net income
Pro forma basic net income per common share
Weighted average common shares outstanding
Pro forma diluted net income per common share
Weighted average common and common equivalent shares
outstanding
Quarter Ended January 2, 2015
Twelve Months Ended January 2, 1015
Purchase
Consideration
Reflected as
Compensation
Per Form
8-K
Purchase
Revised
Per Form
10-K
Per Form
8-K
Consideration
Reflected as
Compensation
Revised
Per Form
10-K
(unaudited)
4,020 $
(3,015)
1,409
775
3,440
-
-
512
7,141
2,142
14,030 $
(1,847)
5,470
900
-
120
3,604
2,420
24,697
7,847
4,999 $
16,850 $
(2,064) $
(1,168)
-
-
3,440
-
-
(208)
-
-
- $
6,084 $
(1,847)
1,409
775
-
-
-
720
7,141
2,142
4,999 $
(2,064) $
(1,168)
-
-
3,440
-
-
(208)
-
-
- $
11,966
(3,015)
5,470
900
3,440
120
3,604
2,212
24,697
7,847
16,850
0.18 $
- $
0.18 $
0.59 $
- $
0.59
28,257
28,257
28,257
28,718
28,718
28,718
0.17 $
- $
0.17 $
0.56 $
- $
0.56
29,871
29,871
29,871
29,881
29,881
29,881
$
$
$
$
(1) Cost of sales in the Form 8-K included an additional $713 thousand of non-cash compensation expense in the quarter ended January 2, 2015. This cost was
originally accounted for as purchase consideration and relates to the full year 2014.
(2) Selling, general and administrative costs in the Form 8-K included an additional $745 thousand of amortization expense for the quarter ended January 2, 2015.
These costs related to the full year 2014.
(3) Additional cash consideration, reflected as compensation expense subsequent to issuance of the Form 8-K, which impacted the bargain purchase gain on acquisition,
amortization expense and income taxes.
54
ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for
PART III
the 2015 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for
the 2015 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 proxy statement for
the 2015 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 proxy statement for
the 2015 Annual Meeting of Shareholders.
ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
Information appearing under the caption “Fees Paid to Independent Accountants” in the proxy statement for the 2015
Annual Meeting of Shareholders is hereby incorporated by reference.
ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) The following documents are filed as a part of this Form:
PART IV
1. Financial Statements
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 is 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 58
The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report.
55
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
18, 2015.
SIGNATURES
THE HACKETT GROUP, INC.
By:
/s/ Ted A. Fernandez
Ted A. Fernandez
Chief Executive Officer and Chairman of the Board
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 18, 2015
Executive Vice President, Finance and Chief Financial
Officer (Principal Financial and Accounting Officer)
March 18, 2015
Chief Operating Officer and Director
March 18, 2015
Director
Director
Director
Director
Director
March 18, 2015
March 18, 2015
March 18, 2015
March 18, 2015
March 18, 2015
56
Exhibit No.
Exhibit Description
INDEX TO EXHIBITS
3.1
3.2
3.3
10.1
10.2
10.3
10.4
10.5
10.6
10.9
10.10
10.12
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.
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).
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).
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).
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).
57
Exhibit No.
Exhibit Description
10.16
10.17
10.18
10.19
10.20
10.21
21.1
23.1
31.1
31.2
32
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).
Stock Appreciation Right Agreement dated March 11, 2013 between the Company and Ted A. Fernandez.
Stock Appreciation Right Agreement dated March 11, 2013 between the Company and David N. Dungan.
Credit Agreement dated February 21, 2012, and amended on August 27, 2013 and March 18, 2015, among The Hackett
Group, Inc., the material domestic subsidiaries of Hackett named on the signature pages there to and Bank of America,
N.A., as lender (incorporated herein by reference to the Registrant’s Form 8-K dated February 23, 2012).
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).
101.INS** XBRL Instance Document
101.SCH** XBRL Taxonomy Extension Schema
101.CAL** XBRL Taxonomy Extension Calculation Linkbase
101.DEF** XBRL Taxonomy Extension Definition Linkbase
101.LAB** XBRL Taxonomy Extension Label Linkbase
101.PRE** XBRL Taxonomy Extension Presentation Linkbase
**
Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or
prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934
and otherwise are not subject to liability.
58
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
Annual Meeting
The Hackett Group shareholders are
invited to attend our Annual Meeting on
Friday, May 8, 2015 at 11:00 am at:
Corporate Headquarters
1001 Brickell Bay Drive, Suite 3000
Miami, FL 33131
Transfer Agent
First Class/Registered/
Certified Mail:
Computershare Investor
Services
P.O. Box 30170
College Station, TX 77842-3170
Courier Services:
Computershare Investor
Services
211 Quality Circle, Suite 210
College Station, TX 77845
Shareholder Services Number(s):
877-373-6374
Investor Centre™ portal:
www.computershare.com/investor
Independent Auditors
, LLP
BDO
USA
Miami, FL
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.
Terence M. Graunke
Chairman & Co-founder
Lake Capital Management LLC
Richard N. Hamlin
Retired Partner
KPMG LLP
John R. Harris
Operating Partner
glendon Todd Capital LLC
Edwin A. Huston
Retired Vice Chairman
Ryder System, Inc.
AlanT.G. Wix
Former Managing Director
of Core IT Services
Lloyds TSB Bank
1001 Brickell Bay Drive, Suite 3000, Miami, FL 33131
www.thehackettgroup.com