1001 Brickell Bay Drive, Suite 3000, Miami, FL 33131
www.thehackettgroup.com
2016 Annual Report
We had an outstanding year. We increased revenue
by 11% to $288 million while pro-forma EPS
increased 25% to
$0.94 cents.
What makes this year so
special is that the results are on top of the two
previous years’ pro-forma EPS results, which were up
34% and 37%, respectively.
Ted A. Fernandez
Chairman and Chief Executive Officer
1001 Brickell Bay Drive, Suite 3000
Chairman & Chief Executive Officer
Corporate Headquarters
The Hackett Group, Inc.
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
Wednesday, May 3, 2017 at 2 pm in the
Hope Meeting Room at the
InterContinental Buckhead Atlanta
Board of Directors
Ted A. Fernandez
The Hackett Group, Inc.
David N. Dungan
Vice Chairman & Chief Operating Officer
The Hackett Group, Inc.
Richard N. Hamlin
Retired Partner
KPMG LLP
John R. Harris
Former Chief Executive Officer
eTelecare Global Services
3315 Peachtree Rd
Atlanta, GA 30326
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Independent Auditors
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Fort Lauderdale, FL
Dear Shareholders,
We had an outstanding year in 2016. We increased revenue
by 11% to $288 million while pro-forma EPS increased 25%
to $0.94 cents. What makes this year so special is that the
results are on top of the two previous years’ pro-forma EPS
results, which were up 34% and 37%, respectively.
We continue to believe that our revenue and EPS growth is a
direct result of several key strategies:
• Strongly positioning our brand driven by the highly
differentiated leverage of our Benchmarking and Best
Practice Advisory offerings that generate and utilize our IP
and provide strategic access to leading global companies.
Approximately 85% of our 2016 Hackett revenues came
from former clients and users of our IP and services. We
refer to this group as our user or “install” base. This is a
great example of how the unique value of our IP expands
our brand and extends to our consulting offerings.
• Increasing revenue per client. The consolidation of our
Business Transformation along with increasing capability,
improved collaboration and cross selling, is allowing us to
serve clients broadly.
• Continuing to add and upgrade talent and building a
more efficient resource pyramid has led to improved gross
margins while increasing headcount.
• And lastly, identifying new offerings that utilize our
benchmarking and best practice IP and leveraging new
channels through strategic alliances to introduce new
recurring revenue and high-margin offerings that could
redefine our organizational model as a performance
improvement “IP as a service” business.
and
On a longer-term basis, we are seeing emerging cloud
digital technology transforming everyday activities
may
that
result in the most significant enterprise transformation period
we have ever seen. The transition to cloud applications
and
infrastructure, along with improving mobile functionality
that is being introduced into the marketplace by technology
providers, is dramatically influencing the way businesses
compete and deliver their services. This will disrupt entire
industries at an accelerated pace, forcing organizations to
fundamentally change and adapt these new capabilities in
order to remain competitive. The speed of change will only
be limited by the ability of technology providers to deliver
the functionality, security and performance required. But
regardless of their delivery limitations, the mere threat or
opportunity promised will accelerate enterprise transformation
initiatives. This will redefine traditional sequential and linear-
based business models and activities to fully networked and
robotic automated workflows and events with enhanced
analytics that will finally deliver on the much anticipated
predictive analytics and artificial intelligence innovations.
We believe the digital transformation era is very attractive to
our organization. We expect clients to increasingly turn to us
to provide them with best practice insight on what technology
can actually deliver and what changes in business models
actually work and will justify significant future investments.
On a near-term basis, we expect continued growth from our
US business, although it will be tempered by the transition
from on premises to cloud software, as clients assess if the
cloud software delivers the functionality, performance and
security they require. We also believe that as cloud and
artificial intelligence offerings mature, there will be an
accelerated migration to these technologies that will create
increasing demand for our expertise.
In Europe, we expect our revenues to be up strongly and
be favorable to 2017 growth prospects. Two years ago,
we made the conscious decision to expand our service
offerings to more closely mirror our US makeup. We are
now seeing a meaningful impact from this investment and
expect EPM in Europe to represent a growing component of
our European revenues for the year. Additionally, the growth
in our “IP as a service” offerings should continue to ramp
and start to contribute to our 2017 results. At the heart of
the digital transformation era is business analytics, which
now represents nearly 50% of Hackett US revenues and 44%
of Hackett global revenues. Our ability to assemble terrific
talent and our unique ability to leverage our best practice
configuration and organizational excellence IP is responsible
for this success.
We plan to continue to emphasize the unique value
of our Benchmarking and Best Practice insight and IP.
Correspondingly, we will continue to invest heavily in
these areas. A good example is our plan to roll out a new
benchmarking offering called Quantum Leap that will
incorporate our Hackett Performance Exchange technology
and other innovations into our benchmarking platform
offerings during the first half of 2017. This will improve and
further differentiate the unmatched value delivered through
our benchmarking offerings.
In Executive and Best Practice Advisory, our IP alliance
relationships are helping us invest in new technology and
offerings that will improve our clients’ access and leverage of
the proprietary insight that we deliver through these programs.
These programs allow us to serve clients strategically and
continuously. At the end of 2016, our Executive and Best
Practice Advisory Members totaled 1,075 across 330 clients.
These numbers exclude the new clients we have been adding
from our new “IP as a service” alliances with ADP and CIMA.
In the fourth quarter of 2015, we launched a dedicated
Hackett best practices advisory program for ADP’s Vantage
HCM® solution. All indications from the ADP sales force
as well as their clients continue to be very favorable. Given
our early success we are now developing plans with ADP to
expand our offering to additional platforms that they expect
to migrate to Vantage as well as a program into a targeted part
of their existing install base. These new programs will expand
our opportunities with ADP in 2017.
Relative to our Certified GBS Professionals program in
alliance with CIMA, this program will allow us to build an
entirely new professional development business that provides
globally recognized certifications for shared services and
global business service professionals. During the fourth
quarter of 2016 we launched our last remaining managerial
diploma course. This now allows all of our existing clients
to experience our fully completed curriculum. We have
continued to sign up new companies and continued to build
our pipeline with major global organizations with significant
GBS organizations. We now have over 125 companies who
are using our entry and executive level courses for their
assessment. As companies complete their pilot programs, our
goal will be to gain larger and longer-term commitments from
these clients. This should enable us to increase our recurring
revenue client relationships throughout 2017.
We recently announced our new Enterprise Analytics training
and certification program and the introduction of The Hackett
Institute. We believe that analytical skills will significantly
grow over the next decade as companies realize the value
of data and related insight and realize the need to extend
these skills in a meaningful way throughout the enterprise.
We decided to launch our offering without an alliance
partner. However, we are assessing academic institutions that
can extend the value of our content and the branding and
value of our planned certification. Given the unique nature of
our best practice content and the recognized value we have
experienced with our Certified GBS Professionals offering, we
now believe that continuing education provides a significant
revenue growth opportunity for our organization.
Lastly, even though we believe that we have the client base
and offerings to grow our business, we continue to look for
acquisitions and alliances that strategically leverage our IP and
add scope, scale or capability which can accelerate our growth.
In summary, 2016 was an outstanding year. More importantly,
we are seeing that the improvements and investments we are
making in our IP, our expanded EPM capabilities, “IP as a
service” offerings and alliances, and digital transformation
focus should bode well for our long term growth prospects.
As always, let me close by thanking our associates and
shareholders for their ongoing support and commitment to
our organization.
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 December 30, 2016
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 $322,450,791 on July 1, 2016 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 6, 2017 was 29,187,155.
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 2017 Annual Meeting of
Shareholders to be 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.
ITEM 3.
ITEM 4.
ITEM 5.
ITEM 6.
ITEM 7.
Properties
Legal Proceedings
Mine Safety Disclosures
PART II
Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Management’s Discussion and Analysis of Financial Condition and Results of
Operations
ITEM 7A.
Quantitative and Qualitative Disclosures About Market Risk
ITEM 8.
ITEM 9.
Financial Statements and Supplementary Data
Changes in and Disagreements With Accountants on Accounting and Financial
Disclosure
ITEM 9A.
Controls and Procedures
ITEM 9B.
Other Information
ITEM 10.
Directors, Executive Officers and Corporate Governance
ITEM 11.
Executive Compensation
PART III
ITEM 12.
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
ITEM 16.
Form 10-K Summary
PART IV
Signatures
Index to Exhibits
2
Page
3
10
14
14
14
14
15
18
19
27
28
55
55
58
58
59
59
59
59
59
59
60
61
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.
The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best
practices implementation firm to global companies. Services include benchmarking, executive advisory, business transformation,
enterprise performance management, working capital management, and global business services. The Hackett Group also provides
dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and
information technology, including its award-winning Oracle EPM and SAP practices.
The Hackett Group has completed more than 13,000 benchmarking and performance studies with major organizations,
including 93% of the Dow Jones Industrials, 87% of the Fortune 100, 87% of the DAX 30 and 58% of the FTSE 100. These studies
drive its Best Practice Intelligence Center™ which includes the firm's benchmarking metrics, best practices repository, and best
practice configuration and process flows accelerators, which enable The Hackett Group’s clients and partners to achieve world-class
performance.
Heading into fiscal 2017, the rapid development and move to cloud applications and infrastructure, along with improving
mobile functionality and User Experience being introduced into the market place by technology providers, is dramatically influencing
the way businesses compete and deliver their services. This will disrupt entire industries at an accelerated pace, forcing organizations
to fundamentally change and adapt these new capabilities in order to remain competitive. The speed of change will only be limited by
the ability of technology providers to deliver on their functionality and performance. But regardless of their delivery limitations, we
believe that the mere threat or opportunity promised will lead to a significant enterprise transformation period. Over time, this will
redefine traditional sequential and linear based business models and activities to fully networked and dynamic automated workflows
and events with enhanced analytics that will finally deliver on the much anticipated predictive analytics and artificial intelligence
expectations.
This so called Digital Transformation era is very attractive to our organization since we believe our clients will
increasingly turn to us to provide them with Best Practice insight on what technology can actually deliver and what changes in
business models actually work and will justify significant investments.
On a near term basis, we expect our US growth will be tempered by the migration from On Premise to Cloud software
offerings as sales channels improve its message to clients and as clients assess and react to the new paradigm. We also believe that as
the Cloud offerings mature that there will be an accelerated migration to the new cloud software that will create increasing activity for
technology service providers. In Europe we expect our revenues to be favorable to 2017 growth prospects. Two years ago we made
the conscious decision to expand our service offerings to more closely mirror our US make up. We are now seeing a meaningful
impact from this investment and expect Enterprise Performance Management (“EPM”) in Europe to represent a growing component
of our European revenues for the year. Additionally, the growth in our “IP as a Service offering” should continue to grow and be
noticeable to our 2017 results.
3
We continue to expect one of the key drivers for our growth to come from the growing leverage of our so called “wedge”
or Benchmarking and Best Practices Advisory services. Our Benchmarking and Best Practice Advisory offerings are highly
differentiated and have been providing significant and improved cross-selling leverage for our Business Transformation and
Technology consulting services. As we have been previewing, we plan to roll out a new Benchmarking offering we are calling
Quantum Leap that will incorporate our Hackett Performance Exchange (“HPE”) technology and other innovations into our
Benchmark (“BM”) platform offerings that will improve and further differentiate the value delivered through our BM offerings. We
expect this launch to happen in the first half of 2017.
In Best Practices Advisory, our IP alliance relationships are helping us invest in new technology and offerings that will
improve our client’s access and leverage of our proprietary insight that we deliver through Best Practice programs.
In the fourth quarter of 2015, we launched a dedicated Hackett best practices advisory program for ADP’s Vantage
HCM® solution. Given our early success with this program, we are now developing plans with ADP that will expand our offering
additional platforms that they expect to migrate to Vantage as well as a program into a targeted part of their existing install base.
These new programs will expand our opportunities with ADP in 2017.
Relative to our new Certified GBS Program (CGBSP) alliance with Chartered Institute of Management Accountants, we
believe this relationship will allow us to build a new professional development business that provides globally recognized
certifications for shared services and global business service professionals. During the fourth quarter we launched our last remaining
managerial diploma course. This now allows all of our existing clients to see our fully completed curriculum.
We recently announced the launch of our Enterprise Analytics training and certification course and the introduction of
The Hackett Institute. Analytical skills are expected to grow over the next decade as companies realize the value of data and related
insight and realize the need to extend these skills in a meaningful way throughout the enterprise. This new offering was launched
without an alliance partner. However, academic institutions that can extend the value of our content and the branding and value of our
planned certification, will be considered. Given the unique nature of our Best Practice content and the recognized value we have
experienced with the CGBS offering appears to indicate that continuing education provides a revenue growth opportunity for our
organization.
Our long term strategy continues to be to build our brand by building new offerings and capabilities around our
unmatched Best Practice intellectual capital in order to serve clients strategically and whenever possible, continuously.
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. It also provides us visibility into how leading global companies deploy technology or organizational strategies to
optimize their performance. This insight results in a proprietary Best Practices Repository and with software configuration and
organizational strategies which are only available from the unique vantage point provided from our Benchmarking solution. Utilizing
the benchmarking metrics and repository of best practices, combined with the global strategy and implementation insight of our
transformation and technology associates, Hackett has also created a series of organizational and technology accelerators that allow
clients to effect proven sustainable performance improvement. Our proprietary BPI intellectual capital, which is imbedded within our
consulting global delivery methodology, allows us to help clients accelerate their time to benefit from these improvements.
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 all within the framework of our Best
Practices
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
4
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 including 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. 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 however we believe very few, if any, of our competitors have proprietary intellectual capital
similar to the benchmarking based performance metrics and BPI insight that emanates from our Transformational Benchmark and
Best Practices 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 13,000 benchmark and performance studies over 23 years at over 5,100 clients,
generating proprietary data sets spanning performance metrics and correlating best practices with superior performance. The
combination of Hackett benchmark data, along with deep expertise and knowledge in evaluating, designing and implementing
business transformation strategies leveraging our proprietary Best Practices Repository, 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 terrific talent and with our intellectual capital-centric approach,
gives us a distinct competitive advantage.
STRATEGY
Our focus will be on executing the following strategies:
(cid:120)
(cid:120)
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 and strategic partners 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 Best Practices 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’s 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. Our long term strategy is to continue to build our brand by building
5
new offerings and capabilities around our unmatched Best Practice Implementation intellectual capital in order to serve clients
strategically and whenever possible, continuously.
We believe that 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 intellectual capital
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 capabilities. Our long-term goal is to be able to ascribe an
increasing percentage of our total annual revenues to clients who are continuously engaged with us through our executive and
best practices advisory programs, and through our Hackett Performance Exchange. At the end of the fourth quarter of 2016 our
Executive and Best Practice Advisory Members totaled 1,075 across 330 clients. Consistent with prior years, approximately
50% of our Hackett sales were also Advisory clients, which continues to support the leverage of this entry or IP-wedge offering.
If our clients 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 or Best Practices 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.
We continue to explore ways to leverage our IP through new external strategic partners and their channels.
(cid:120)
Introduce New IP–centric Offerings. We are now seeing new opportunities through new strategic alliances and channels to use
our IP to help others sell and deliver their offerings. In the fourth quarter of 2015 we launched a series of such alliances as
described below:
In the fourth quarter of 2015, we launched a program with ADP that added a dedicated Hackett Best Practices advisory program
to ADP’s Vantage HCM® solution. Our early indications from the ADP sales force as well as their clients are very favorable.
We already have several clients that are utilizing the new Hackett Best Practice program in their ADP Vantage implementations,
we expect our pipeline as well as closed deals to build throughout the upcoming year.
We also launched the Association of Certified GBS Professionals Program with CIMA, the Chartered Institute of Management
Accountants. We believe this relationship will allow us to build an entirely new professional development business that provides
globally recognized certifications for shared services and global business service professionals. Our plan is to augment our
existing entry level program with an Executive level program next April and the Managerial level program by next July. At that
time, we will have our complete curriculum fully rolled out. We have over 20 clients who have already committed to a Pilot
program and use our entry level course for the assessment. We believe our ability to ramp throughout the year will accelerate as
we rollout the other two programs and clients complete initial pilot programs.
Lastly, we also announced our new joint marketing plan with Oracle that will include the sale of the Hackett Performance Exchange
along with the sale of Oracle’s new Business Intelligence Cloud Service or BICS. We have started to expose a large number of
Oracle’s BI sales force to this joint offering which will continue throughout 2016. This program now has a few clients and we
believe this activity will increase as Oracle becomes more familiar with both their new cloud solution as well as the integrated
value of HPE.
Our Benchmarking and Best Practice IP leverage strategy allows us to increase our client base, profitability and increase revenue
per client. It would also represent an increase in recurring revenue at much higher margins due to the way these services are
provided and contracted.
We have developed a 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.
We have also announced our new Enterprise Analytics training and certification course and the introduction of The Hackett
Institute. We believe that analytical skills will significantly grow over the next decade as companies realize the value of data
and related insight and realize the need to extend these skills in a meaningful way throughout the enterprise. Given the unique
nature of our Best Practice content and the recognized value we have experienced with our CGBS offering we now believe that
continuing education provides a significant revenue growth opportunity for our organization.
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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 2016, we invested in the automation and further integration of our various metrics, best practices and best
practice acceleration tools. This effort will continue in 2017.
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.
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
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Executive and Best Practices 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) and by Software Program (ADP Vantage) or Strategic Partner (CIMA). Our advisory
programs include a mix of the following deliverables:
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Best Practice Intelligence Center: Online, searchable repository of best practices, performance metrics, conference
presentations and associated research available to Executive and Best Practices Advisory Program Members and their
support teams.
Best Practice Accelerators: Dedicated web based access to best practices, customized software configuration tools, best
practice process flows used to support the sale, configuration and organizational implementation and post implementation
support efforts of Partner software.
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.
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Introduce New IP-centric Offerings: We are now seeing new opportunities through new strategic alliances and channels
to use our IP to help others sell and deliver their products, such as those offered through our CGBS and ADP programs.
We continue to look for other potential programs through which to introduce new IP-centric offerings.
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Benchmarking Services
Our benchmarking group dates back to 1991, and has measured and evaluated the efficiency and effectiveness of
enterprise functions for over 5,100 organizations globally. This includes 93% of the Dow Jones Industrials, 87% of the Fortune 100,
87% of the DAX 30 and 58% 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 115 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.
We plan to continue to invest heavily in these areas as we have been previewing, we planned to rollout a new
benchmarking offering that we are calling Quantum Leap that will fully incorporate our HPE technology and other innovations into
our benchmarking platform offering that will improve and further differentiate the unmatched value delivered through our
benchmarking offerings. We expect this launch to happen in the first half of 2017.
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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.
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EPM & Business Intelligence (“BI”) Solutions
Our EPM/BI practice focuses on helping clients enhance the decision-making capability in their businesses. These
improvements cover many aspects of service delivery, including process improvement, technology deployment, organizational
alignment, information and data definition and skills and competency alignment. Solutions typically reside in 3 primary areas: Core
Financial Close and Consolidation, Integrated Business Planning, and Reporting / Advanced Analytics. Solution innovations have
taken the practice into areas such as Big Data, Cloud technology data management and governance, and Industry-specific analytic
templates. This practice works closely with Oracle technology offerings and was the #1 Oracle EPM partner for 2013, 2014 and 2015.
Oracle no longer recognizes this designation as a result of their emphasis on cloud-based offerings.
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
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.
CLIENTS
We focus on developing long-term client relationships with Global 2000 firms and other sophisticated buyers of business
and IT consulting services. During 2016, 2015 and 2014, our ten most significant clients accounted for 24%, 24% and 21% of
revenue, respectively. In addition, during 2016 and 2015 our largest client generated 4% of total revenue, and in 2014, our largest
client generated 3% of total revenue. We believe that we have achieved a high level of satisfaction across our client base. The
responses to our client satisfaction surveys have generally 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.
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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. In
our technology practice 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:
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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:
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Strategic Accounts are comprised of large prospects and existing relationships which we believe will have a significant
revenue relationship within the next 18 months. Strategic account criteria include the size of the company, industry
affiliation, propensity to buy external consulting services and contacts within the account. The sales representative
working closely with regional leadership is primarily responsible for identifying business opportunities in the account,
acting as the single point of coordination for the client, and performing the general duties of account manager.
Regional Accounts are accounts within a specified geographic location. These accounts mostly include large prospects,
dormant clients, existing medium-sized clients and mid-tier market accounts and are handled primarily on an opportunistic
basis, except for active clients where delivery teams are focused on driving additional revenue.
Strategic Alliance Accounts are accounts that allow us to partner with organizations of greater scale or different skill sets
or with software developers enabling all parties to jointly market their products and services to prospective clients.
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:
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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
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also includes dedicated individuals who recruit consultants with both business and technology expertise. Our recruiting team supports
our hiring process by focusing on the highest demand solution areas of our business to ensure an adequate pipeline of new associates.
We also have an employee referral program, which rewards existing employees who source new hires.
As of December 30, 2016, we had 1,079 associates, excluding subcontractors, 80% 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.
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 any given year and should not be used to predict future
performance. In future quarters, our operating results may not meet analysts’ and investors’ expectations. If that happens, the price of
our common stock may fall. Many factors can cause fluctuations in our financial results, including:
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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;
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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 2016, our ten largest clients accounted for 24% of our aggregate revenue. In
addition, revenue from a large client may constitute a significant portion of our total revenue in any particular quarter. Our customer
contracts generally can be cancelled for convenience by the customer upon 30 days’ notice. The loss of any of our large clients for any
reason, including as a result of the acquisition of that client by another entity, our failure to meet that client’s expectations, the client’s
decision to reduce spending on technology-related projects, or failure to collect amounts owed to us from our client could have a
material adverse effect on our business, financial condition and results of operations.
We have risks associated with potential acquisitions or investments.
Since our inception, we have expanded through acquisitions. In the future, we plan to pursue additional acquisitions as
opportunities arise. We may not be able to successfully integrate businesses which we may acquire in the future without substantial
expense, delays or other operational or financial problems. We may not be able to identify, acquire or profitably manage additional
businesses. Also, acquisitions may involve a number of risks, including:
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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 that 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.
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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
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:
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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.
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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:
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future announcements concerning us or our competitors;
quarterly fluctuations in operating results;
announcements of acquisitions or technological innovations;
changes in earnings estimates or recommendations by analysts; or
current market volatility.
In addition, the stock prices of many business and technology services companies fluctuate widely for reasons which may
be unrelated to operating results. Fluctuation in the market price of our common stock may impact our ability to finance our operations
and retain personnel.
We earn revenue, incur costs and maintain cash balances in multiple currencies, and currency fluctuations could adversely affect
our financial results.
We have 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 in the local jurisdiction 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.
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ITEM 1B. UNRESOLVED STAFF COMMENTS
None.
ITEM 2.
PROPERTIES
Our principal executive office is currently located at 1001 Brickell Bay Drive, Floor 30, 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, Paris, Montevideo, Hyderabad and Sydney. As of December 30, 2016, we had
operating leases that expire on various dates through December 2024. 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.
14
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 Stock Market 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 Stock Market:
PART II
2016
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
2015
Fourth Quarter
Third Quarter
Second Quarter
First Quarter
High
Low
18.35 $
17.26 $
15.74 $
15.84 $
14.64
13.06
13.11
12.44
High
Low
20.02 $
15.23 $
14.20 $
9.58 $
13.12
12.07
8.66
7.31
$
$
$
$
$
$
$
$
The closing sale price for the common stock on March 6, 2017, was $19.20.
As of March 6, 2017, there were 268 holders of record of our common stock and 29,187,155 shares of common stock
outstanding.
Securities Authorized for Issuance under Equity Compensation Plans
Information appearing under the caption “Equity Compensation Plan Information” in the 2017 Proxy Statement is hereby
incorporated by reference.
15
Performance Graph
The following graph compares our cumulative total shareholder return since December 30, 2011 with the NASDAQ
Composite Index and a peer group index composed of other companies with similar business models identified below. The graph
assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on
December 30, 2011.
The Hackett Group, Inc.
NASDAQ Composite Index
Peer Group
$
$
$
100.00 $
100.00 $
100.00 $
109.59 $
116.41 $
93.51 $
173.03 $
165.47 $
152.43 $
12/30/11
12/28/12
12/27/13
1/2/15
245.75 $
188.69 $
147.57 $
1/1/16
460.11 $
200.32 $
131.01 $
12/30/16
514.33
216.54
137.76
The Peer Group includes Edgewater Technology, Inc., FTI Consulting, Inc., Huron Consulting Group, Inc., Information
Services Group, Inc., and The Corporate Executive Board Company.
16
Company Dividend Policy
In December 2012, we announced an annual dividend program of $0.10 per share. In December 2012 and 2013, we paid
annual dividends of $0.10 per share, or $3.1 million to shareholders of record as of close of business on December 20, 2012 and on
December 10, 2013, respectively. In 2014, we increased the dividend to $0.12 per share, or $3.5 million, to shareholders of record as
of close of business on December 10, 2014. In 2015, we increased the annual dividend to $0.20 per share to be paid on a semi-annual
basis, or $3.1 million and $3.2 million to shareholders of record on June 29, 2015 and December 28, 2015, respectively. In 2016, we
increased the annual dividend to $0.26 per share to be paid on a semi-annual basis or $4.0 million to shareholders of record on both
June 30, 2016 and December 22, 2016. Subsequent to year-end 2016, we increased the annual dividend from $0.26 per share to $0.30
per share to be paid on a semi-annual basis. Our credit agreement contains restrictions on our ability to declare dividends and
repurchase shares. The declaration of dividends shall at all times be subject to the final determination of our Board of Directors that a
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
We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. The repurchase
plan was first announced on July 30, 2002. All repurchases under this program are discretionary and 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. The following table summarizes our share repurchases during the year ended December 30, 2016 under this
authorization:
Period
Balance as of January 1, 2016
January 2, 2016 to September 30, 2016
October 1, 2016 to October 28, 2016
October 29, 2016 to November 25, 2016
November 26, 2016 to December 30, 2016
Total Number
of Shares
Purchased
Average
Price Paid
per Share
— $
2,059,287 $
— $
— $
— $
2,059,287 $
—
14.60
—
—
—
14.60
Total Number
of Shares Purchased
as Part of Publicly
Announced
Program
Maximum Dollar
Value of Shares That
May Yet Be Purchased
Under the
Program
— $
2,059,287 $
— $
— $
— $
2,059,287
2,309,346
4,433,356
4,433,356
4,433,356
4,433,356
During the year ended December 30, 2016, the Company’s Board of Directors approved an additional $32.2 million
authorization, bringing the cumulative authorization as of December 30, 2016, to $127.2 million with cumulative purchases under the
plan of $122.8 million, leaving $4.4 million available for future purchases. Subsequent to year end, we repurchased 59 thousand
shares of the Company’s stock from members of our Board of Directors for a total cost of $1.2 million, or $20.13 per share, leaving
$3.2 million available for future purchases.
Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These
withheld shares are never issued and in lieu of issuing the shares, taxes were paid on our employee’s behalf. In 2016, 294 thousand
shares were withheld and not issued for a cost of $4.0 million and in 2015, 297 thousand shares were withheld and not issued for a
cost of $2.5 million.
17
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 December 30, 2016, 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 expense:
Interest expense, net
Income from continuing operations before income taxes
Income tax expense (benefit) (4)
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
Consolidated Balance Sheet Data:
Cash
Restricted cash
Working capital
Total assets
Long-term debt
Shareholders' equity
Dividends declared per share
December 30,
2016
January 1,
2016
Year Ended
January 2,
2015
(in thousands, except per share data)
2013
December 27, December 28,
2012
$
259,907 $
28,654
288,561
234,581 $
26,359
260,940
213,519 $
23,218
236,737
200,391 $
23,439
223,830
199,749
22,987
222,736
163,273
28,654
191,927
62,081
—
—
254,008
34,553
(387)
34,166
12,625
21,541
—
21,541 $
0.74 $
—
0.74 $
0.66 $
—
0.66 $
147,024
26,359
173,383
65,632
—
—
239,015
21,925
(409)
21,516
7,707
13,809
—
13,809 $
0.47 $
—
0.47 $
0.43 $
—
0.43 $
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
29,082
32,815
29,620
31,968
28,718
29,881
30,283
32,116
31,704
33,511
19,710 $
— $
12,999 $
159,299 $
7,000 $
86,269 $
0.26 $
23,503 $
— $
17,375 $
160,379 $
— $
102,144 $
0.20 $
14,608 $
— $
15,418 $
149,598 $
18,263 $
89,788 $
0.12 $
18,199 $
354 $
20,767 $
145,188 $
19,029 $
93,176 $
0.10 $
16,906
683
19,020
149,180
22,105
94,726
0.10
$
$
$
$
$
$
$
$
$
$
$
$
(1)
(2)
(3)
(4)
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 15 to
our consolidated financial statements included in this Annual Report.
Fiscal years 2012 includes the benefit for the release of $6.7 million of deferred income tax asset valuation allowance.
18
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 13,000 benchmark and performance studies over 23 years at over 5,100 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 addition, we are identifying new opportunities
for our benchmarking and best practice intellectual property by leveraging new channels through strategic alliances to introduce new
recurring revenue, high margin offerings that could redefine our organizational model that we have started to refer to as “IP as a
service” business.
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/SAP Solutions” encompasses our SAP ERP Technology and SAP Maintenance
groups.
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.
19
Unbilled revenue represents revenue for services performed that have not been invoiced. If we do not accurately estimate
the scope of the work to be performed, or we do not manage our projects properly within the planned periods of time, or we do not
meet our clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing
contracts may need to be recognized. Any such reductions in margins or contract losses could be material to our results of operations.
Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with
no impact on revenue.
Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include
travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of
service.
The agreements entered into in connection with a project, whether time and materials, 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
For transactions that are considered business combinations, we utilize 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. We performed our annual step one impairment test of our goodwill in the fourth quarter of fiscal 2016 and determined that
goodwill was not impaired.
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
20
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, non-compete agreements and trademarks that are amortized on a straight-line or accelerated basis over periods of up to five
years.
Stock Based Compensation
We recognize compensation expense for awards of equity and liability instruments to employees based on the grant-date
fair value of those awards, over the requisite service period, with limited exceptions.
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.
21
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 2016, 2015 and 2014 ended on December 30, 2016, January 1, 2016 and January 2,
2015, 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. We also present earnings before income taxes, interest expense,
depreciation and amortization (EBITDA) and adjusted EBITDA, both of which are non-GAAP measures.
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 long-
term cash tax rate.
All non-GAAP information presented herein should be considered in addition to, and not as a substitute for or superior to,
any measure of performance, cash flows, or liquidity prepared in accordance with GAAP.
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 results.
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
SARs-related non-cash compensation expense
Acquisition-related costs
Amortization of intangible assets
Total selling, general, and administrative expenses
Bargain purchase gain from acquisition
Restructuring costs
Total costs and operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Income from operations before income taxes
Income tax expense
Net income
Diluted net income per common share
Adjusted non-GAAP data (unaudited):
Income from continuing operations before income taxes
Bargain purchase gain from acquisition
December 30,
2016
Twelve Months Ended
January 1,
2016
January 2,
2015
$
$
259,907 100%
28,654
288,561
234,581 100%
26,359
260,940
$
213,519 100%
23,218
236,737
157,515 61%
4,544
1,214
-
28,654
191,927
57,974 22%
3,007
-
-
1,100
141,665 60%
4,432
927
-
26,359
173,383
58,423 25%
2,344
2,658
-
2,207
131,962 62%
2,656
900
3,440
23,218
162,176
56,240 26%
2,337
477
120
2,212
62,081 24%
65,632 28%
61,386 29%
-
-
254,008
-
-
239,015
(3,015)
3,604
224,151
34,553 13%
21,925 9%
12,586 6%
-
(387)
34,166 13%
12,625 5%
3
(412)
21,516 9%
7,707 3%
21,541 8%
$
13,809 6%
0.66
34,166
-
$
$
0.43
21,516
-
$
$
$
6
(626)
11,966 6%
2,255 1%
9,711 5%
0.33
11,966
(3,015)
$
$
$
22
Non-cash stock compensation expense
SARs-related non-cash compensation expense
Acquisition-related stock compensation expense
Acquisition-related compensation expense
Acquisition-related costs
Restructuring costs
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
EBITDA:
Income from operations before income taxes
Interest expense
Depreciation expense
Amortization of intangible assets
EBITDA
Reconciliation to adjusted EBITDA:
EBITDA
Non-cash stock compensation expense
SARs-related non-cash compensation expense
Acquisition-related non-cash stock compensation expense
Acquisition-related compensation expense
Acquisition-related costs
Restructuring costs
Bargain purchase gain from acquisition
Adjusted EBITDA
Comparison of 2016 to 2015
7,551
-
1,214
-
-
-
1,100
44,031
13,209 30%
30,822
0.94
34,166
387
2,485
1,100
38,138
38,138
7,551
-
1,214
-
-
-
-
46,903
6,776
2,658
927
-
-
-
2,207
34,084
10,225 30%
23,859
0.75
21,516
412
2,582
2,207
26,717
26,717
6,776
2,658
927
-
-
-
-
37,078
$
$
$
$
4,993
477
900
3,440
120
3,604
2,212
24,697
7,847 32%
16,850
0.56
11,966
626
2,357
2,212
17,161
17,161
4,993
477
900
3,440
120
3,604
(3,015)
27,680
$
$
$
$
$
$
$
$
$
$
Overview. References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense,
intangible asset amortization expense, acquisition related charges and gains, restructuring charges and assumes a normalized long-
term cash tax rate of 30%.
Our continued strong U.S. demand drove our results as our momentum was realized across virtually all of our U.S.
practices. For the fiscal year 2016, revenue increased 10.6% to $288.6 million and earnings per share increased 53%, as compared to
the same period in the prior year. Fiscal year 2015 earnings per share was unfavorably impacted by non-recurring, non-cash
compensation expense relating to performance-based Stock Appreciation Rights issued in 2012. 2016 adjusted non-GAAP earnings
per share increased 25%, as compared to the same period in the prior year, on top of the two previous non-GAAP earnings per share
results which were up 34% in 2015 and 37% in 2014, as compared to the same period in the prior year. Earnings before income taxes,
interest expense, depreciation and amortization (EBITDA) increased to $38.1 million in fiscal 2016 from $26.7 million in 2015.
Adjusted EBITDA increased to $46.9 million in 2016 from $37.1 million in 2015.
Revenue. 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 impact of the currency fluctuation did not have a significant impact on comparisons between
2016 and 2015. Revenue is analyzed based on geographic location of engagement team personnel.
Our total Company revenue increased 10.6%, or 11.1% in constant currency, to $288.6 million in 2016, as compared to
$260.9 million in 2015. Our strong 2016 results were driven by over 13% revenue growth from our North American service offerings.
By consolidating several of our Hackett practices, we have seen improvement in collaboration and cross-selling which has allowed us
to serve clients more broadly. As an example, revenue from our top twenty U.S. clients this year grew just over 20% from the prior
23
year. Our domestic growth was partially offset by weak European revenue which has decreased 2.9% year over year, but was flat on a
constant currency basis. Our international revenue accounted for 14% of our total revenue in 2016, as compared to 16% in 2015.
Reimbursements as a percentage of total revenue were 10% during both 2016 and 2015. In 2016 and 2015, 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; non-cash stock compensation expense; and reimbursable expenses associated
with projects.
Personnel costs increased 11% to $157.5 million in 2016 from $141.7 million in 2015. The increase in the absolute dollar
amount was primarily a result of increased employee headcount and higher subcontractor costs to support increasing revenue.
Personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements remained relatively flat at 61% in
2016, as compared to 60% in 2015.
Non-cash compensation expense included in total cost of service was comparable at $4.5 million in 2016, as compared to
$4.4 million in 2015. Acquisition-related stock compensation expense included in total cost of service was $1.2 million in 2016, as
compared to $0.9 million in 2015. The increase in the acquisition-related stock compensation expense was primarily related to the
finalization of the earn-out equity granted related to the acquisition of Technolab International Corporation (“Technolab”).
Total Selling, General and Administrative (“SG&A”). SG&A costs, excluding non-cash compensation expense, SARs-
related non-cash compensation expense and the amortization of intangible assets decreased 1% to $58.0 million in 2016, from $58.4
million in 2015. SG&A costs as a percentage of revenue before reimbursements were 22% in 2016 and 25% in 2015 due to the
improved leverage from increased revenue.
Non-cash compensation expense included in total SG&A increased to $3.0 million in 2016, as compared to $2.3 million in
2015. The increase primarily related to the performance-based equity compensation which was driven by Company performance.
SARs-related non-cash compensation expense included in total SG&A decreased $2.7 million in 2016, as compared to 2015, due to
the non-recurring, non-cash stock compensation expense related to the performance-based SARs awards tied to the achievement of the
pro-forma EBITDA performance target. This expense represented 100% of the non-cash compensation expense for these equity
awards. See Note 9, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form
10-K for further information.
Amortization expense was $1.1 million and $2.2 million in 2016 and 2015, respectively. The amortization expense in
2016 and 2015 was primarily due to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of
Technolab. The decrease in the amortization expense primarily related to the full amortization at the end of 2015 of the customer
backlog and tradename. The intangibles related to the customer relationship and non-compete agreement will continue to amortize
through 2018.
Income Tax Expense. In 2016, we recorded income tax expense of $12.6 million, which reflected an effective tax rate of
37.0% for certain federal, foreign and state taxes. In 2015, we recorded income tax expense of $7.7 million, which reflected an
effective tax rate of 35.8% for certain federal, foreign and state taxes.
Comparison of 2015 to 2014
Overview. References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense,
intangible asset amortization expense, acquisition related charges and gains, restructuring charges and assumes a long-term
normalized cash tax rate of 30%.
Our continued strong U.S. demand drove our results as our momentum was realized across virtually all of our U.S.
practices. Our strong results were in spite of weak European results and the unfavorable impact of foreign currency which reduced our
2015 earnings per share and adjusted non-GAAP earnings per share by approximately three and four cents, respectively.
Revenue. 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
24
currency exchange rate fluctuations. The exchange rate fluctuations did have a significant impact on comparisons between 2015 and
2014. Revenue is analyzed based on geographic location of engagement team personnel.
Our total Company revenue increased 10%, or 13% in constant currency, to $260.9 million in 2015, as compared to
$236.7 million in 2014. Our strong 2015 results were driven by over 14% revenue growth from our North American service offerings.
Our domestic growth was partially offset by weak European revenue which has decreased 8% year over year, but
increased 4% on a constant currency basis. Our international revenue accounted for 16%, or 17% in constant currency, of our total
revenue in 2015, as compared to 19% in 2014.
Reimbursements as a percentage of total revenue were 10% during both 2015 and 2014. In 2015 and 2014, 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 acquisition of Technolab,
an EPM AMS business that we acquired in the first quarter of 2014; non-cash stock compensation expense; and reimbursable
expenses associated with projects.
Personnel costs increased 7% to $141.7 million in 2015 from $132.0 million in 2014. The increase in the absolute dollar
amount was primarily a result of increased employee headcount and higher subcontractor costs to support increasing revenue, as well
as, higher incentive compensation costs commensurate with Company performance. Personnel costs before reimbursable expenses, as
a percentage of revenue before reimbursements, were 60% in 2015, as compared to 62% in 2014, due to the improved leverage from
increased revenue.
Non-cash compensation expense included in cost of sales increased $1.8 million in 2015, as compared to 2014, primarily
due to the impact of historical equity awards on the current year. Total acquisition-related stock compensation expense was $0.9
million in both 2015 and 2014, all of which related to the Technolab acquisition.
Total Selling, General and Administrative (“SG&A”). SG&A costs excluding non-cash compensation expense, SARs-
related non-cash compensation expense and the amortization of intangible assets increased 4% to $58.4 million in 2015, from $56.2
million in 2014 primarily due to higher selling-related expenses and incentive compensation accruals commensurate with Company
performance. SG&A costs as a percentage of revenue before reimbursements were 25% in 2015 and 26% in 2014 due to the improved
leverage from increased revenue.
Non-cash compensation expense, included in total SG&A, was $2.3 million in both 2015 and 2014. SARs-related non-
cash compensation expense, included in total SG&A, increased $2.2 million in 2015, as compared to 2014, due to the non-recurring,
non-cash stock compensation expense related to the performance-based SARs awards tied to the achievement of the pro-forma
EBITDA performance target. The expense in 2015 represented 100% of the non-cash compensation expense for these equity awards.
See Note 9, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for
further information.
Amortization expense was $2.2 million in both 2015 and 2014. The amortization expense in 2015 and 2014 was primarily
due to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab.
Bargain Purchase Gain from Acquisition. During the first quarter of 2014, we acquired and accounted for certain assets
and liabilities of 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. 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, were accounted for as compensation expense. During the quarter ended October 2, 2015, we settled
the contingent earn-out with cash and issued equity in accordance with the purchase agreement.
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 to reduce the impact on our consolidated results from the continued volatility in
demand in our European markets.
Income Taxes. In 2015, we recorded income tax expense of $7.7 million, which reflected an effective tax rate of 35.8% for
certain federal, foreign and state 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%.
25
For tax purposes, as of January 1, 2016, we had a total of $7.6 million of foreign net operating loss carry forwards,
primarily in the U.K. and $2.3 million of U.S. state net operating loss carryforwards. We have fully utilized our U.S. federal net
operating loss carryforwards in the fourth quarter of 2015.
Liquidity and Capital Resources
As of December 30, 2016 and January 1, 2016, we had $19.7 million and $23.5 million, respectively, of cash and cash
equivalents, respectively. We currently believe that available funds (including the cash on hand and funds available for borrowing
under the revolving line), 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.
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
December 30,
2016
January 1,
2016
$
$
$
32,889
$
(3,179) $
(33,499) $
36,177
(3,002)
(24,237)
Net cash provided by operating activities was $32.9 million in 2016, as compared $36.2 million in 2015. In 2016, the net cash
provided by operating activities was primarily due to net income adjusted for non-cash items, partially offset by increased accounts
receivable and unbilled revenue. In 2015, the net cash provided by operating activities was primarily due to net income adjusted for
non-cash items and increased accrued liabilities primarily related to higher incentive compensation accruals, partially offset by
increased accounts receivable and unbilled revenue.
Cash Flows from Investing Activities
Net cash used in investing activities was $3.2 million in 2016, as compared to $3.0 million in 2015. Both periods include
approximately $3.0 million in capital expenditures on the continued development of our benchmark technology and the purchase of
computer equipment as a result of the increase in headcount.
Cash Flows from Financing Activities
Net cash used in financing activities was $33.5 million in 2016 and $24.2 million in 2015. The usage of cash in 2016 was
primarily related to the cost of the repurchase of $30.1 million of Company common stock under the Company’s share repurchase
program, $4.0 million to satisfy employee net vesting-related tax requirements and $7.2 million was utilized to payout dividends.
These uses of cash were partially offset by the net borrowings of $7.0 million. The usage of cash in 2015 was primarily related to the
net payoff of the debt of $18.3 million, total stock repurchases of $3.8 million, including $1.3 million under the Board open market
purchase authorization and $2.5 million to satisfy employee net vesting obligations, and $3.1 million of dividend payments.
Contractual Obligations
There were no material capital commitments as of December 30, 2016. The following table summarizes our future
principal payments under our Credit Agreement and future lease commitments under our non-cancelable operating leases as of
December 30, 2016 (in thousands):
Contractual Obligations
Short-term debt obligations (1)
Long-term debt obligations (1)
Operating lease obligations
Total
Total
— $
—
7,337
7,337 $
$
$
Less Than
1 Year
1-3 Years
4-5 Years
More Than
5 Years
— $
—
1,961
1,961 $
— $
—
2,962
2,962 $
— $
7,000
1,620
8,620 $
—
—
794
794
26
(1)
Excludes the fee on the amount of any unused commitment that we may be obligated to pay under our Credit Agreement, as
such amounts vary and cannot be estimated. See Note 7 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 December 30, 2016.
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 December 30, 2016, 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 2016
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. The Company recognized income related to foreign currency exchange of $0.6 million in 2016 and losses of $0.2 million and
$8 thousand in 2015 and 2014, respectively. 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.
27
ITEM 8.
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
THE HACKETT GROUP, INC.
INDEX TO FINANCIAL STATEMENTS AND SCHEDULE
Reports of Independent Registered Public Accounting Firms
Consolidated Balance Sheets as of December 30, 2016 and January 1, 2016
Consolidated Statements of Operations for the Years Ended December 30, 2016, January 1, 2016
and January 2, 2015
Consolidated Statements of Comprehensive Income for the Years Ended December 30, 2016, January 1, 2016
and January 2, 2015
Consolidated Statements of Shareholders’ Equity for the Years Ended December 30, 2016, January 1, 2016
and January 2, 2015
Consolidated Statements of Cash Flows for the Years Ended December 30, 2016, January 1, 2016
and January 2, 2015
Notes to Consolidated Financial Statements
Schedule II - Valuation and Qualifying Accounts and Reserves
Page
29
31
32
33
34
35
36
54
28
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
The Hackett Group, Inc.
We have audited the accompanying consolidated balance sheets of The Hackett Group, Inc. as of December 30, 2016 and January 1,
2016, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for the years
then ended. Our audits also include the financial statement schedule of The Hackett Group, Inc. listed in Item 15(a). These financial
statements and financial statement 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. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as
evaluating the overall financial statement presentation. 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. as of December 30, 2016 and January 1, 2016, and the results of their operations and their cash flows for the
years then ended, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related 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 have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The
Hackett Group, Inc.'s internal control over financial reporting as of December 30, 2016, based on criteria established in Internal
Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and
our report dated March 10, 2017 expressed an unqualified opinion on the effectiveness of The Hackett Group, Inc.’s internal control
over financial reporting.
/s/ RSM US LLP
Fort Lauderdale, Florida
March 10, 2017
29
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
Board of Directors and Shareholders
The Hackett Group, Inc.
Miami, Florida
We have audited the accompanying consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows
of The Hackett Group, Inc., for the year ended January 2, 2015. In connection with our audit 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
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 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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the results of its operations
and its cash flows for the year 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.
Miami, Florida
March 18, 2015
/s/ BDO USA, LLP
Certified Public Accountants
30
THE HACKETT GROUP, INC.
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
ASSETS
Current assets:
Cash
Accounts receivable and unbilled revenue, net of allowance of $2,574 and $1,881
at December 30, 2016 and January 1, 2016, respectively
Prepaid expenses and other current assets
Total current assets
Property and equipment, net
Other assets
Goodwill
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; 54,785,193 and 53,847,479
shares issued at December 30, 2016 and January 1, 2016, respectively
Additional paid-in capital
Treasury stock, at cost, 26,197,981 and 24,138,694 shares at December 30, 2016 and
January 1, 2016, respectively
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders' equity
Total liabilities and shareholders' equity
December 30,
2016
January 1,
2016
$
19,710 $
23,503
47,399
1,704
68,813
14,774
3,336
72,376
159,299
9,089 $
46,725
55,814
10,216
7,000
73,030
42,046
1,938
67,487
14,102
4,206
74,584
160,379
8,300
41,812
50,112
8,123
—
58,235
—
—
55
277,100
(122,756)
(56,581)
(11,549)
86,269
159,299 $
54
272,887
(92,691)
(70,134)
(7,972)
102,144
160,379
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
31
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 $5,758, $5,359 and $3,556 of stock compensation
expense in 2016, 2015 and 2014, respectively)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs
(includes $3,007, $5,002 and $2,814 of stock compensation
expense in 2016, 2015 and 2014, respectively)
Bargain purchase gain from acquisition
Restructuring cost
Total costs and operating expenses
Operating income
Other income (expense):
Interest income
Interest expense
Income from operations before income taxes
Income tax expense
Net income
Basic net income per common share:
Income per common share from operations
Weighted average common shares outstanding
Diluted net income per common share:
December 30,
2016
Year Ended
January 1,
2016
January 2,
2015
$
259,907 $
28,654
288,561
234,581 $
26,359
260,940
213,519
23,218
236,737
163,273
28,654
191,927
147,024
26,359
173,383
138,958
23,218
162,176
62,081
—
—
254,008
34,553
65,632
—
—
239,015
21,925
—
(387)
34,166
12,625
21,541 $
3
(412)
21,516
7,707
13,809 $
0.74 $
0.47 $
29,082
29,620
$
$
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
Income per common share from operations
Weighted average common and common equivalent shares outstanding
$
0.66 $
0.43 $
32,815
31,968
The accompanying notes are an integral part of the consolidated financial statements.
32
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Net income
Foreign currency translation adjustment
Total comprehensive income
December 30,
2016
$ 21,541 $
$
(3,577)
17,964 $
Year Ended
January 1,
2016
13,809 $
(1,807)
12,002 $
January 2,
2015
9,711
(1,714)
7,997
The accompanying notes are an integral part of the consolidated financial statements.
33
THE HACKETT GROUP, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands)
Common Stock
Shares
Amount
Additional
Paid in
Capital
Treasury Stock
Accumulated Comprehensive
Shares
Amount
Deficit
Loss
Accumulated
Other
Total
Shareholders'
Equity
(22,189) $
(80,406) $
261,861
(1,837)
—
— (1,800)
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 declared
Net income
Foreign currency translation
Balance at January 2, 2015
Issuance of common stock
Treasury stock purchased
Amortization of restricted stock units
and common stock subject to
vesting requirements
Dividend declared
Net income
Foreign currency translation
Balance at January 1, 2016
Issuance of common stock
Treasury stock purchased
Amortization of restricted stock units
and common stock subject to
vesting requirements
Dividend declared
Net income
Foreign currency translation
Balance at December 30, 2016
52,143 $
1,060
—
—
—
—
—
53,203 $
644
—
—
—
—
—
53,847 $
938
—
—
—
—
—
54,785 $
52 $
1
—
—
—
—
—
53 $
1
—
—
—
—
—
54 $
1
—
—
—
—
—
55 $
4,888
—
—
—
264,912
(1,543)
—
9,518
—
—
—
272,887
(3,032)
7,245
—
—
—
277,100
—
(10,929)
—
—
—
—
—
(30,065)
—
—
—
—
—
—
—
—
—
—
—
—
(23,989) $
(91,335) $
—
(149)
—
(1,356)
—
—
—
—
—
—
—
—
(24,138) $
(92,691) $
—
— (2,059)
(26,197) $ (122,756) $
(83,880) $
—
—
(4,451) $
—
—
93,176
(1,836)
(10,929)
—
(3,508)
9,711
—
(77,677) $
—
—
—
(6,266)
13,809
—
(70,134) $
—
—
—
(7,988)
21,541
—
(56,581) $
—
—
—
(1,714)
(6,165) $
—
—
—
—
—
(1,807)
(7,972) $
—
—
—
—
—
(3,577)
(11,549) $
4,888
(3,508)
9,711
(1,714)
89,788
(1,542)
(1,356)
9,518
(6,266)
13,809
(1,807)
102,144
(3,031)
(30,065)
7,245
(7,988)
21,541
(3,577)
86,269
The accompanying notes are an integral part of the consolidated financial statements.
34
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
(Gain) loss on foreign currency transactions
Restructuring costs
Non-cash stock compensation expense
Acquisition consideration reflected as compensation expense
Bargain purchase gain from acquisition
Deferred income tax expense
Changes in assets and liabilities, net of acquisition:
Increase in accounts receivable and unbilled revenue
Decrease in prepaid expenses and other assets
Increase (decrease) in accounts payable
Increase (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:
Proceeds from borrowings
Payment of debt borrowings
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 increase (decrease) in cash
Cash at beginning of year
Cash at end of year
Supplemental disclosure of cash flow information:
Cash paid for income taxes
Cash paid for interest
December 30,
2016
Year Ended
January 1,
2016
January 2,
2015
$
21,541 $
13,809 $
9,711
2,485
1,100
106
38
(594)
—
8,765
—
—
2,092
(4,709)
135
790
1,140
32,889
(3,179)
—
—
—
(3,179)
2,582
2,207
98
89
170
—
10,361
(3,440)
—
5,026
(4,761)
312
390
9,334
36,177
(3,002)
—
—
—
(3,002)
30,000
(23,000)
(237)
(7,163)
984
(34,083)
(33,499)
(4)
(3,793)
23,503
19,710 $
2,500
(20,763)
(14)
(3,067)
945
(3,838)
(24,237)
(43)
8,895
14,608
23,503 $
2,357
2,212
95
785
8
3,604
6,370
—
(3,015)
1,949
(2,848)
42
(171)
(2,340)
18,759
(3,097)
(2,877)
522
354
(5,098)
10,500
(11,487)
(22)
(3,508)
937
(13,702)
(17,282)
30
(3,591)
18,199
14,608
8,757 $
282 $
268 $
335 $
893
538
$
$
$
The accompanying notes are an integral part of the consolidated financial statements.
35
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information
Nature of Business
The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best
practices implementation firm to global companies. Services include business transformation, enterprise performance management,
working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy,
operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-
winning Oracle EPM and SAP practices.
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 2016, 2015 and 2014 ended on December 30, 2016, January 1, 2016 and
January 2, 2015, respectively. References to a year included in the consolidated financial statements refer to a fiscal year rather than a
calendar year.
Cash and Restricted Cash
The Company considers all short-term investments with maturities of three months or less to be cash equivalents to the extent
that it 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.
As of December 30, 2016 and January 1, 2016, the Company did not have any restricted cash balances or cash equivalents.
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 and 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 annual dividend payment from
$0.10 per share to $0.12 per share. In 2015, the Company’s Board of Directors approved an increase in the annual dividend payment
from $0.12 to $0.20 per share, to be paid semi-annually. In fiscal 2016, the Company’s Board of Directors approved an increase in the
annual dividend to $0.26 per share, to be paid semi-annually. In 2016, the Company paid dividends of $0.23 per share. Subsequent to
fiscal year end 2016, the Company’s Board of Directors approved an additional increase from $0.26 per share to $0.30 per share to be
paid semi-annually. 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 ten
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.
36
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (continued)
The Company capitalizes the costs of internal-use software, 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.
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
For transactions that are considered business combinations, the Company utilizes 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.
The Company performed its annual step one impairment test of goodwill in the fourth quarter of fiscal years 2016 and 2015 and
determined that goodwill was not impaired. The carrying amount and activity of goodwill attributable to The Hackett Group and
Hackett Technology Solutions was as follows (in thousands):
Balance at January 2, 2015
Foreign currency translation adjustment
Balance at January 1, 2016
Foreign currency translation adjustment
Balance at December 30, 2016
The Hackett
Group
Hackett
Technology
Solutions
$
$
44,295
(845)
43,450
(2,208)
41,242
$
$
31,134
—
31,134
—
31,134
$
$
Total
75,429
(845)
74,584
(2,208)
72,376
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.
37
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
December 30,
2016
January 1,
2016
$
$
22,448 $
(19,779)
33
2,702 $
22,448
(18,679)
33
3,802
All of the Company’s intangible assets are expected to be fully amortized by the end of 2018. For the year ended December 30,
2016, the Company recorded $1.1 million of amortization expense. The estimated future amortization expense of intangible assets as
of December 30, 2016 is as follows: $1.5 million in 2017 and $1.2 million in 2018. See Note 14 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.
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.
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.
38
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (continued)
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
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.
The Company utilized 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 and SARs
Dilutive weighted average common shares outstanding
December 30,
2016
Year Ended
January 1,
2016
29,082,253
29,620,361
January 2,
2015
28,718,263
1,413,893
2,319,245
1,617,820
729,447
1,152,974
9,765
32,815,391
31,967,628
29,881,002
There were 0.8 million, 0.5 million and 0.3 million shares of underlying awards granted excluded from the above reconciliation
for the years ended 2016, 2015 and 2014, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income
per share.
Fair Value of Financial Instruments
The Company’s financial instruments consist of cash and cash equivalents, accounts receivable and unbilled revenue, accounts
payable, accrued expenses and other liabilities and debt. As of December 30, 2016 and January 1, 2016, the carrying amount of each
39
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (continued)
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 2016, 2015 and 2014, 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 loss.
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 Financial Accounting Standards Board (“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, 2017 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 permitted, however not before December 15, 2016. 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.
In April 2015, the FASB issued amendments to its guidance which are intended to simplify the balance sheet presentation of
debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the
balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and
measurement guidance for debt issuance costs are not affected by this update. The amendments are effective for annual and interim
periods beginning after December 15, 2015 and requires a retrospective transition method. Early adoption is permitted for financial
statements that have not been previously issued. This adoption did not have a material impact on the Company’s consolidated
financial statements.
On November 20, 2015, the FASB issued guidance which requires an entity to present all deferred tax assets and liabilities as
non-current in a classified balance sheet. The update becomes effective January 1, 2017, however early adoption is permitted. The
Company chose early adoption for the periods presented.
40
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation and General Information (continued)
In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires
lessees to recognize the assets and liabilities that arise from nearly all leases on the balance sheet. Accounting applied by lessors will
remain largely consistent with previous guidance. The amendments are effective for fiscal years beginning after December 15, 2018,
including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this
standard on its consolidated financial statements.
In March 2016, the FASB issued guidance on employee share-based payment accounting, which is intended to simplify several
aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as
either equity or liabilities and classification on the statement of cash flows. This update becomes effective for annual and interim
periods beginning after December 15, 2016, with early adoption permitted. The Company is currently evaluating the impact of this
new guidance.
Reclassifications
Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to
current period presentation.
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
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
December 30,
2016
January 1,
2016
$
$
39,335 $
10,638
(2,574)
47,399 $
33,159
10,768
(1,881)
42,046
Accounts receivable as of December 30, 2016 and January 1, 2016, is net of uncollected advanced billings. Unbilled revenue as
of December 30, 2016 and January 1, 2016 includes recognized recoverable costs and accrued profits on contracts for which billings
had not been presented to clients.
41
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4. Property and Equipment, net
Equipment
Software
Leasehold improvements
Furniture and fixtures
Less accumulated depreciation
December 30,
2016
January 1,
2016
$
$
6,580 $
26,983
373
493
34,429
(19,655)
14,774 $
6,460
24,049
431
494
31,434
(17,332)
14,102
Depreciation expense for the years ended December 30, 2016, January 1, 2016 and January 2, 2015, was $2.5 million, $2.6
million, and $2.4 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated
statements of operations. The increase in accumulated depreciation in 2016, as compared to 2015, relates to depreciation expense and
the impact of foreign currency translation adjustments.
5. Accrued Expenses and Other Liabilities
Accrued expenses and other liabilities consist of the following (in thousands):
Accrued compensation and benefits
Accrued bonuses
Accrued dividend payable
Deferred revenue
Accrued sales, use, franchise and VAT tax
Non-cash stock compensation accrual
Income tax payable
Other accrued expenses
Total accrued expenses and other liabilities
6. Lease Commitments
December 30,
2016
January 1,
2016
$
$
4,412 $
13,038
4,023
10,975
3,791
4,225
4,437
1,824
46,725 $
3,934
13,279
3,199
11,433
1,946
2,704
3,087
2,230
41,812
The Company has operating lease agreements for its premises that expire on various dates through July 2024. Rent expense for
the years ended December 30, 2016, January 1, 2016 and January 2, 2015 was $2.3 million, $2.2 million and $2.2 million,
respectively.
Future minimum lease commitments under non-cancelable operating leases as of December 30, 2016, are as follows (in
thousands):
2017
2018
2019
2020
2021
Thereafter
Total
Rental
Payments
1,961
1,518
1,444
928
692
794
7,337
$
$
42
7. Credit Facility
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
The Company entered into a credit agreement with Bank of America, N.A. ("Bank of America"), pursuant to which Bank of
America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $47.0
million pursuant to a term loan (“the Term Loan”, and together with the Revolver, the “Credit Facility”). During 2015, the Company
paid off the remaining balance on both the Term Loan and Revolver. As of January 1, 2016, the Company had fully utilized and paid
off its Term Loan and had no outstanding balance on the Revolver.
On May 9, 2016, the Company amended and restated the credit agreement with Bank of America to:
(cid:120) Provide for up to an additional $25.0 million of borrowing under the Revolver for a total borrowing capacity of $45.0
million; and to
(cid:120) Extend the maturity date on the Revolver to May 9, 2021, five years from the date of this amendment of the Credit
Agreement.
The obligations of Hackett under the Credit Facility are guaranteed by active existing and future material U.S. subsidiaries of
Hackett (the “U.S. Subsidiaries”), and are secured by substantially all of the existing and future property and assets of Hackett and the
U.S. Subsidiaries, a 100% pledge of the capital stock of the U.S. Subsidiaries, and a 66% pledge of the capital stock of Hackett’s
direct foreign subsidiaries (subject to certain exceptions).
The interest rates per annum applicable to loans under the 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. The applicable margin percentage is based on the consolidated
leverage ratio, as defined in the Credit Agreement. As of December 30, 2016, the applicable margin percentage was 1.50% per annum
based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances.
The interest rate as of December 30, 2016 was 2.18%.
The Company is subject to certain covenants, including total consolidated leverage, fixed cost coverage, adjusted fixed cost
coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions. As of December 30,
2016, the Company was in compliance with all covenants.
In connection with the Credit Facility, the Company incurred $0.2 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 accompanying consolidated balance sheet.
During the quarter ended July 1, 2016, the Company borrowed $25.0 million on the Revolver and through the year ended
December 30, 2016, the Company has paid down $18.0 million, leaving $7.0 million outstanding under the Revolver, excluding the
debt issuance costs of $0.4 million as of December 30, 2016. Subsequent to year end, the Company borrowed $8.0 million from the
Revolver.
2017
2018
2019
2020
2021
Thereafter
Total
8. Income Taxes
Principal
Amortization
Payments
$
$
—
—
—
—
7,000
—
7,000
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 2012 and all significant state, local and foreign matters have been concluded for years through
2012. In the first quarter of 2017, the IRS commenced an examination of the Company’s U.S. income tax return for fiscal year 2014.
43
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes (continued)
The components of income before income taxes are as follows (in thousands):
Domestic
Foreign
Income before income taxes
December 30,
2016
Year Ended
January 1,
2016
$
$
28,611
5,555
34,166
$
$
16,249
5,267
21,516
The components of income tax expense (benefit) are as follows (in thousands):
Current tax expense
Federal
State
Foreign
Deferred tax expense (benefit)
Federal
State
Foreign
Income tax expense
December 30,
2016
Year Ended
January 1,
2016
$
$
8,969
1,065
252
10,286
789
667
883
2,339
12,625
$
$
2,042
463
224
2,729
3,566
529
883
4,978
7,707
January 2,
2015
6,549
5,417
11,966
January 2,
2015
155
131
132
418
200
(238)
1,875
1,837
2,255
$
$
$
$
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
December 30,
2016
35.0 %
3.3
(0.7)
0.8
(1.8)
—
0.1
0.2
36.9 %
Year Ended
January 1,
2016
35.0 %
3.0
(0.8)
1.2
(3.1)
—
(0.2)
0.7
35.8 %
January 2,
2015
35.0 %
(0.6)
(1.0)
2.0
(10.6)
(8.7)
0.1
2.6
18.8 %
The components of the net deferred income tax asset (liability) are as follows (in thousands):
44
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes (continued)
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
Year Ended
December 30,
2016
January 1,
2016
$
978 $
2,182
4,089
7,249
(1,042)
6,207
(5,484)
(10,789)
(150)
(16,423)
(10,216) $
436
3,229
4,943
8,608
(1,287)
7,321
(4,929)
(10,204)
(311)
(15,444)
(8,123)
Net deferred income tax liability
$
As of December 30, 2016, the Company had $1.9 million of U.S. state net operating loss carryforwards. Additionally, at
December 30, 2016, the Company had $4.1 million of foreign net operating loss carryforwards, of which $0.3 million related to
operations in the U.K., $0.7 million related to operations in France and $0.9 million related to operations in Australia. 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 December 30, 2016 and January 1, 2016, the Company had a valuation allowance of $1.0 million and $1.3 million,
respectively, 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 $2.4 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 December 30,
2016 and January 1, 2016, the total amount of accrued income tax-related interest and penalties was $228 thousand and $202
thousand, respectively.
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 years ended December 30, 2016 and
January 1, 2016 (in thousands):
Beginning balance
Additions based on tax positions
Reduction for prior year tax deductions
Ending balance
Year Ended
December 30,
2016
January 1,
2016
$
$
712
26
—
738
$
$
792
15
(95)
712
As of December 30, 2016 and January 1, 2016, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $0.7
million and $0.7 million, respectively, was classified as a current liability and included in accrued expenses and other liabilities in the
accompanying consolidated balance sheets.
45
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
8. Income Taxes (continued)
The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months. The
reversal of ASC 740-10 tax liabilities as of December 30, 2016 and January 1, 2016 would have a favorable impact on the effective
tax rate in future period.
9. Stock Based Compensation
Stock Plans
Total share based compensation included in net income for the years ended December 30, 2016, January 1, 2016 and January 2,
2015 is as follows:
(cid:3)
Restricted stock units
Stock options and stock appreciation rights
Common stock subject to vesting requirements
(cid:3)
(cid:3)
Year Ended
December 30,
January 1,
January 2,
2016
2016
2015
7,550 (cid:3)
— (cid:3)
1,215 (cid:3)
8,765 (cid:3)
(cid:3)
$
(cid:3)
$
(cid:3)
(cid:3)
6,776 (cid:3)
2,658 (cid:3)
927 (cid:3)
10,361 (cid:3)
(cid:3)
$
(cid:3)
$
(cid:3)
(cid:3)
4,994
477
899
6,370
(cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
(cid:3) $
(cid:3)
(cid:3)
(cid:3)
The number of shares available for future issuance under the Company's stock plans as of December 30, 2016 were 1,654,976. The
Company issues new shares as they 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. Stock option activity under the Company’s stock option plans for the year ended December 30, 2016 is summarized
as follows:
Outstanding as of January 1, 2016
Exercised
Forfeited or expired
Outstanding as of December 30, 2016
Exercisable at December 30, 2016
Option Shares
230,167 $
—
—
230,167 $
230,167 $
Weighted Average
Exercise Price
Weighted Average
Remaining
Contractual Term
Aggregate
Intrinsic Value
4.00
—
—
4.00
4.00
5.20 $
5.20 $
3,144,081
3,144,081
46
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Based Compensation (continued)
A summary of the Company’s stock option activity for the years ended January 1, 2016 and January 2, 2015 was as follows:
Outstanding at beginning of year
Exercised
Forfeited or expired
Outstanding at end of year
Exercisable at end of year
January 1, 2016
January 2, 2015
Option Shares
Weighted Average
Exercise Price
Option Shares
Weighted Average
Exercise Price
297,667 $
(67,500)
—
230,167 $
90,167 $
4.00
3.99
—
4.00
4.00
366,714 $
(8,750)
(60,297)
297,667 $
17,667 $
4.39
4.04
6.35
4.00
3.96
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.
Other information pertaining to stock option activity during the years ended December 30, 2016, January 1, 2016 and January 2,
2015 was as follows (in thousands):
Total intrinsic value of stock options exercised
$
— $
660 $
36
December 30, 2016
Year Ended
January 1, 2016
January 2, 2015
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. Pro forma EBITDA is defined as pro forma earnings (which specifically excludes non-cash stock
compensation expense, intangible asset amortization expense, acquisition-related charges and gains, restructuring charges and assumes
a normalized long-term cash rate of 30%) before interest, taxes and depreciation. 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.
The SARs related to the pro forma EPS target were earned and vested in the first quarter of 2015 with the Audit Committee’s
approval of the Company’s 2014 financial statements and the SARs related to the pro forma EBITDA target were earned and vested in
the first quarter of 2016 with the Audit Committee’s approval of the Company’s 2015 financial statements. As of December 30, 2016,
no SARs had been exercised.
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 December 30, 2016 was as follows:
Outstanding as of January 1, 2016
Expired
Outstanding as of December 30, 2016
Exercisable at December 30, 2016
Number of SARs
Weighted Average
Exercise Price
Weighted Average
Fair Value
2,916,563 $
—
2,916,563 $
2,916,563 $
4.00 $
—
4.00 $
4.00 $
1.31
—
1.31
1.31
47
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Based Compensation (continued)
The following assumptions were used to determine the fair value of the SARs granted to employees:
Expected volatility
Risk-free rate
Expected term (in years)
43%
0.35% - 1.00%
2-6
As of December 30, 2016, 100% of total outstanding options and SARs were performance-based. The Company did not record
any compensation expense in 2016 related to the options and SARs, but did record $2.7 million of compensation expense in 2015 and
$0.5 million in 2014, related to these options and SARs. As of January 1, 2016, all stock compensation expense related to the
outstanding options and SARs had been expensed.
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 December 30, 2016, was as follows:
Nonvested balance as of January 1, 2016
Granted
Vested
Forfeited
Nonvested balance as of December 30, 2016
Number of
Restricted
Stock Units
Weighted Average
Grant-Date
Fair Value
2,135,236 $
576,045
(900,558)
(31,243)
1,779,480 $
6.85
13.38
5.89
10.69
9.02
The Company recorded restricted stock units based compensation expense of $7.6 million, $6.8 million and $5.0 million in
2016, 2015 and 2014, respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted
stock units and the fair market value of the stock on the grant date. As of December 30, 2016, there was $7.6 million of total restricted
stock unit compensation expense related to the nonvested awards not yet recognized, which is expected to be recognized over a
weighted average period of 1.51 years. The Company accounts for certain restricted stock units under liability accounting as a result of
the fixed monetary amount and a variable number of shares that will be issued. See Note 5 for further details.
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 December
30, 2016 was as follows:
Nonvested balance as of January 1, 2016
Granted
Vested
Forfeited
Nonvested balance as of December 30, 2016
Number of Shares of
Common Stock
Subject to Vesting
Requirements
Weighted Average
Grant-Date
Fair Value
747,525 $
—
(240,820)
(1,645)
505,060 $
8.77
—
8.29
6.04
9.00
Common stock subject to vesting requirements of $4.6 million was issued in 2015 in relation to the equity portion of the
Technolab earn-out. These shares are subject to a four year vesting period.
48
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
9. Stock Based Compensation (continued)
The Company recorded compensation expense of $1.2 million, $0.9 million and $0.9 million, during the years ended December
30, 2016, January 1, 2016 and January 2, 2015, respectively, related to common stock subject to vesting requirements. As of
December 30, 2016, there was $2.7 million of total stock based compensation expense related to common stock granted subject to
vesting requirements not yet recognized, which is expected to be recognized over a weighted average period of 1.8 years.
10. Shareholders’ Equity
Employee Stock Purchase Plan
Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who
have completed three months of service as of the beginning of an offering period an opportunity to purchase shares of its common
stock through payroll deductions. Purchases on any one grant are limited to 10% of eligible compensation. Shares of the Company’s
common stock may be purchased by employees at six-month intervals at 95% of the fair market value on the last trading day of each
six-month period. The aggregate fair market value, determined as of the first trading date of the offering period, of shares purchased
by an employee may not exceed $25,000 annually. The Employee Stock Purchase Plan expires on July 1, 2018. As of 2016, a total of
29,606 shares of common stock were available for purchase under the plan. For plan years 2016, 2015 and 2014, 67,111 shares,
48,356 shares and 94,333 shares, respectively, were issued for total proceeds of $1.0 million, $0.7 million, and $0.9 million,
respectively. Subsequent to December 30, 2016 and subject to shareholder approval, the Company’s Board of Directors agreed to
extend the Employee Stock Purchase Plan to July 1, 2023 and added 250,000 additional shares of common stock, which would
increase the available shares of common stock to 279,606.
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 $122.2 million of the Company’s common stock, thereby increasing the total program size to $127.2 million as of
December 30, 2016. As of December 30, 2016, the Company had effected cumulative purchases under the plan of $122.8 million,
leaving $4.4 million available for future purchases. There is no expiration of the authorization. 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 2016 and
2015, the Company repurchased 2.1 million and 0.1 million shares of its common stock, respectively, at an average price per share of
$14.60 and $9.10, respectively, for a total cost of $30.1 million and $1.3 million, respectively. As of December 30, 2016 and January
1, 2016, the Company had repurchased 26.2 million and 24.1 million shares of its common stock, respectively, at an average price of
$4.69 and $3.84 per share, respectively. Subsequent to year end, the Company repurchased 59 thousand shares of the Company’s
stock from members of its Board of Directors for a total cost of $1.2 million, or $20.13 per share, leaving $3.2 million available for
future purchases.
The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost
method.
On May 6, 2016, the Company’s Board of Directors approved the repurchase of 697 thousand shares of its common stock
from the Company’s CEO, 732 thousand shares of its common stock from the Company’s COO, and 73 thousand shares of its
common stock from the Company’s CFO for a total of approximately 1.5 million shares at a purchase price of $14.77 per share. The
transaction was approved by the Audit Committee of the Board of Directors which is comprised solely of independent directors and
was effected as part of the Company’s share repurchase program. Following the transaction, Mr. Fernandez, Mr. Dungan and Mr.
Ramirez remained the beneficial owners of 11.8%, 4.9% and 0.9% shares, respectively, of the outstanding common stock. One of the
primary reasons for this transaction was to lower the Company’s weighted average shares outstanding which had increased by 11%
from the first quarter of 2015 as a result of the vesting of the SARs and appreciation in share price. The repurchase reduces weighted
average shares outstanding by approximately 4% and is $0.03 to $0.04 accretive on an annualized basis. Based on the most recent
SEC filings, including shares of Company common stock beneficially owned and shares that could be acquired upon the exercise of
the SARs, Mr. Fernandez continues to be the largest beneficial shareholder of the Company.
Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These
withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. In 2016 and 2015, 294
thousand shares were withheld and not issued for a cost of $4.0 million and 297 thousand shares were withheld and not issued for a
cost of $2.5 million, respectively, which are included under issuance of common stock in the accompanying consolidated statements
of shareholders’ equity. Subsequent to December 30, 2016, 173 thousand shares have been withheld for a total cost of $2.9 million.
49
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
10. Shareholders’ Equity (continued)
Dividends
In December 2012, the Company announced an annual dividend program of $0.10 per share. In December 2012 and 2013, the
Company paid annual dividends of $0.10 per share, or $3.1 million to shareholders of record as of close of business on December 20,
2012 and on December 10, 2013, respectively. In 2014, the Company increased the dividend to $0.12 per share, or $3.5 million, to
shareholders of record as of close of business on December 10, 2014. In 2015, the Company increased the annual dividend to $0.20
per share to be paid on a semi-annual basis which resulted in aggregate dividends of $3.1 million and $3.2 million paid to shareholders
of record on June 29, 2015 and December 28, 2015, respectively. In 2016, the Company increased the annual dividend to $0.26 per
share to be paid on a semi-annual basis which resulted in aggregate dividends of $4.0 million and $4.0 million paid to shareholders of
record on June 30, 2016 and December 22, 2016, respectively. These dividends were paid from U.S. domestic sources and are
accounted for as an increase to retained deficit. The dividend declared in December 2016 was paid in January 2017. Subsequent to
December 30, 2016, the Company increased its annual dividend to $0.30 per share to be paid on a semi-annual basis.
11. 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 2016, 2015 and 2014, the Company made matching contributions of 25% of employee contributions
up to 4% of their gross salaries. The Company’s matching contributions were $0.6 million for the fiscal year ended December 30,
2016 and $0.3 million for both of the fiscal years ended January 1, 2016 and January 2, 2015.
12. Transactions with Related Parties
On May 6, 2016, the Company’s Board of Directors approved the repurchase of 697 thousand shares of its common stock
from the Company’s CEO, 732 thousand shares of its common stock from the Company’s COO, and 73 thousand shares of its
common stock from the Company’s CFO for a total of approximately 1.5 million shares at a purchase price of $14.77 per share. The
transaction was approved by the Audit Committee of the Board of Directors which is comprised solely of independent directors and
was effected as part of the Company’s share repurchase program. See Note 10 for further details.
During the year ended December 30, 2016, the Company bought back 25 thousand shares of its common stock from members
of its Board of Directors for $0.4 million or $15.68 per share. Subsequent to year end, the Company repurchased 59 thousand shares of
the Company’s stock from members of its Board of Directors for a total cost of $1.2 million or $20.13 per share.
There were no related party transactions in 2015 and 2014.
13. 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.
14. 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.
At closing, the seller received $3.0 million in cash, not subject to vesting, and $1.0 million in shares subject to vesting, which is
being recorded as non-cash compensation over the service vesting period. The seller also had the ability to earn an additional $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 contingent upon actual results achieved. The entire cash portion of the earn-out was recorded as compensation expense
in 2014. The stock portion of the earn-out is being recorded as compensation expense over the service vesting period. During the third
quarter of 2015, the Company settled the contingent earn-out with cash and stock issuances in accordance with the agreement.
The purchase accounting resulted in a bargain purchase gain of $3.0 million on the acquisition and intangible assets with
definite lives of $7.7 million which will be amortized over periods ranging from 2 years to 5 years.
50
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
14. Acquisition (continued)
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.
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:
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
15. 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
December 30,
2016
Year Ended
January 1,
2016
January 2,
2015
$
$
246,249 $
42,312
288,561 $
218,719 $
42,221
260,940 $
190,050
46,687
236,737
51
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
15. Geographic and Service Group Information (continued)
Long-lived assets are attributed to geographic areas as follows (in thousands):
Long-lived assets:
North America
International (primarily European countries)
Total long-lived assets
December 30,
2016
January 1,
2016
$
$
78,200 $
12,286
90,486 $
78,230
14,662
92,892
As of December 30, 2016, January 1, 2016 and January 2, 2015, foreign assets included $11.9 million, $14.1 million and $15.0
million, respectively, of goodwill related to the REL and Archstone acquisitions, in fiscal 2005 and 2009, respectively.
In the following table, The Hackett Group service group encompasses Benchmarking, Business Transformation and Executive
Advisory groups, and includes EPM Technologies. The SAP/ERP Solutions group encompasses SAP ERP (in thousands):
The Hackett Group
SAP/ERP Solutions
Total revenue
December 30,
2016
246,210 $
42,351
288,561 $
$
$
Year Ended
January 1,
2016
221,341 $
39,599
260,940 $
January 2,
2015
196,145
40,592
236,737
52
THE HACKETT GROUP, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
16. Quarterly Financial Information (unaudited)
The following table presents unaudited supplemental quarterly financial information for the years ended December 30, 2016 and
January 1, 2016 (in thousands, except per share data):
Total revenue
Operating income
Income from continuing operations
Net income
Basic net income per common share (2)
Diluted net income per common share (2)
Total revenue
Operating income (1)
Income from continuing operations
Net income
Basic net income per common share (2)
Diluted net income per common share (2)
Quarter Ended
April 1,
2016
July 1,
2016
September 30,
2016
December 30,
2016
61,973 $
68,178 $
66,810 $
62,946
7,240 $
7,199 $
4,382 $
8,638 $
8,528 $
5,446 $
9,007 $
8,870 $
5,488 $
0.15 $
0.19 $
0.19 $
0.13 $
0.17 $
0.17 $
9,668
9,569
6,225
0.22
0.19
Quarter Ended
April 3,
2015
July 3,
2015
October 2,
2015
January 1,
2016
54,905 $
4,635 $
4,497 $
59,423 $
6,049 $
5,940 $
59,992 $
4,943 $
4,842 $
3,005 $
3,691 $
3,058 $
0.11 $
0.13 $
0.11 $
0.10 $
0.12 $
0.10 $
60,261
6,298
6,237
4,055
0.14
0.12
$
$
$
$
$
$
$
$
$
$
$
$
(1)
Fiscal quarters ended October 2, 2015 and January 1, 2016, each include $1.3 million of non-recurring, non-cash stock compensation expense
related to the performance-based SARs awards tied to the achievement of the pro-forma EBITDA performance target.
(2) 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.
53
THE HACKETT GROUP, INC.
SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
YEARS ENDED DECEMBER 30, 2016, JANUARY 1, 2016 AND JANUARY 2, 2015
(in thousands)
Allowance for Doubtful Accounts
Year Ended December 30, 2016
Year Ended January 1, 2016
Year Ended January 2, 2015
Balance at
Beginning
of Year
Charge to
Revenue/
Expense
Write-offs
$
$
$
1,881
1,330
1,674
744
694
785
(51) $
(143) $
(1,129) $
Balance at
End of Year
2,574
1,881
1,330
54
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
On May 20, 2015, the Audit Committee of the Board of Directors of The Hackett Group, Inc. (the “Company” dismissed
BDO USA, LLP (“BDO”) as the Company’s independent registered public accounting firm, effective immediately.
The audit reports of BDO on the consolidated financial statements of the Company as of and for the fiscal year ended
January 2, 2015 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty,
audit scope, or accounting principles.
During the fiscal year ended January 2, 2015, and through May 20, 2015, there were (i) no “disagreements” as that term
is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions, between the Company and BDO on any matter of
accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved
to the satisfaction of BDO, would have caused BDO to make reference to the subject matter of the disagreements in its reports on the
financial statements for such years, except for the disagreement described below and (ii) no “reportable events” as that term is defined
in Item 304(a)(1)(v) of Regulation S-K, except for the material weakness identified below.
As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2015 (the “2014 Form
10-K”), we acquired and accounted for certain assets and liabilities of Technolab International Corporation (“Technolab”) during the
first quarter of 2014. No issues were raised regarding the Company’s accounting for this transaction by BDO during BDO’s initial
review of the transaction during the first quarter. However, BDO’s position changed subsequent to fiscal year-end during the course of
its annual audit. The Company’s management initially disagreed with the subsequent position taken by BDO related to the accounting
for this transaction, but the Company ultimately accounted for the transaction in accordance with BDO’s subsequent position. The
Company’s management concluded that the Company’s internal control over financial reporting was effective as of the end of the
period covered by the 2014 Form 10-K. However, BDO’s report on management’s assessment on the Company’s internal control over
financial reporting identified a material weakness specifically related to accounting for Technolab acquisition discussed above. The
description of the material weakness identified by BDO and management’s assessment of the Company’s internal control over
financial reporting contained in Item 9A of the 2014 Form 10-K are incorporated herein by reference. The Audit Committee discussed
with BDO the disagreement over the accounting for the Technolab acquisition as well as the material weakness identified by BDO in
its report. The Company has authorized BDO to respond fully to the inquiries of the successor independent registered accounting firm
concerning the accounting for the Technolab acquisition and the related material weakness.
On May 22, 2015, following the conclusion of a competitive process managed by the Audit Committee, the Company
engaged McGladrey LLP, now known as RSM US LLP (“RSM”), as its independent registered public accounting firm for the fiscal
year ending January 1, 2016. During the fiscal years ended January 2, 2015 and December 27, 2013 and through May 22, 2015,
neither the Company, nor anyone on its behalf, had consulted RSM with respect to (i) the application of accounting principles to a
specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s
consolidated financial statements, and neither a written report was provided to the Company nor oral advice was provided to the
Company that RSM concluded was an important factor considered by the Company in reaching a decision as to the accounting,
auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of
Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).
ITEM 9A. CONTROLS AND PROCEDURES
The Company maintains disclosure controls and procedures (“DCP”) that are designed to ensure that information
required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (“the Exchange
Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such
information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (principal
executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow for timely decisions regarding
required disclosure.
The Company, under the supervision and with the participation of the Company’s management, including the Chief
Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s DCP as of
the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer
concluded that our disclosure controls and procedures were effective as of the end of the period covered by the Annual Report on
Form 10-K.
Changes in internal control over financial reporting
There were no changes in our internal control over financial reporting identified in connection with the evaluation
required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the three months ended December 30, 2016
that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
55
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 December 30, 2016.
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 December 30, 2016, and has expressed an unqualified opinion thereon.
56
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
To the Board of Directors and Shareholders
The Hackett Group, Inc.
We have audited The Hackett Group, Inc.'s internal control over financial reporting as of December 30, 2016, based on criteria
established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway
Commission in 2013. 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
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 (a) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the
company; (b) 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 (c) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect
on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections
of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in
conditions, or that the degree of compliance with the policies or procedures may deteriorate.
In our opinion, The Hackett Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of
December 30, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of
Sponsoring Organizations of the Treadway Commission in 2013.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the
consolidated balance sheet of The Hackett Group, Inc. as of December 30, 2016 and January 1, 2016, and the related consolidated
statements of operations, comprehensive income, shareholders' equity, and cash flows of The Hackett Group, Inc. for the years then
ended and our report dated March 10, 2017 expressed an unqualified opinion.
/s/ RSM US LLP
Fort Lauderdale, Florida
March 10, 2017
57
ITEM 9B. OTHER INFORMATION
On March 10, 2017, the Compensation Committee of the Board of Directors approved and the Company entered into amendments to
the Employment Agreements of our CEO Ted. A. Fernandez and our COO David N. Dungan. The amendments to the Employment
Agreements of Mr. Fernandez and Mr. Dungan (each an “Executive”) provide as follows:
Change from Single-Trigger to Double-Trigger. The provisions that address payments due upon change of control
were amended to reflect that in the event of a change of control, upon termination, the Executive will receive two
hundred percent (200%) of his annual salary and bonus paid in lump sum and full vesting of all unvested issued and
outstanding equity grants upon termination. Prior to this amendment, termination of employment was not required in
order for the Executive to receive a change of control payment.
Change of Control Payment Calculation to Include Equity. The calculation of the change of control payment was
amended to reflect that it shall be an amount equal to two hundred percent (200%) of the Executive’s average total
annual compensation for the three (3) full fiscal years immediately preceding the change of control; provided, however,
that if the change of control payment is based in any part on the Executive’s compensation for fiscal years 2014 and/or
2015, the equity-based bonus amount included in the total compensation for such fiscal years shall be multiplied by a
factor of two (2) for purposes of determining the amount of the change of control payment. This provision was
amended to include both the cash bonus and equity bonus components of the Executive’s compensation in the change
of control payment calculation. Previously, equity awards were not included. The inclusion of the equity award
component is meaningful as the Company does not provide retirement benefits to its executives or employees. The
amendment also reflects that the Executive’s equity award opportunity for years 2014 and 2015 was only fifty percent
(50%) of their historical levels.
Definition of Good Reason. The definition of “good reason” was amended as follows: (i) a material diminution in the
Executive’s base salary or other compensation opportunities; (ii) a material change in the geographic location at which
the Executive must perform services (a change in principal office location will be considered material only if it
increases the Executive’s current one-way commute by more than fifty (50) miles); (iii) a failure of any successors to
the Company after a change of control to perform or cause the Company to perform the obligations of the Company
under the employment agreement; (iv) any action or inaction of the Company that constitutes a material breach of the
terms of the employment agreement; (v) any material adverse change in the Executive’s status, titles, duties, authorities
or responsibilities; or (vi) (A) in the case of Mr. Fernandez, a requirement that that Mr. Fernandez report to a corporate
officer or employee of the Company instead of reporting directly to and exclusively the Board of Directors as a
standalone entity consistent with his current duties and structure and (B) with respect to Mr. Dungan, a requirement that
that Mr. Dungan report to a corporate officer or employee of the Company other than the Chief Executive Officer of the
Company. This amendment sets forth the circumstances that would represent ”good reason” which would give the
Executive the ability to terminate the agreement and receive separation pay which in the event of a change of control
would include the change of control payment.
Termination Without Cause or For Good Reason. In Mr. Dungan’s employment agreement, the provision addressing
the termination by the Company without cause or by Mr. Dungan for “good reason” was amended to reflect that Mr.
Dungan will receive one year’s annual salary and bonus paid in lump sum and full vesting of all issued and outstanding
equity grants, including restricted stock units, stock options and SARs. The provision was amended to include payment
of separation pay and vesting of unvested equity should Mr. Dungan’s employment be terminated without cause by the
Company or by Mr. Dungan due to the Company’s breach of its obligations under his employment agreement.
The summary of the material terms of these amendments is qualified in its entirety by reference to the amendments which are filed as
Exhibits 10.13 and 10.14, respectively, to this Annual Report on Form 10-K.
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
the 2017 Annual Meeting of Shareholders.
PART III
58
ITEM 11. EXECUTIVE COMPENSATION
Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for
the 2017 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 2017 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 2017 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 2017
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 28. 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 61.
The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report.
ITEM 16. FORM 10-K SUMMARY
None.
59
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on March
10, 2017.
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/ Richard Hamlin
Richard Hamlin
/s/ John R. Harris
John R. Harris
/s/ Robert A. Rivero
Robert A. Rivero
/s/ Alan T. G. Wix
Alan T. G. Wix
Chief Executive Officer and Chairman (Principal Executive
Officer)
March 10, 2017
Executive Vice President, Finance and Chief Financial
Officer (Principal Financial and Accounting Officer)
March 10, 2017
Chief Operating Officer and Director
March 10, 2017
Director
Director
Director
Director
March 10, 2017
March 10, 2017
March 10, 2017
March 10, 2017
60
Exhibit No.
Exhibit Description
INDEX TO EXHIBITS
3.1
3.2
3.3
3.4
3.5
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
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).
Articles of Amendment of the Articles of Incorporation of the Registrant (incorporated herein by reference to the
Registrant’s Form 10-K for the year ended December 28, 2007).
Amended and Restated Bylaws of the Registrant, as amended (incorporated herein by reference to the Registrant’s
Form 10-K for the year ended December 29, 2000).
Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant’s
Form 8-K dated March 31, 2008).
Amendment to Amended and Restated Bylaws of the Registrant (incorporated herein by reference to the Registrant’s
Form 8-K dated January 21, 2015).
Registrant’s 1998 Stock Option and Incentive Plan (incorporated herein by reference to the Registrant’s Registration
Statement on Form S-8 (File No. 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 (File No. 333-48123)).
Employee Stock Purchase Plan, as amended (incorporated herein by reference to the Registrant’s Registration
Statement on Form S-8 (File No. 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 the Registrant and Ted A. Fernandez (incorporated herein by
reference to the Registrant’s Form 10-Q dated November 10, 2004).
Amendment to Employment Agreement between the Registrant and David N. Dungan (incorporated herein by
reference to the Registrant’s Form 10-Q dated November 10, 2004).
Second Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by
reference to the Registrant’s Form 8-K dated June 16, 2005).`
61
Exhibit No.
Exhibit Description
INDEX TO EXHIBITS
10.10
10.11
10.12
10.13*
10.14*
10.15
10.16
10.17
10.18
21.1*
23.1*
23.2*
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).
Fourth Amendment to Employment Agreement between the Registrant and Ted A. Fernandez.
Fourth Amendment to Employment Agreement between the Registrant and David N. Dungan.
Stock Appreciation Right Agreement dated March 11, 2013 between the Company and Ted A. Fernandez (incorporated
herein by reference to the Registrant’s Form 10-K for the year ended January 1, 2016).
Stock Appreciation Right Agreement dated March 11, 2013 between the Company and David N. Dungan (incorporated
herein by reference to the Registrant’s Form 10-K for the year ended January 1, 2016).
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).
Second Amended and Restated Credit Agreement, dated May 9, 2016, 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 10-Q dated May 11, 2016).
Subsidiaries of the Registrant.
Consent of RSM US LLP.
Consent of BDO USA, LLP.
Certification by CEO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of
2002.
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
* Filed herewith
**
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.
62
We had an outstanding year. We increased revenue
by 11% to $288 million while pro-forma EPS
increased 25% to $0.94 ce t . What makes this year so
n s
special is that the results are on top of the two
previous years’ pro-forma EPS results, which were up
34% and 37%, respectively.
Ted A. Fernandez
Chairman and Chief Executive Officer
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.
Richard N. Hamlin
Retired Partner
KPMG LLP
John R. Harris
Former Chief Executive Officer
eTelecare Global Services
Robert A. Rivero
Chief Executive Officer
RAR Management Services, LLC
International Business Advisor & Mentor
Alan T. G. Wix
Former Managing Director
of Core IT Services
Lloyds TSB Bank
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
Wednesday, May 3, 2017 at 2 pm in the
Hope Meeting Room at the
InterContinental Buckhead Atlanta
3315 Peachtree Rd
Atlanta, GA 30326
Transfer Agent
Computershare Investor Services
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Certified Mail:
Computershare Investor
Services
P.O. Box 30170
College Station
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Courier Services:
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Investor Services
211 Quality Circle
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College Station,
TX 77845
Shareholder Services: 877-373-6374
Investor CentreTM portal
http://www.computershare.com/investor
Independent Auditors
RSM US, LLP
Fort Lauderdale, FL
1001 Brickell Bay Drive, Suite 3000, Miami, FL 33131
www.thehackettgroup.com
2016 Annual Report