NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
1. Basis of Presentation and General Information
Basis of Presentation
The accompanying consolidated financial statements of The Hackett Group
,
Inc. (Hackett or the Company) have
been prepared in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP) and include the Companys accounts and those of its wholly-owned subsidiaries which the Company is required to
consolidate. All intercompany transactions and balances have been eliminated in consolidation.
In the opinion of management,
the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Companys financial position, results of operations, and cash flows as of the dates and for the
periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (SEC) regarding interim financial reporting. Accordingly, these statements do not
include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 28, 2012, included in the
Annual Report on Form 10-K filed by the Company with the SEC. The consolidated results of operations for the quarter ended March 29, 2013, are not necessarily indicative of the results to be expected for any future period or for the full
fiscal year.
Use of Estimates
The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements
and accompanying notes. Actual results could differ from those estimates.
Fair Value
The Companys financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable and unbilled revenue,
accounts payable, accrued expenses and other liabilities and debt. As of March 29, 2013 and December 28, 2012, the carrying amount of each financial instrument, with the exception of debt, approximated the instruments respective fair
value due to the short-term nature and maturity of these instruments.
The Company uses significant other observable market
data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated the carrying amount, using Level 2 inputs, due to the short-term variable
interest rates based on market rates.
Recently Issued Accounting Standards
In March 2013, the FASB issued guidance on a parents accounting for the cumulative translation adjustment upon de-recognition of
certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity, which amends current accounting guidance on foreign currency matters. This guidance requires that the entire amount of a cumulative translation
adjustment related to an entitys investment in a foreign entity should be released when there has been a: (i) sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of
the investment in the foreign entity, (ii) loss of a controlling financial interest in an investment in a foreign entity, and (iii) step acquisition for a foreign entity. This guidance will be effective for the Company beginning in the first quarter
of 2014. The Company does not expect the adoption to have a material impact on its consolidated financial statements.
Reclassifications
Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current
period presentation.
2. 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 the Companys employees and non-employee members of its Board of Directors, the calculation includes only the vested
portion of such stock and units.
Dilutive net income per common share is computed by dividing net income by the weighted
average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.
7
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
2. Net Income per Common Share (continued)
The following table reconciles basic and dilutive weighted average common shares:
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Quarter Ended
|
|
|
|
March 29,
2013
|
|
|
March 30,
2012
|
|
Basic weighted average common shares outstanding
|
|
|
30,291,773
|
|
|
|
38,523,806
|
|
|
|
|
Effect of dilutive securities:
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|
|
|
|
|
|
Unvested restricted stock units and common stock subject to vesting requirements issued to employees
|
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1,162,166
|
|
|
|
1,359,157
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|
Common stock issuable upon the exercise of stock options
|
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|
19,032
|
|
|
|
55,332
|
|
|
|
|
|
|
|
|
|
|
Dilutive weighted average common shares outstanding
|
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31,472,971
|
|
|
|
39,938,295
|
|
|
|
|
|
|
|
|
|
|
Approximately 0.9 million and 3.8 million shares of common stock equivalents were excluded from the
computations of diluted net income per common share for the quarters ended March 29, 2013 and March 30, 2012, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. This decrease is
attributable to the conversion of 2.9 million performance-based options, granted during the quarter ended March 30, 2012, into stock appreciation rights units (SARs), which will be settled in cash, Company stock or any combination
thereof, at the Companys discretion (see Note 6 for further detail).
3. Accounts Receivable and Unbilled Revenue, Net
Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):
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|
|
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|
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March 29,
2013
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|
|
December 28,
2012
|
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Accounts receivable
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|
$
|
27,178
|
|
|
$
|
31,260
|
|
Unbilled revenue
|
|
|
7,775
|
|
|
|
6,860
|
|
Allowance for doubtful accounts
|
|
|
(1,155
|
)
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|
(1,251
|
)
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|
|
|
|
|
|
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Accounts receivable and unbilled revenue, net
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$
|
33,798
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|
|
$
|
36,869
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|
|
|
|
|
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Accounts receivable is net of uncollected advanced billings. Unbilled revenue includes recognized recoverable costs and
accrued profits on contracts for which billings had not been presented to clients.
4. Credit Facility
On February 21, 2012, the Company entered into a credit agreement (Credit Agreement) with Bank of
America, N.A. Under the Credit Agreement, Bank of America, N.A. agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the Revolver) and up to $30.0 million pursuant to a term loan (the Term
Loan, and together with the Revolver, the Credit Facility). As of March 29, 2013, the Company had $20.5 million principal amount outstanding on the Term Loan and a zero balance outstanding on the Revolver.
The obligations of the Company under the Credit Facility are guaranteed by the active existing and future material U.S. subsidiaries of
the Company and are secured by substantially all of the existing and future property and assets of the Company (subject to certain exceptions).
The interest rates per annum applicable to loans under the Credit Facility will be, at the Companys 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 March 29, 2013, the applicable margin percentage was 1.75% per annum based on the consolidated leverage ratio, in the
case of LIBOR rate advances, and 1.00% per annum, in the case of base rate advances.
The Revolver matures on
February 21, 2017. The Term Loan requires amortization principal payments in equal quarterly installments beginning October 1, 2012 through February 21, 2017. The Company is subject to certain covenants and exceptions, including total
consolidated leverage, fixed cost coverage and liquidity requirements, as defined in the Credit Agreement.
8
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
5. Discontinued Operations
During the quarter ended March 29, 2013, the Company exited the Oracle ERP implementation business. This transaction
was not material to the Companys financial statements.
6. Stock Based Compensation
During the quarter ended March 29, 2013, the Company issued 1,108,206 restricted stock units at a weighted average
grant-date fair value of $4.60 per share. As of March 29, 2013, the Company had 2,960,344 restricted stock units outstanding at a weighted average grant-date fair value of $4.09 per share. As of March 29, 2013, $8.4 million of total
restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of 2.3 years.
As of March 29, 2013, the Company had 317,850 shares of common stock subject to vesting requirements outstanding at a weighted
average grant-date fair value of $3.43 per share. As of March 29, 2013, $0.5 million of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted
average period of one year.
On February 8, 2012, the Compensation Committee approved the fiscal year 2012 through 2015
equity compensation target for the Companys Chief Executive Officer and Chief Operating Officer. Under this target, a single performance-based option grant was made to the Companys Chief Executive Officer and the Chief Operating Officer
of 1,912,500 options and 1,004,063 options, respectively, totaling 2,916,563, each with an exercise price of $4.00 and a fair value of $0.96. One-half of the options vest upon the achievement of at least 50% growth of pro forma earnings per share
and the remaining half vest upon the achievement of at least 50% pro forma EBITDA growth. Each metric can be achieved at any time during the six-year term of the award based on a trailing twelve month period measured quarterly.
In March of 2013 these performance-based stock option grants were surrendered by the Companys Chief Executive Officer and Chief
Operating Officer and replaced with SARs, equal to the number of options. The terms and conditions and the specific performance targets are the same to those of the replaced plan, with the exception that the SARs will be settled in cash, stock or
any combination thereof, at the Companys discretion.
Although the targets for the performance-based SARs have not been
achieved as of March 29, 2013, the Company has recorded $0.1 million and $0.1 million of compensation expense for the periods ended March 29, 2013 and March 30, 2012, respectively, related to these SARs.
7. Shareholders Equity
Tender Offer
On March 21, 2012, the Company completed a tender offer to purchase 11.0 million shares of its common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0
million, excluding fees and expenses relating to the tender offer. The 11.0 million shares accepted for purchase represented approximately 27% of the Companys issued and outstanding shares of common stock at that time.
Share Repurchase Plan
Under the Companys share repurchase plan, the Company may buy back shares of its outstanding stock either on the open market or through privately negotiated transactions subject to market conditions
and trading restrictions. During the quarter ended March 29, 2013, the Company did not repurchase any shares of its common stock through its share repurchase plan. As of March 29, 2013, the Company had $0.6 million available under its
share repurchase plan.
Subsequent to March 29, 2013, the Company repurchased 113 thousand shares at an average price of
$4.79. In addition, the Board of Directors approved the repurchase of an additional $5.0 million of the Companys common stock, thereby increasing the total program size to $80.0 million, and leaving $5.0 million available under its share
repurchase plan authorization.
9
The Hackett Group, Inc.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(unaudited)
8. Litigation
The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not
specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Companys financial position, cash flows or results of operations.
9. Geographic and Group Information
Revenue is primarily based on the country of the contracting entity and was attributed to the following geographical
areas (in thousands):
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Quarter Ended
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March 29,
2013
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March 30,
2012
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Revenue:
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North America
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$
|
42,310
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|
|
$
|
42,098
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|
International (primarily European countries)
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|
12,039
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|
|
|
11,985
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|
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|
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Total revenue
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|
$
|
54,349
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|
|
$
|
54,083
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|
|
|
|
|
|
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Long-lived assets are attributable to the following geographic areas (in thousands):
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March 29,
2013
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December 28,
2012
|
|
Long-lived assets:
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North America
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|
$
|
74,268
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|
|
$
|
74,407
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|
International (primarily European countries)
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|
15,253
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|
|
16,270
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Total long-lived assets
|
|
$
|
89,521
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|
|
$
|
90,677
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As of March 29, 2013, foreign assets included $14.6 million of goodwill related to the Archstone and REL
acquisitions. As of December 28, 2012, foreign assets included $15.6 million of goodwill related to the REL and Archstone acquisitions and $0.1 million of intangible assets related to the Archstone acquisition.
The Companys revenue was derived from the following service groups (in thousands):
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Quarter Ended
|
|
|
|
March 29,
2013
|
|
|
March 30,
2012
|
|
The Hackett Group
|
|
$
|
43,612
|
|
|
$
|
47,124
|
|
ERP Solutions
|
|
|
10,737
|
|
|
|
6,959
|
|
|
|
|
|
|
|
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|
|
Total revenue
|
|
$
|
54,349
|
|
|
$
|
54,083
|
|
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10