UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
For the quarterly period ended September 28, 2012
OR
For the transition period from to
Commission File Number 0-24343
The Hackett Group, Inc.
(Exact name of registrant as specified in its charter)
(State or other jurisdiction of
incorporation or organization)
(I.R.S. Employer
Identification No.)
1001 Brickell Bay Drive, Suite 3000
Miami, Florida
(305) 375-8005
(Registrant’s telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirement for the past 90 days. YES x NO ¨
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). YES x NO ¨
Indicate by check mark whether registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.
Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.
As of November 1, 2012, there were 30,482,872 shares of common stock outstanding.
TABLE OF CONTENTS
Consolidated Statements of Operations for the Quarters and Nine Months Ended September 28, 2012 and September 30, 2011(unaudited)
Consolidated Statements of Comprehensive Income for the Quarters and Nine Months Ended September 28, 2012 and September 30, 2011 (unaudited)
Consolidated Statements of Cash Flows for the Nine Months Ended September 28, 2012 and September 30, 2011(unaudited)
Item 2.
Item 3.
Item 4.
PART II - OTHER INFORMATION
Item 1A.
Item 6.
2
PART I — FINANCIAL INFORMATION
CONSOLIDATED BALANCE SHEETS
(in thousands, except share data)
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents
Accounts receivable and unbilled revenue, net of allowance of $1,116 and $799 at September 28, 2012 and December 30, 2011, respectively
Deferred tax asset, net
Prepaid expenses and other current assets
Total current assets
Restricted cash
Property and equipment, net
Other assets
Goodwill, net
Total assets
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable
Accrued expenses and other liabilities
Current portion of long-term debt
Total current liabilities
Long-term 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; 51,651,142 and 61,315,237 shares issued at September 28, 2012 and December 30, 2011, respectively
Additional paid-in capital
Treasury stock, at cost, 21,171,370 shares at September 28, 2012 and December 30, 2011
Accumulated deficit
Accumulated other comprehensive loss
Total shareholders’ equity
Total liabilities and shareholders’ equity
The accompanying notes are an integral part of the consolidated financial statements.
3
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 $687 and $765 and $2,209 and $2,329 of stock compensation expense in the quarters and nine months ended September 28, 2012 and September 30, 2011, respectively)
Reimbursable expenses
Total cost of service
Selling, general and administrative costs (includes $674 and $509 and $1,860 and $1,172 of stock compensation expense in the quarters and nine months ended September 28, 2012 and September 30, 2011, respectively)
Restructuring benefit
Total costs and operating expenses
Income from operations
Other income (expense):
Interest income
Interest expense
Income before income taxes
Income taxes
Net income
Basic net income per common share:
Net income per common share
Weighted average common shares outstanding
Diluted net income per common share:
Weighted average common and common equivalent shares outstanding
4
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
(in thousands)
Foreign currency translation adjustment
Total comprehensive income
5
CONSOLIDATED STATEMENTS OF CASH FLOWS
Cash flows from operating activities:
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation expense
Amortization expense
Provision (reversal) for doubtful accounts
Loss on foreign currency translation
Non-cash stock compensation expense
Changes in assets and liabilities:
Increase in accounts receivable and unbilled revenue
Decrease in deferred tax asset, net
Decrease in prepaid expenses and other assets
Decrease in accounts payable
Decrease in deferred tax liability, net
Decrease in accrued expenses and other liabilities
Net cash provided by operating activities
Cash flows from investing activities:
Purchases of property and equipment
Decrease in restricted cash
Net cash used in investing activities
Cash flows from financing activities:
Debt proceeds
Payment of debt proceeds
Debt issuance costs
Proceeds from issuance of common stock
Repurchases of common stock
Net cash used in financing activities
Effect of exchange rate on cash
Net decrease in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of period
Supplemental disclosure of cash flow information:
Cash paid (refunded) for income taxes
Cash paid for interest
6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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 Company’s 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 Company’s 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 30, 2011, included in the Annual Report on Form 10-K filed by the Company with the SEC. The consolidated results of operations for the quarter and nine months ended September 28, 2012, 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 Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of September 28, 2012 and December 30, 2011, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s 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 it’s carrying amount, using Level 2 inputs, due to the short-term variable interest rates based on market rates.
Recently Issued Accounting Standards
In May 2011, the Financial Accounting Standards Board (“FASB”) issued guidance to achieve consistent fair value measurements and to clarify certain disclosure requirements for fair value measurements. The guidance includes clarification about when the concept of highest and best use is applicable to fair value measurements, requires quantitative disclosures about inputs used and qualitative disclosures about the sensitivity of recurring Level 3 measurements, and requires the classification of all assets and liabilities measured at fair value in the fair value hierarchy, including those assets and liabilities which are not recorded at fair value but for which fair value is disclosed. The adoption of these changes did not have a material impact on the Company’s consolidated financial statements.
In June 2011, the FASB issued changes to the presentation of comprehensive income. These changes give an entity the option to present the total of comprehensive income, the components of net income, and the components of other comprehensive income either in a single continuous statement of comprehensive income or in two separate but consecutive statements. The option to present components of other comprehensive income as part of the statement of changes in stockholders’ equity was eliminated. The items that must be reported in other comprehensive income or when an item of other comprehensive income must be reclassified to net income were not changed. These changes became effective for fiscal years beginning after December 15, 2011, except for the reclassification adjustments out of accumulated other comprehensive income that become effective for fiscal years ending after December 15, 2012. The adoption of these changes did not have a material impact on the Company’s consolidated financial statements.
7
1. Basis of Presentation and General Information (continued)
In September 2011, the FASB issued changes that permit an entity to make a qualitative assessment of whether it is more likely than not that a reporting unit’s fair value is less than its carrying value before applying the two-step goodwill impairment model that is currently in place. If it is determined, through the qualitative assessment, that a reporting unit’s fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. This update is effective for annual and interim goodwill impairment tests performed in fiscal years beginning after December 15, 2011. The adoption of these changes did not have a material impact on the Company’s consolidated financial statements.
In July 2012, the FASB issued changes that permit an entity to make a qualitative assessment of whether it is more likely than not that an indefinite lived intangible asset is impaired before applying the two-step impairment test that is currently in place. If it is determined through the qualitative assessment that an indefinite lived intangible asset’s fair value is more likely than not greater than its carrying value, the remaining impairment steps would be unnecessary. The qualitative assessment is optional, allowing companies to go directly to the quantitative assessment. This update is effective for annual and interim impairment tests performed in fiscal years beginning after September 15, 2012, however, early adoption is permitted. The Company is currently evaluating the impact of adopting these changes.
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 employees, 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.
The following table reconciles basic and dilutive weighted average common shares:
Basic weighted average common shares outstanding
Effect of dilutive securities:
Unvested restricted stock units and common stock subject to vesting requirements issued to employees
Common stock issuable upon the exercise of stock options
Dilutive weighted average common shares outstanding
Approximately 3.9 million and 0.9 million shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended September 28, 2012 and September 30, 2011, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. The increase in anti-dilutive shares is from the issuance of performance-based options granted during the quarter ended March 30, 2012 (see Note 6 for further detail).
8
3. Accounts Receivable and Unbilled Revenue, Net
Accounts receivable and unbilled revenue, net, consisted of the following (in thousands):
Accounts receivable
Unbilled revenue
Allowance for doubtful accounts
Accounts receivable and unbilled revenue, net
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. Restructuring
As of September 28, 2012, the Company no longer had any restructuring commitments relating to acquisition intigration activities. During the quarter ended September 28, 2012, the Company reversed the existing accrued facilities restructuring liability of $0.3 million and recorded a corresponding facilities restructuring benefit on the Consolidated Statements of Operations.
5. Credit Facility
On February 21, 2012, the Company entered into a Credit Facility with Bank of America, N.A. Under the Credit Facility, 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 September 28, 2012, the Company had $28.0 million principal amount outstanding on the Term Loan and a zero balance outstanding on the Revolver. Subsequent to September 28, 2012, the Company paid down an additional $3.0 million principal amount on the Term Loan, bringing the balance to $25.0 million.
The obligations of the Company under the Credit Facility are guaranteed by active existing and future material U.S. subsidiaries of the Company and are secured by substantially all of the existing and future property and assets of the Company (subject to certain exceptions).
The interest rates per annum applicable to loans under the 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 of September 28, 2012, 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, and 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.
9
6. Stock Based Compensation
During the nine months ended September 28, 2012, the Company issued 1,407,077 restricted stock units at a weighted average grant-date fair value of $3.92 per share. As of September 28, 2012, the Company had 3,023,287 restricted stock units outstanding at a weighted average grant-date fair value of $3.69 per share. As of September 28, 2012, $5.9 million of total restricted stock unit compensation expense related to nonvested awards had not been recognized and is expected to be recognized over a weighted average period of 2.08 years.
As of September 28, 2012, the Company had 550,839 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $3.40 per share. As of September 28, 2012, $0.6 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 1.32 years.
During the quarter ended March 30, 2012, the Company’s Board of Directors’ Compensation Committee approved the exchange of one-half of the existing restricted stock unit executive bonus opportunity for the fiscal years 2012 through 2015 for one-time performance-based stock option grants of 3,196,563 options, each with an exercise price of $4.00 per share. These performance-based stock option grants vest one-half upon the achievement of at least 50% growth (from fiscal year 2011) of pro forma earnings per share (as defined) and the remaining half vests upon the achievement of at least 50% growth of pro forma EBITDA (as defined). Each metric can be achieved at any time during the nine-year term of the award based on a trailing twelve-month period measured quarterly.
As of September 28, 2012, the Company had 3,908,089 options outstanding, of which 82% were performance-based, at a weighted average exercise price of $4.34 per share. Although the targets for the performance-based options have not been achieved, the Company has recorded non-cash compensation expense of $0.2 million and $0.5 million in the quarter and nine months ended September 28, 2012, respectively, related to these options.
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 Company’s issued and outstanding shares of common stock at that time.
Share Repurchase Plan
Under the Company’s 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 and nine months ended September 28, 2012, the Company did not repurchase any shares of its common stock through its share repurchase plan. As of September 28, 2012, the Company had $0.6 million available under its share repurchase plan.
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 Company’s financial position, cash flows or results of operations.
10
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):
North America
International (primarily European countries)
Long-lived assets are attributable to the following geographic areas (in thousands):
Long-lived assets:
Total long-lived assets
As of September 28, 2012, foreign assets included $14.5 million of goodwill related to the Archstone and REL acquisitions and $0.1 million of intangible assets related to the Archstone acquisition. As of December 30, 2011, foreign assets included $14.9 million of goodwill related to the REL and Archstone acquisitions and $0.1 million of intangible assets related to the Archstone acquisition.
The Company’s revenue was derived from the following service groups (in thousands):
The Hackett Group
ERP Solutions
11
CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to retain existing business, our ability to attract additional business, our ability to effectively market and sell our product offerings and other services, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the business consulting and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our customers, risks of competition, price and margin trends, foreign currency fluctuations and changes in general economic conditions and interest rates. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended December 30, 2011. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.
OVERVIEW
The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the proprietary Hackett benchmarking database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients optimize performance and returns on business transformation investments.
Hackett, formed on April 23, 1997, is a strategic advisory firm and a world leader in best practice research, benchmarking, business transformation and working capital management services that empirically defines and enables world-class enterprise performance. Only Hackett empirically defines world-class performance in sales, general and administrative and supply chain activities with analysis gained through more than 7,000 benchmark studies over 18 years at over 3,000 of the world’s leading companies.
Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation, working capital management and technology solutions, with corresponding offshore support.
In the following discussion, “The Hackett Group” encompasses our Benchmarking, Business Transformation, Executive Advisory and EPM Technologies groups. “ERP Solutions” encompasses our ERP Technology groups, which include SAP and Oracle.
12
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):
Personnel costs before reimbursable expenses
Selling, general and administrative costs
Interest, net
Revenue. We are a global company with operations located primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by currency exchange rate fluctuations. The exchange rate fluctuations had an impact on our revenue comparisons between the quarters and nine months ended September 28, 2012 and September 30, 2011; therefore, in the following revenue discussion we will disclose The Hackett Group revenue variances based on the U.S. Dollar reporting currency, as well as variances excluding the impact of currency fluctuations, otherwise referred to below as constant currency. ERP Solutions was not materially impacted by foreign currency rate fluctuations.
Total Company revenue increased 1% (or 3% in constant currency) and 4% (or 6% in constant currency) for the quarter and nine months ended September 28, 2012, respectively, as compared to the quarter and nine months ended September 30, 2011. The following table summarizes revenue (in thousands):
The Hackett Group revenue decreased by 3% (or 1% in constant currency) and increased by 5% (or 6% in constant currency) for the quarter and nine months ended September 28, 2012, respectively, as compared to the quarter and nine months ended September 30, 2011. The Hackett Group’s international revenue, which is primarily based on the country of the contracting entity, accounted for 19% (or 21% in constant currency) and 20% (or 22% in constant currency) of total Company revenue for the quarter and nine months ended September 28, 2012, respectively, as compared to 24% and 22% for the quarter and nine months ended September 30, 2011, respectively.
13
ERP Solutions revenue increased 20% and 4% for the quarter and nine months ended September 28, 2012, respectively, as compared to the quarter and nine months ended September 30, 2011, primarily due to higher market demand in the SAP group.
During the quarter and nine months ended September 28, 2012 and September 30, 2011, no customer accounted for more than 3% of total Company revenue.
Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants, subcontractor fees and reimbursable expenses associated with projects. Cost of service before reimbursable expenses increased 2%, or $0.7 million, and 6%, or $5.4 million, for the quarter and nine months ended September 28, 2012, respectively, as compared to the quarter and nine months ended September 30, 2011. The increase was primarily due to the increased headcount to align resources with market demand.
Total cost of service before reimbursable expenses, as a percentage of revenue before reimbursements, remained constant at 64% for both the quarters and nine months ended September 28, 2012 and September 30, 2011. As a percentage of revenue before reimbursements, The Hackett Group generated gross margins of 35% and 37% for the quarter and nine months ended September 28, 2012, respectively, as compared to ERP Solutions, which generated gross margins of 43% and 36% for the same periods, respectively.
Selling, General and Administrative. Selling, general and administrative costs were $14.6 million and $44.5 million for the quarter and nine months ended September 28, 2012, respectively, as compared to $14.3 million and $42.6 million for the quarter and nine months ended September 30, 2011, respectively. Selling, general and administrative costs as a percentage of revenue before reimbursements remained constant at 28% for both the quarter and nine months ended September 28, 2012 and September 30, 2011, primarily due to selling, general and administrative leverage on increased revenue.
Restructuring Benefit. As of September 28, 2012, we no longer had any commitments relating to acquisition integration activities. During the quarter ended September 28, 2012, we reversed the existing accrued facilities restructuring liability of $0.3 million and recorded a corresponding facilities restructuring benefit on the Consolidated Statements of Operations.
Income Taxes.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. At the end of 2011, we concluded that a portion of our deferred tax assets would be realized for U.S. federal tax loss carryforwards. As a result, we recorded an income tax benefit of $4.5 million, as well as a corresponding deferred tax asset on our financial statements. We released the remaining valuation allowances relating to U.S. federal loss carryforwards which reduced our income tax expense in the first half of 2012. For the quarter ended September 28, 2012, we recorded income tax expense of $1.8 million, which reflected a total income tax rate of 39.9% for certain federal and state taxes. For the quarter ended September 30, 2011, we recorded income tax expense of $176 thousand, which reflected an estimated annual tax rate of 3.9% for certain state and foreign taxes.
For income tax purposes, as of September 28, 2012, we have $33.7 million of U.S. federal net operating loss carryforwards, most of which will expire by 2022 if not utilized. As of September 28, 2012, we had $12.9 million of foreign net operating loss carryforwards. Most of the foreign net operating losses can be carried forward indefinitely. A valuation allowance continues to be provided for substantially all of the foreign operating loss carryforwards.
For the nine months ended September 28, 2012, we recorded income tax expense of $2.3 million, which reflected a tax rate of 18.5% for certain federal, foreign and state taxes. For the nine months ended September 30, 2011, we recorded income tax expense of $448 thousand, which reflected an estimated annual tax rate of 3.6% for certain state and foreign taxes.
Liquidity and Capital Resources
As of September 28, 2012 and December 30, 2011, we had $14.5 million and $32.9 million, respectively, classified in cash and cash equivalents in the Consolidated Balance Sheets. During these same periods, we had $0.7 million and $0.9 million, respectively, on deposit with financial institutions that primarily served as collateral for amounts related to employee agreements. These deposit accounts have been classified as restricted cash on the Consolidated Balance Sheets.
14
The following table summarizes our cash flow activity (in thousands):
Cash flows from operating activities
Cash flows from investing activities
Cash flows from financing activities
Cash Flows from Operating Activities
Net cash provided by operating activities was $11.1 million for the nine months ended September 28, 2012, as compared to $3.4 million for the nine months ended September 30, 2011. The increase in cash flows was primarily due to the benefit of the increase in sales, decrease in days sales outstanding and lower payout of incentive compensation awards during the nine months ended September 28, 2012, as compared to the nine months ended September 30, 2011.
Cash Flows from Investing Activities
Net cash used in investing activities was $2.4 million for the nine months ended September 28, 2012, as compared to $4.2 million for the nine months ended September 30, 2011. During the nine months ended September 28, 2012 and September 30, 2011, cash used in investing activities primarily related to capital expenditures for the Hackett Performance Exchange development. In addition, during the nine months ended September 30, 2011, cash used in investing activities included the global rollout of new laptops which occurs every three to four years.
Cash Flows from Financing Activities
On March 21, 2012, we completed a tender offer to purchase 11.0 million shares of our common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses related to the tender offer.
On February 21, 2012, we entered into a Credit Facility with Bank of America, N.A. Under the Credit Facility, Bank of America, N.A. agreed to lend us up to $20.0 million from time to time pursuant to a revolving line of credit and up to $30.0 million pursuant to a term loan (the “Credit Facility”). We utilized $40.0 million of proceeds from the Credit Facility, along with cash on hand, for the purchase of the shares in the tender offer and the payment of all fees and expenses in connection with the tender offer.
Net cash used in financing activities was $27.3 million for the nine months ended September 28, 2012, as compared to $6.7 million for the nine months ended September 30, 2011. The increase in the cash used was primarily attributable to the funding of the tender offer, the pay off of the revolving line of credit, and the pay down of the term loan.
We currently believe that available funds (including the cash on hand and funds available for borrowing under the revolving line of credit of $20.0 million), and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.
Contractual Obligations
During the nine months ended September 28, 2012, we incurred certain long-term debt obligations pursuant to the Credit Agreement entered into with Bank of America, N.A. For additional information about the Credit Agreement, please see “Liquidity and Capital Resources” above and Note 5, “Credit Facility,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
For a discussion of recently issued accounting standards, please see Note 1, “Basis of Presentation,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q.
15
At September 28, 2012, 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 third quarter 2012 results of operations.
Exchange Rate Sensitivity
We face exposure to adverse movements in foreign currency exchange rates as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve.
Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.
Changes in Internal Controls
There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.
16
PART II — OTHER INFORMATION
There have been no material changes to any of the risk factors disclosed in the Company’s most recently filed Annual Report on Form 10-K.
No shares were repurchased during the quarter ended September 28, 2012 under the Company’s share repurchase plan. As of September 28, 2012, the Company had $0.6 million of remaining authorization under this program.
See Index to Exhibits on page 19, which is incorporated herein by reference.
The Exhibits listed in the accompanying Index to Exhibits are filed as part of this Quarterly Report in Form 10-Q, with the exception of interactive data filed deemed not filed pursuant to Rule 406T of Regulation S-T.
17
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
/s/ Robert A. Ramirez
18
INDEX TO EXHIBITS
Exhibit Description
19