What changed in this filing

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Item 8. Financial Statements and Supplementary Data

2021-03-12 compared with 2020-03-05 · 234 added, 309 removed, 612 unchanged (47% of the section changed)

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Report of Independent Registered Public Accounting Firm

Consolidated Balance Sheets as of December 27, 2019 and December 28, 2018

Consolidated Statements of Operations for the Years Ended December 27, 2019, December 28, 2018 and December 29, 2017

Consolidated Statements of Comprehensive Income for the Years Ended December 27, 2019, December 28, 2018, and December 29, 2017

Consolidated Statements of Shareholder s’ Equity for the Years Ended December 27, 2019, December 28, 2018, and December 29, 2017

Consolidated Statements of Cash Flows for the Years Ended December 27, 2019, December 28, 2018 and December 29, 2017

Consolidated Balance Sheets as of January 1, 2021 and December 27, 2019

Consolidated Statements of Operations for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Consolidated Statements of Comprehensive Income for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Consolidated Statements of Shareholders’ Equity for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Consolidated Statements of Cash Flows for the Years Ended January 1, 2021, December 27, 2019, and December 28, 2018

Notes to Consolidated Financial Statements

Schedule II – Valuation and Qualifying Accounts and Reserves

REPORT OF INDEPENDENT REGIS TERED PUBLIC ACCOUNTING FIRM

Report of Independent Registered Public Accounting Firm

To the Shareholders and the Board of Directors of The Hackett Group, Inc.

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We have audited the accompanying consolidated balance sheets of The Hackett Group, Inc.

and its subsidiaries (the Company) as of December 27, 2019 and December 28, 2018, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended December 27, 2019, and the related notes to the consolidated financial statements and schedules (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of December 27, 2019 and December 28, 2018, and the results of their operations and their cash flows for each of the three years in the period ended December 27, 2019, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of December 27, 2019, 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 5, 2020 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

and its subsidiaries (the Company) as of January 1, 2021, and December 27, 2019, the related consolidated statements of operations, comprehensive income, shareholders' equity and cash flows for each of the three years in the period ended January 1, 2021, and the related notes to the consolidated financial statements and schedule (collectively, the financial statements).

In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 1, 2021 and December 27, 2019, and the results of their operations and their cash flows for each of the three years in the period ended January 1, 2021, in conformity with accounting principles generally accepted in the United States of America.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company's internal control over financial reporting as of January 1, 2021, 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 12, 2021 expressed an unqualified opinion on the effectiveness of the Company's internal control over financial reporting.

Basis for Opinion

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We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matter

The critical audit matter communicated below is a matter arising from the current period audit of the financial statements that was communicated or required to be communicated to the audit committee and that:

(i) relates to accounts or disclosures that are material to the financial statements and (ii) involved our especially challenging, subjective, or complex judgments.

The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matter below, providing a separate opinion on the critical audit matter or on the accounts or disclosures to which it relates.

Revenue Recognition for Fixed-fee Billing Arrangements

As described in Note 1 to the financial statements, the Company generates substantially all of its revenue from providing professional services to its clients.

In fixed-fee billing arrangements, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services.

The Company sets the fees based on its estimates of the costs and timing for completing the engagements.

The Company generally recognizes revenue under these arrangements using an input method approach, which is a subjective process based on work completed to-date as compared to estimates of the total services to be provided under the engagement.

Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement.

We identified the measurement of progress for the purpose of revenue recognition under fixed-fee billing arrangements as a critical audit matter.

Auditing management’s assumptions to estimate total engagement revenue and cost of services for the contract performance obligations used to recognize revenue for fixed-fee billing arrangements, including the historical experience of fulfilling the performance obligations of the contract or other similar contracts, involved a high degree of subjectivity and increased audit effort.

Our audit procedures related to the Company’s revenue recognition for fixed-fee billing arrangements included the following, among others:

We obtained an understanding of the relevant controls related to fixed-fee billing arrangements and tested such controls for design and operating effectiveness, including controls over management’s estimation of the amount of revenue to recognize for customer contracts where revenue is recognized over time as work progresses.

We evaluated management’s ability to estimate progress towards completion by performing a historical review of completed contracts to determine the accuracy and precision of the Company’s estimation process.

During this analysis we evaluated completed contracts in order to determine if previous estimates to complete were consistent with actual hours incurred to complete the contract.

We tested the mathematical accuracy of management’s estimate to complete calculation of contract revenue by obtaining and testing the source data used in the estimation process.

We tested a sample of fixed-fee billing arrangements as follows:

Evaluated whether the contracts were properly included in management’s calculation of estimated contract revenue based on the terms and conditions of each contract, including whether continuous transfer of control to the customer occurred as progress was made toward completion of the performance obligations.

Compared the transaction prices to the consideration expected to be received based on current rights and obligations under the contracts and any modifications or change orders that were agreed upon with the customers.

Assessed the terms in the customer agreement and evaluated the appropriateness of management’s identification of performance obligations based on the underlying goods and services included in the contract.

Tested the completeness and accuracy of management’s calculation of progress toward completion to date for the performance obligations by comparing actual costs incurred to date to source documents and recalculating revenue recognized based on actual costs incurred to date as a percentage of total estimated costs.

Evaluated management’s estimates of costs to complete the performance obligations by comparing the inputs to source documents.

/s/ RSM US LLP

We have served as the Company's auditor since 2015.

Fort Lauderdale, Florida

Miami, Florida

March 12, 2021

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Current assets:

Accounts receivable and unbilled revenue, net of allowance of $743 and $1,441

at December 27, 2019 and December 28, 2018, respectively

Accounts receivable and contract assets, net of allowance of $ 605 and $ 743

at January 1, 2021 and December 27, 2019, respectively

Prepaid expenses and other current assets

Assets related to discontinued operations

Total current assets

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Operating lease liabilities

Liabilities related to discontinued operations

Total current liabilities

Non-current deferred tax liability, net

Long-term debt

Operating lease liabilities

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57,600,158 and 57,180,616

shares issued at December 27, 2019 and December 28, 2018, respectively

shares issued at January 1, 2021 and December 27, 2019, respectively

Additional paid-in capital

Treasury stock, at cost, 27,425,476 and 27,086,782 shares at December 27, 2019 and

December 28, 2018, respectively

Treasury stock, at cost, 27,609,752 and 27,425,476 shares at January 1, 2021 and December 27, 2019, respectively

Accumulated deficit

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expense in 2020, 2019 and 2018, respectively)

Impairment of assets

Acquisition-related contingent consideration

Restructuring cost

Restructuring charges and asset impairments

Acquisition-related contingent consideration liability

Total costs and operating expenses

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Income from continuing operations

Gain (loss) from discontinued operations (net of taxes)

Loss from discontinued operations (net of taxes)

Basic net income per common share:

Income per common share from continuing operations

Income (loss) per common share from discontinued operations

Net income per common share

Loss per common share from discontinued operations

Basic net income per common share

Diluted net income per common share:

Income per common share from continuing operations

Income (loss) per common share from discontinued operations

Net income per common share

Loss per common share from discontinued operations

Diluted net income per common share

Weighted average common shares outstanding

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(in thousands)

Foreign currency translation adjustment

Foreign currency translation adjustment, net of income taxes

Total comprehensive income

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Foreign currency translation

Balance at December 27, 2019

Balance at January 1, 2021

The accompanying notes are an integral part of the consolidated financial statements.

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Cash flows from operating activities:

Less income (loss) from discontinued operations, net of taxes

Less loss from discontinued operations, net of taxes

Net income from continuing operations

Adjustments to reconcile net income to net

cash provided by operating activities:

Adjustments to reconcile net income from continuing operations to net

cash provided by operating activities from continuing operations:

Depreciation expense

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Provision for doubtful accounts

(Gain) loss on foreign currency transactions

Gain on foreign currency transactions

Non-cash stock compensation expense

Deferred income tax expense (benefit)

Deferred income tax (benefit) expense

Changes in assets and liabilities, net of acquisition:

Decrease (increase) in accounts receivable and unbilled revenue

Decrease (increase) in accounts receivable and contract assets

Decrease (increase) in prepaid expenses and other assets

Increase (decrease) in accounts payable

Decrease in accrued expenses and other liabilities

(Decrease) increase in accounts payable

Increase (decrease) in accrued expenses and other liabilities

Net cash provided by operating activities of continuing operations

Net cash provided by (used in) operating activities of discontinued operations

Net cash (used in) provided by operating activities of discontinued operations

Net cash provided by operating activities

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Cash consideration paid for acquisitions

Cash acquired in acquisition

Net cash used in investing activities

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Payment of debt borrowings

Debt issuance costs

Dividends paid

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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.

Intercompany transactions and balances are eliminated upon consolidation.

Basis of Presentation and Consolidation

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The Company consolidates the assets, liabilities, and results of operations of its entities.

Intercompany transactions and balances are eliminated upon consolidation.

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 2019, 2018 and 2017 ended on December 27, 2019, December 28, 2018 and December 29, 2017, respectively.

Fiscal years 2020, 2019, and 2018 ended on January 1, 2021, December 27, 2019, and December 28, 2018, respectively.

References to a year included in the consolidated financial statements refer to a fiscal year rather than a calendar year.

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In 2018, 2019 and 2020, the Company’s Board of Directors approved an increase in the annual dividend to $ 0.34 per share, $ 0.36 per share, and $ 0.38 per share, respectively.

Subsequent to 2019, the Company’s Board of Directors approved the increase in the annual dividend from $0.36 to $0.38 per share to be paid on a semi-annual basis.

In addition, during 2020, the Company’s Board of Directors approved the increase in the frequency of dividend payments to a quarterly basis.

During 2020, the Company funded one semi-annual dividend that was declared in 2019 and three quarterly dividends declared in 2020, including the dividend declared in the fourth quarter of 2020.

Subsequent to 2020, the Company’s Board of Directors approved the increase in the annual dividend from $0.38 to $ 0.40 per share to be paid on a quarterly basis and declared the first quarterly dividend of 2021.

The dividend policy is reviewed periodically by the Board of Directors.

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The carrying amount and activity of goodwill attributable to The Hackett Group and Hackett Technology Solutions was as follows (in thousands):

Hackett Technology

Balance at December 28, 2018

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Foreign currency translation adjustment

Balance at December 27, 2019

Balance at January 1, 2021

THE HACKETT GROUP, INC.

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All of the Company’s intangible assets are expected to be fully amortized by the end of 2022.

For the years ended December 27, 2019, December 28, 2018, and December 27, 2017, the Company recorded $1.0 million, $2.4 million and $2.1 million of amortization expense, respectively.

The estimated future amortization expense of intangible assets as of December 27, 2019 is as follows:

$1.0 million in 2020, $0.9 million in 2021, $0.2 million in 2022.

For the years ended January 1, 2021, December 27, 2019 and December 28, 2018, the Company recorded $ 1.0 million, $ 1.0 million and $ 2.4 million of amortization expense, respectively.

The estimated future amortization expense of intangible assets as of January 1, 2021 is as follows:

$ 0.9 million in 2021 and $ 0.3 million in 2022.

See Note 15 for further discussion.

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The Company generates substantially all of its revenue from providing professional services to its clients.

The Company also generates revenue from software licenses, software support, maintenance and subscriptions to its executive and best practices advisory programs.

The Company also generates revenue from software licenses, software support and maintenance and subscriptions to its executive and best practices advisory programs.

A single contract could include one or multiple performance obligations.

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If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable.

The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or mile-stone driven, with net thirty-day terms, however client terms are subject to change.

The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change.

Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates.

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The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America.

SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and the maintenance is sold simultaneously.

SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and maintenance which is sold simultaneously.

The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor.

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These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

The payment terms and conditions in our customer contracts vary.

The payment terms and conditions in the Company’s customer contracts vary.

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.

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These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Differences between the timing of billings and the recognition of revenue are recognized as either unbilled services or deferred revenue in the accompanying consolidated balance sheets.

Revenue recognized for services performed but not yet billed to clients are recorded as unbilled services.

Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within unbilled services.

Client prepayments are classified as deferred revenue and recognized over future periods as earned in accordance with the applicable engagement agreement.

See Note 3 for the accounts receivable and unbilled revenue balances and see Note 5 for the deferred revenue balances.

During the 12 months ended December 27, 2019, the Company recognized $17.8 million of revenue as a result of changes in deferred revenue liability balance, as compared to $19.1 million for the twelve months ended December 28, 2018, respectively.

The following table reflects the Company’s disaggregation of total revenue from continuing operations including reimbursable expenses for the quarters and twelve months ended December 27, 2019 and December 28, 2018:

Differences between the timing of billings and the recognition of revenue are recognized as either contract assets or contract liabilities in the accompanying consolidated balance sheets.

Revenue recognized for services performed but not yet billed to clients are recorded as contract assets.

Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement.

See Note 3 for the accounts receivable and contract asset balances and see Note 5 for the contract liability balances.

During the 12 months ended January 1, 2021, the Company recognized $ 9.2 million of revenue as a result of changes in the contract liability balance, as compared to $ 7.7 million for the twelve months ended December 27, 2019.

The following table reflects the Company’s disaggregation of revenue before reimbursements from continuing operations for the twelve months ended January 1, 2021 and December 27, 2019:

Software license sales

Total revenue from continuing operations

Revenue before reimbursements from continuing operations

Capitalized Sales Commissions

Sales commissions earned by our sales force are considered incremental and recoverable costs of obtaining a contract with a customer.

Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer.

These costs are deferred and then amortized as project revenue is recognized.

We determined the period of amortization by taking into consideration the customer contract period, which are generally less than 12 months.

The Company determined the period of amortization by taking into consideration the customer contract period, which is generally less than 12 months.

Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations.

As of December 27, 2019 and December 28, 2018, the Company had $1.6 million, and $1.2 million, respectively, of deferred commissions, of which $1.4 million was amortized during both the 12 months ended December 27, 2019 and December 28, 2018.

No impairment loss was recognized relating to the capitalization of deferred commission.

As of January 1, 2021 and

THE HACKETT GROUP, INC.

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Basis of Presentation and General Information (continued)

December 27, 2019, the Company had $ 1.5 million, and $ 1.6 million, respectively, of deferred commissions, of which $ 1.5 million and $ 1.4 million was amortized during the 12 months ended January 1, 2021 and December 27, 2019, respectively.

No impairment loss was recognized relating to the capitalization of deferred commission.

Practical Expedients

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Discontinued Operations

The Company’s European REL Working Capital group’s sales had been declining over the past several years as European countries have experienced continued economic recoveries and improved cash balances.

Companies are holding high cash reserves which drove working capital project sales of this group down across all of Europe.

The REL practice had a limited pipeline of potential client engagements;

therefore, the Company made the strategic decision to exit the business at the end of fiscal year 2018.

The Company made the strategic decision to exit Company’s European REL Working Capital business at the end of fiscal year 2018.

The sales of this business had been declining over several years prior to this decision as European countries experienced continued economic recoveries and improved cash balances.

Companies were holding high cash reserves which drove working capital project sales of this group down across all of Europe.

THE HACKETT GROUP, INC.

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Basis of Presentation and General Information (continued)

The following table includes the carrying amounts of the major classes of assets and liabilities presented in discontinued operations in our consolidated balance sheet:

Accounts receivable and unbilled revenue, net of allowance of $0 and $0

at December 27, 2019 and December 28, 2018, respectively

Assets related to discontinued operations

Accrued expenses and other liabilities (1)

Liabilities related to discontinued operations

(1) The balance at December 28, 2018, primarily represents the accrued severance related to terminated employees.

The following table presents the gain and loss results for our discontinued operations:

As of January 1, 2021 and December 27, 2019, the Company did not have any carrying amounts of the major classes of assets and liabilities presented in discontinued operations in its consolidated balance sheet.

The following table presents the gain and loss results for the Company’s discontinued operations (in thousands):

Revenue before reimbursements

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Total costs and operating expenses

Income from discontinued operations before income taxes

Income tax expense (benefit)

Gain (loss) from discontinued operations

Loss from discontinued operations before income taxes

Income tax (benefit) expense

Loss from discontinued operations

Net Income per Common Share

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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 HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

The following table reconciles basic and diluted weighted average shares:

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Dilutive weighted average common shares outstanding

There were 12 thousand, 1 thousand and 19 thousand shares of underlying awards granted excluded from the above reconciliation for the years ended 2019, 2018 and 2017, 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 27, 2019 and December 28, 2018, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments.

The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable and accrued expenses and other liabilities.

As of January 1, 2021 and December 27, 2019, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt.

The fair value of the debt approximated its carrying amount using Level 2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

Concentration of Credit Risk

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The Company engages in business activities in one operating segment, which provides business and technology consulting services.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Basis of Presentation and General Information (continued)

Recent Accounting Pronouncements

In February 2016, the FASB issued new guidance on leases.

The new standard establishes a right-of-use model (ROU) that requires a lessee to recognize a ROU asset and lease liability on the balance sheet for all leases with a term longer than 12 months.

Leases will be classified as finance or operating, with classification affecting the pattern and classification of expense recognition in the income statement.

The Company adopted the new standard on December 29, 2018 using the effective date as the date of initial application.

Consequently, financial information will not be restated and the disclosures required under the new standard will not be provided for dates and periods before December 29, 2018.

On adoption, the Company recognized additional operating liabilities of approximately $9.0 million, with corresponding ROU assets of approximately the same amount based on the present value of the remaining minimum rental payments under current leasing standards for existing operating leases.

In July 2018, the FASB issued ASU 2018-09, which affects a wide variety of Topics in the Codification and applies to all reporting entities within the scope of the affected accounting guidance.

The amendments in the ASU represent changes that clarify, correct errors in, or make minor improvements to the Codification.

Ultimately, the amendments make the Codification easier to understand and apply by eliminating inconsistencies and providing clarifications.

Some of the amendments in this ASU do not require transition guidance and are effective upon issuance of the ASU, while many of the amendments have transition guidance with effective dates for annual periods beginning after December 15, 2018.

The adoption of the amendments in this ASU are not expected to have a material impact on the Company’s consolidated financial statements and related disclosures.

Accounting Pronouncements Not Yet Adopted

In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test.

For public companies, this update will be effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017.

The Company does not expect the guidance to have a material impact on the Company's consolidated financial statements.

For public companies, this update was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017.

The adoption did not have a material impact on the Company’s consolidated financial statements.

In January 2020, the Company adopted ASU 2016-13 which changes how entities measure credit losses for most financial assets, including trade accounts receivable.

The adoption did not have a material impact on the Company’s consolidated financial statements.

Reclassifications

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current year presentation.

Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current year presentation with no effect on net income or shareholder’s equity.

Fair Value Measurement

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenue, net, consists of the following (in thousands):

Accounts Receivable and Contract Assets, Net

Accounts receivable and contract assets, net, consists of the following (in thousands):

Accounts receivable

Unbilled revenue

Contract assets

Allowance for doubtful accounts

Accounts receivable as of December 27, 2019 and December 28, 2018, is net of uncollected advanced billings.

Unbilled revenue as of December 27, 2019 and December 28, 2018, includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.

Accounts receivable as of January 1, 2021 and December 27, 2019, is net of uncollected advanced billings.

Contract assets as of January 1, 2021 and December 27, 2019 includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.

Property and Equipment, net

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Less accumulated depreciation

Depreciation expense for the years ended December 27, 2019, December 28, 2018 and December 29, 2017, was $3.2 million, $2.5 million, and $2.4 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated statements of operations.

As a result of the current decline in the Europe market and management’s efforts to focus on resources within the markets that provide the Company with the strongest growth opportunity, in 2019 the Company made the determination that the remaining investment in its Hackett Institute Enterprise Analytics Program was impaired.

The remaining investment as of December 27, 2019 was $1.2 million.

As a result of the emergence of strict cyber-security requirements, the release of the General Data Protection Regulation (“GDPR”) in Europe, and well publicized data breaches that have occurred with U.S.

companies throughout 2018, clients have made significant procedural and process changes that have made the implementation of the Company’s Hackett Performance Exchange data extraction offering extremely difficult.

Clients prefer to input or upload spreadsheets to our data collection systems rather than allow for direct data extraction.

Therefore in 2018, the Company determined that the remaining investment of $5.9 million was impaired.

In addition, as part of the discontinuance of our REL Working Capital practice, the Company decided to eliminate the Working Capital Course that was developed.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Depreciation expense for the years ended January 1, 2021, December 27, 2019, and December 28, 2018 was $ 3.5 million, $ 3.2 million, and $ 2.5 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated statements of operations.

Accrued Expenses and Other Liabilities

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Accrued compensation and benefits

Deferred employer's payroll taxes

Accrued bonuses

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Restructuring liability

Acquisition earnout accruals

Deferred revenue

Contract liability

Accrued sales, use, franchise and VAT tax

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Total accrued expenses and other liabilities

Restructuring Costs

During 2019, the Company recorded restructuring costs of $3.3 million, which was primarily related to the reduction of staff in Europe and Australia.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Restructuring Charges and Asset Impairments

During 2020, the Company recorded restructuring charges of $ 10.5 million, of which $ 5.7 million was primarily related to the reduction of staff in the U.S.

and Europe due to the impact of the COVID-19 pandemic and $ 4.8 million of which primarily related to real estate leases.

In consideration of the COVID-19 pandemic and the changing nature of the Company’s use of office space for its workforce, the Company evaluated its existing office space utilization and made a determination to completely or partially abandon certain leased office spaces.

As a result, the Company recorded restructuring charges of $ 4.8 million, primarily relating to the impairment of certain lease right-of-use assets, property, equipment and leasehold improvements and other real estate related costs.

See Note 7 for further discussion.

During 2019, the Company recorded restructuring charges of $ 3.3 million, which was primarily related to the reduction of staff in Europe and Australia.

As of December 27, 2019, the Company had $ 1.6 million of remaining commitments related to the restructuring charge.

During 2017, the Company recorded restructuring costs of $1.3 million, which was primarily related to the transition of resources driven by our migration from on-premise software to cloud-based implementations, as well as the Jibe acquisition, and the rationalization of global resources as a result of the emergence of RPA (“Robotic Process Automation”) related engagements from the Aecus acquisition.

As of December 29, 2017, the Company did not have any remaining commitments related to restructuring.

The following table sets forth the activity in the restructuring expense accruals in fiscal 2017, 2018 and 2019 (in thousands):

Exit, Closure and

Severance and Other

Consolidation

Employee Costs

As a result of the decline in the Europe market and management’s efforts to focus on resources within the markets that provide the Company with the strongest growth opportunity, in 2019 the Company made the determination that the remaining investment in its Hackett Institute Enterprise Analytics Program was impaired and recorded an asset impairment of $ 1.2 million.

See Note 7 for further discussion.

The following table summarizes the costs incurred in connection with the 2020, 2019 and 2018 restructuring charges and asset impairments (in thousands):

Twelve Months Ended

Employee related costs

Lease right-of-use asset impairment charges

Property, equipment and lease improvement impairment charges

Other lease related restructuring costs

The following table summarizes the Company’s restructuring activities recorded in accrued expenses and other liabilities (in thousands):

Employee Related

Exit, Closure and Consolidation

of Facilities

Accrual balance at December 28, 2018

Restructuring charge

Accrual balance at December 27, 2019

Restructuring charge

Accrual balance at January 1, 2021

Lease Commitments

As described in Note 1 “Recent Accounting Pronouncements”, effective December 29, 2018, the Company adopted the new lease accounting standard.

Effective December 29, 2018, the Company adopted the new lease accounting standard.

The Company has operating leases for office space and, to a much lesser extent, operating leases for equipment.

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The weighted average remaining lease term is 1.6 years.

Assuming the Company exercises the opt-out option in year 5 for its London office lease, the weighted average remaining lease term would be 3.2 years.

The weighted average discount rate utilized is 4 %.

The discount rates applied to each lease, reflects the Company’s estimated incremental borrowing rate.

This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to our lease payments in a similar economic environment.

For the twelve months ended December 27, 2019, the Company paid $2.5 million from operating cash flows for operating leases.

The Company has operating lease agreements for its premises that expire on various dates through March 2028.

Lease expense for the years ended December 27, 2019, December 28, 2018 and December 29, 2017, was $2.8 million, $2.8 million and $2.4 million, respectively.

The components of lease expense during the fiscal years ended December 27, 2019, December 28, 2018 and December 29, 2017 all related to operating lease costs.

Future minimum lease commitments under non-cancelable operating leases as of December 27, 2019, are as follows (in thousands):

As of December 27, 2019, the Company does not have any additional operating leases that have not yet commenced that create significant rights and obligations for the Company .

This includes an assessment of the Company’s credit rating to determine the rate that the Company would have to pay to borrow, on a collateralized basis for a similar term, an amount equal to the Company’s lease payments in a similar economic environment.

For the twelve months ended January 1, 2021, the Company paid $ 2.6 million from operating cash flows for operating leases.

The Company has operating lease agreements for its premises that expire on various dates through December 2024.

Lease expense for the years ended January 1, 2021, December 27, 2019 and December 28, 2018, was $ 2.5 million, $ 2.8 million and $ 2.8 million, respectively.

The components of lease expense during the fiscal years ended January 1, 2021, December 27, 2019 and December 28, 2018 all related to operating lease costs.

Future minimum lease commitments under non-cancelable operating leases as of January 1, 2021, are as follows (in thousands):

As of January 1, 2021, the Company does not have any additional operating leases that have not yet commenced that create significant rights and obligations for the Company.

In addition, in consideration of the COVID-19 pandemic and the changing nature of the Company’s use of office space for its workforce as part of the office lease analysis the Company conducted in 2020, the Company exercised its option to eliminate the remaining five years of the London lease.

See Note 6 for further discussion.

Credit Facility

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”).

As of the end of January 1, 2016, the Company had fully utilized and paid off its Term Loan.

As of the end of 2019, the Company had paid off the Revolver in total.

As of the end of 2018, the Company had a $6.5 million outstanding balance on the Revolver.

On May 9, 2016, the Company amended and restated the credit agreement with Bank of America to:

Provide for up to an additional $25.0 million of borrowing under the Revolver for a total borrowing capacity of $45.0 million;

Extend the maturity date on the Revolver to May 9, 2021.

("Bank of America"), pursuant to which Bank of America agreed to lend the Company up to $ 45.0 million pursuant to a revolving line of credit (the “Revolver”) with a maturity date of May 9, 2021 (the “Credit Agreement”).

On April 3, 2020, the Company amended the Credit Agreement with Bank of America to extend the maturity date to November 30, 2022 .

The amendment also increased the interest payable on outstanding loans in respect to the Revolver by an additional per annum rate of 0.50 % and provided for a LIBOR floor of 75 basis points.

The borrowing capacity remained at $ 45.0 million.

The obligations of Hackett under the Credit Facility are guaranteed by active existing and future material U.S.

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The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement.

As of December 27, 2019, the applicable margin percentage was 1.25% 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 27, 2019 was 4.00%.

As of January 1, 2021, 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 of the commitment fee as of January 1, 2021 was 0.125 %.

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 27, 2019, the Company was in compliance with all covenants.

As of January 1, 2021, the Company was in compliance with all covenants.

The Company incurred $ 21 thousand of incremental debt issuance costs in 2020 as a result of the credit agreement extension.

No debt issue costs were incurred in 2019.

These costs are amortized over the remaining life of the Credit Facility, the current portion of which are included in Prepaid expenses and other current assets and the long term portion of which are included in Other assets in the accompanying consolidated balance sheet.

THE HACKETT GROUP, INC.

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Credit Facility (continued)

The Company did not incur any incremental debt issuance costs in 2019 and 2018.

These costs are amortized over the remaining life of the Credit Facility and are included in Other Assets in the accompanying consolidated balance sheet.

As of December 27, 2019, the Company did not have any outstanding debt balance on the Revolver, excluding debt issuance costs of $0.1 million.

During fiscal 2019, the Company borrowed $1.0 million and paid down $7.5 million, leaving no outstanding balance.

During fiscal 2018, the Company borrowed $5.0 million and paid down $17.5 million, leaving $6.5 million outstanding under the Revolver, excluding the debt issuance costs of $0.2 million as of December 28, 2018.

As of January 1, 2021 and December 27, 2019, the Company did no t have any outstanding debt balance on the Revolver, excluding debt issuance costs of $ 0.1 million.

During fiscal 2019, the Company borrowed $ 1.0 million and paid down $ 7.5 million, leaving no outstanding balance as of December 27, 2019.

The Company files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns.

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The components of income before income taxes from continuing operations are as follows (in thousands):

Income from operations before income taxes

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

Income from continuing operations before income

The components of income tax expense (benefit) from continuing operations are as follows (in thousands):

2 unchanged sentences

Income tax expense from continuing operations

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

A reconciliation of the federal statutory tax rate with the effective tax rate from continuing operations is as follows:

U.S statutory income tax expense rate

State income taxes, net of federal income tax expense

State income taxes, net of federal income tax

Valuation reduction

Tax reform impact on deferred taxes

Meals and entertainment

13 unchanged sentences

Net deferred income tax liability

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

The 2017 Tax Cuts and Jobs Act (the “2017 Tax Act”) was signed into law on December 22, 2017.

The 2017 Tax Act made a significant number of changes to existing U.S.

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118 in December 2017.

The SAB provides guidance on accounting for the tax effects of the 2017 Tax Act where uncertainty exists, it provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the related accounting under U.S.

The SAB provides guidance on accounting for the tax effects of the 2017 Tax Act where uncertainty exists and it provides a measurement period that should not extend beyond one year from the 2017 Tax Act enactment date for companies to complete the related accounting under U.S.

In accordance with this guidance, the Company recorded provisional amounts for those specific income tax effects of the 2017 Tax Act for which a reasonable estimate could be determined.

As of December 27, 2019, the Company had $1.1 million of U.S.

As of January 1, 2021, the Company had $ 0.9 million of U.S.

state net operating loss carryforwards.

Additionally, at December 27, 2019, the Company had $8.9 million of foreign net operating loss carryforwards, of which $2.9 million related to operations in the United Kingdom, $0.9 million related to operations in France and $1.7 million related to operations in Australia.

Additionally, at January 1, 2021, the Company had $ 11.6 million of foreign net operating loss carryforwards primarily from operations in the United Kingdom, Germany, France and Australia.

A significant amount of the foreign net operating losses may be carried forward indefinitely.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Income Taxes (continued)

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 27, 2019 and December 28, 2018, the Company had a valuation allowance of $1.6 million and $1.2 million, respectively, to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to be realized.

The undistributed earnings in foreign subsidiaries at December 31, 2019 was approximately $3.8 million.

At January 1, 2021 and December 27, 2019, the Company had a valuation allowance of $ 1.6 million to reduce deferred income tax assets, primarily related to foreign net operating loss carryforwards, to the amounts expected to be realized.

The undistributed earnings in foreign subsidiaries at January 1, 2021 was approximately $ 3.9 million.

The Company has historically reinvested its foreign earnings abroad indefinitely and continues to reinvest future earnings abroad.

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Penalties and tax-related interest expense are reported as a component of income tax expense.

For the years ended December 27, 2019 and December 28, 2018, the total amount of accrued income tax-related interest and penalties was $155 thousand and $ 144 thousand, respectively.

For the years ended January 1, 2021 and December 27, 2019, the total amount of accrued income tax-related interest and penalties was $ 167 thousand and $ 155 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 27, 2019 and December 28, 2018, (in thousands):

The following table sets forth the detail and activity of the ASC 740 liability during the years ended January 1, 2021 and December 27, 2019, (in thousands):

Beginning balance

Additions based on tax positions

Reduction for prior year tax deductions

Ending balance

2 unchanged sentences

Income Taxes (continued)

As of December 27, 2019 and December 28, 2018, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

As of January 1, 2021 and December 27, 2019, the ASC 740-10, “Accounting for Uncertainty in Income Taxes”, liability of $ 0.4 million for both periods was classified as a current liability and included in accrued expenses and other liabilities in the accompanying consolidated balance sheets.

The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months.

The reversal of ASC 740-10 tax liabilities as of December 27, 2019 and December 28, 2018, would have a favorable impact on the effective tax rate in future period.

The reversal of ASC 740-10 tax liabilities as of January 1, 2021 and December 27, 2019 would have a favorable impact on the effective tax rate in future period.

Stock Based Compensation

Total share-based compensation included in net income for the years ended December 27, 2019, December 28, 2018 and December 29, 2017, is as follows:

Total share-based compensation included in net income for the years ended January 1, 2021, December 27, 2019, and December 28, 2018 is as follows:

Restricted stock units

Stock options and stock appreciation rights

Common stock subject to vesting requirements

The number of shares available for future issuance under the Company's stock plans as of December 27, 2019 were 1,466,084.

The number of shares available for future issuance under the Company's stock plans as of January 1, 2021 were 2,052,508 .

The Company issues new shares as they are required to be delivered under the plan.

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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 27, 2019 is summarized as follows:

Stock option activity under the Company’s stock option plans for the year ended January 1, 2021 is summarized as follows:

Option Shares

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Forfeited or expired

Outstanding as of December 27, 2019

Exercisable at December 27, 2019

Outstanding as of January 1, 2021

Exercisable at January 1, 2021

A summary of the Company’s stock option activity for the years ended December 27, 2019 and December 28, 2018 was as follows:

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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 27, 2019, December 28, 2018 and December 29, 2017, was as follows (in thousands):

December 27, 2019

December 28, 2018

December 29, 2017

Total intrinsic value of stock options exercised

SAR activity for the year ended December 27, 2019 was as follows:

SAR activity for the year ended January 1, 2021 was as follows:

Number of SARs

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Exercise Price

Weighted Average

Outstanding as of December 28, 2018

Weighted Average Remaining Contractual Term

Outstanding as of December 27, 2019

Exercisable at December 27, 2019

As of December 27, 2019, no SARs had been exercised and all of the outstanding options and SARs were performance-based .

Outstanding as of January 1, 2021

Exercisable at January 1, 2021

Restricted Stock Units

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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.

(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, (3) a three -year period with 33 % vesting on the first, second and third anniversary, or (4) a one-year period with 100 % vest on the first 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 27, 2019, was as follows:

Restricted stock unit activity for the year ended January 1, 2021, was as follows:

Weighted Average

Nonvested balance as of December 27, 2019

Nonvested balance as of January 1, 2021

The Company recorded restricted stock units based compensation expense of $ 8.7 million, $ 6.8 million and $ 7.1 million in 2020, 2019, and 2018 respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the fair value of the stock on the grant date.

As of December 27, 2019, there was $10.4 million of total restricted stock unit compensation expense related to the unvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.4 years.

As of January 1, 2021, there was $ 11.1 million of total restricted stock unit compensation expense related to the unvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.3 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.

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Compensation expense was based on the fair 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 27, 2019 was as follows:

The activity for common stock subject to vesting requirements for the year ended January 1, 2021 was as follows:

Number of Shares

3 unchanged sentences

Nonvested balance as of December 27, 2019

Common stock subject to vesting requirements of $1.0 million and $0.1 million was issued in 2019 and 2018, respectively, in relation to the equity portion of the Jibe, Aecus and Technolab acquisitions.

These shares are subject to a four-year vesting period.

The Company recorded compensation expense of $1.0 million, $2.0 million and $2.5 million, during the years ended December 27, 2019, December 28, 2018 and December 29, 2017, respectively, related to common stock subject to vesting requirements.

As of December 27, 2019, there was $1.6 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 1.7 years.

Nonvested balance as of January 1, 2021

Common stock subject to vesting requirements of $ 1.0 million was issued in 2019 in relation to acquisitions.

These shares are subject to up to a four-year vesting period.

The Company recorded compensation expense of $ 1.1 million, $ 1.0 million and $ 2.0 million, during the years ended January 1, 2021, December 27, 2019, and December 28, 2018 respectively, related to common stock subject to vesting requirements.

As of January 1, 2021, there was $ 0.5 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 0.9 years.

Shareholders’ Equity

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The aggregate fair value, determined as of the first trading date of the offering period, of shares purchased by an employee may not exceed $ 25,000 annually.

In 2017, subject to shareholder approval, the Company’s Board of Directors agreed to extend the Employee Stock Purchase Plan to July 1, 2023 from July 1, 2018 and added an additional 250,000 shares of common stock which increased the total available shares of common stock to 279,606 at that time.

As of 2019, a total of 105,252 shares of common stock were available for purchase under the plan.

For plan years 2019, 2018 and 2017, 51,548 shares, 55,045 shares and 67,761 shares, respectively, were issued for total proceeds of $0.8 million, $0.8 million, and $1.0 million, respectively.

In 2017, the Company’s Board of Directors and the Company’s shareholders approved an extension of the Employee Stock Purchase Plan to July 1, 2023 from July 1, 2018 and added an additional 250,000 shares of common stock which increased the total available shares of common stock to 279,606 at that time.

As of year-end 2020, a total of 73,573 shares of common stock were available for purchase under the plan.

For plan years 2020, 2019 and 2018, 56,679 shares, 51,548 shares and 55,045 shares, respectively, were issued for total proceeds of $ 0.8 million in each year.

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 $137.2 million of the Company’s common stock, thereby increasing the total program size to $142.2 million as of December 27, 2019.

As of December 27, 2019, the Company had affected cumulative purchases under the plan of $140.5 million, leaving $1.7 million available for future purchases.

Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an additional $ 142.2 million of the Company’s common stock, thereby increasing the total program size to $ 147.2 million as of January 1, 2021.

As of January 1, 2021, the Company had affected cumulative purchases under the plan of $ 142.9 million, leaving $ 4.3 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 tender offers mentioned above.

Subsequent to December 27, 2019, the Board of Directors approved an additional $5.0 million authorization under the Company’s repurchase program, thereby increasing the total program size to $147.2 million.

THE HACKETT GROUP, INC.

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During 2020 and 2019, the Company repurchased 184 thousand and 339 thousand shares of its common stock, respectively, at an average price per share of $ 12.84 and $ 15.60 , respectively, for a total cost of $ 2.4 million and $ 5.3 million, respectively.

As of December 27, 2019 and December 28, 2018, the Company had repurchased 27.4 million and 27.0 million shares of its common stock, respectively, at an average price of $5.1 per share.

As of January 1, 2021 and December 27, 2019 the Company had repurchased 27.6 million and 27.4 million shares of its common stock, respectively, at an average price of $ 5.19 per share and $ 5.14 per share, respectively.

During 2020, the Company repurchased 37 thousand shares of its common stock from members of its Board of Directors for $ 0.7 million or $ 17.43 per share.

The proceeds from the sale of these shares were used in part to cover estimated tax liabilities associated with previously vested restricted stock units.

During 2018, the Company purchased 73 thousand shares, or $1.3 million, from its executives to cover withholding taxes on the gross value of shares that vested.

These shares are not included in the repurchase plan.

The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.

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These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf.

In 2019 and 2018, 132 thousand shares were withheld and not issued for a cost of $2.5 million and 205 thousand shares were withheld and not issued for a cost of $3.6 million, respectively, which are included under issuance of common stock in the accompanying consolidated statements of shareholders’ equity.

In 2020, 139 thousand shares were withheld and not issued for a cost of $ 2.1 million bringing the total cumulative cash used to repurchase stock in 2020 to $ 4.5 million.

In 2019, 132 thousand shares were withheld and not issued for a cost of $ 2.5 million, bringing the total cumulative cash used to repurchase stock in 2019 to $ 7.8 million.

The shares withheld for taxes are included under issuance of common stock in the accompanying consolidated statements of shareholders’ equity.

In December 2012, the Company announced an annual dividend of $ 0.10 per share to be paid semi-annually.

The Company has steadily increased the annual dividend since 2012.

Most recently, from 2017 to 2018 the dividend increased from $0.30 per share to $0.34 per share.

In 2017, the Company increased the annual dividend to $0.30 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $4.6 million and $4.7 million paid to shareholders of record on June 30, 2017 and December 22, 2017, respectively.

The Company has periodically increased the annual dividend since 2012.

In 2018, the Company increased the annual dividend to $0.34 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $ 10.8 million each paid to shareholders of record on June 29, 2018 and December 21, 2018 , respectively.

In 2019, the Company increased the annual dividend to $ 0.36 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $ 11.2 million each paid to shareholders of record on July 10, 2019 and December 20, 2019 , respectively.

The second semi-annual dividend declared in December 2019 of $ 5.8 million, was paid in January 2020.

In 2020, the Company increased the annual dividend to $ 0.38 per share to be paid on a quarterly basis which resulted in aggregate dividends of $ 9.1 million paid to shareholders of record on June 30, 2020 , September 25, 2020 and December 18, 2020 , all of which were paid in 2020 .

These dividends were paid from U.S.

domestic sources and are accounted for as an increase to accumulated deficit.

The dividend declared in December 2019 was paid in January 2020.

Subsequent to December 27, 2019, the Company increased its annual dividend to $0.38 per share to be paid on a semi-annual basis.

Subsequent to January 1, 2021, the Company increased its annual dividend 5 % to $ 0.40 per share to be paid on a quarterly basis and declared its first quarterly dividend for 2021 of $ 0.10 per share for shareholders on March 26, 2021 to be paid on April 8, 2021 .

The Company maintains a 401(k) plan covering all eligible employees.

3 unchanged sentences

During fiscal year 2017, the Company made matching contributions of 25 % of employee contributions up to 6 % of their gross salaries.

The Company’s matching contributions were $0.8 million, $1.1 million and $0.5 million for the fiscal years ended December 27, 2019, December 28, 2018 and December 29, 2017.

The Company’s matching contributions were $ 0.8 million, $ 0.8 million and $ 1.1 million for the fiscal years ended January 1, 2021, December 27, 2019 and December 28, 2018, respectively.

Transactions with Related Parties

During the year ended January 1, 2021 the Company repurchased 37 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $ 0.7 million, or $ 17.43 per share.

During the year ended December 27, 2019, the Company repurchased 28 thousand shares of the Company’s stock from members of its Board of Directors for a total cost of $ 0.5 million, or $ 16.25 per share.

During the year ended 2018, the Company repurchased 53 thousand shares of the Company’s stock from members of its Board of Directors and Chief Financial Officer for a total cost of $1.0 million or $18.33 per share.

In addition, during 2018, the Company utilized 73 thousand tendered shares from the Company’s Chief Executive Officer, Chief Operating Officer and Chief Financial Officer to cover withholding taxes of $1.3 million on the February 2018 vesting of RSUs.

Subsequent to the year ended December 27, 2019, the Company repurchased 37 thousand shares of the Company’s stock from members of its Board of Directors for a total of $0.7 million, or $17.43 per share.

Subsequent to the year ended January 1, 2021, the Company repurchased 24 thousand shares of the Company’s stock from members of its Board of Directors for a total of $ 0.4 million, or $ 16.05 per share.

The proceeds from the sale of these shares were used primarily to cover estimated tax liabilities associated with previously vested restricted stock units.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisition s

Jibe Consulting

8 unchanged sentences

The cash related to the contingent consideration, which was paid to the key employees, is subject to service vesting and was accounted for as compensation expense.

This contingent liability was recorded in the consolidated balance sheet as current accrued expenses and other liabilities.

The equity related to the contingent consideration is subject to service vesting and is being recorded as compensation expense over the respective vesting period.

During the year ended December 27, 2019, and December 28, 2018, the Company had recorded $0.6 million and $0.9 million, respectively, of acquisition-related non-cash stock compensation related to the equity portion of the closing consideration and the equity portion of the contingent consideration.

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values.

The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values (in thousands):

Purchase Price

Total consideration

Accounts receivable

Other current assets

Total current assets acquired

Intangible assets

Total assets acquired

Accrued expenses and other liabilities

Total liabilities acquired

Purchase consideration on acquisition

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities.

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 Jibe:

(in thousands)

Customer Base

Customer Backlog

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisitions (continued)

The acquisition was not material to the Company's results of operations, financial position, or cash flows and therefore, the pro forma impact of these acquisitions is not presented.

Since the acquisition date through December 29, 2017, Jibe contributed $12.3 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes of $1.2 million.

The acquisition related costs incurred in 2017 totaled $0.2 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations.

All goodwill is expected to be deductible for tax purposes.

Aecus Limited

Effective April 6, 2017, the Company acquired 100% of the equity of the U.K.-based operations of Aecus Limited (“Aecus”), a European Outsourcing Advisory and Robotics Process Automation (“RPA”) consulting firm.

This acquisition complemented the global strategy and business transformation offerings of the Company.

The sellers’ purchase consideration was £3.2 million in cash.

There was no contingent consideration earned on this transaction based on achievement performance targets.

The closing purchase consideration was funded with the Company’s available funds

The purchase price was allocated to tangible and intangible assets acquired and liabilities assumed based on their fair values.

The following table presents the purchase price allocation of the assets acquired and liabilities assumed, based on the fair values (in thousands):

Purchase Price

Total consideration

Accounts receivable

Other current assets

Total current assets acquired

Intangible assets

Total assets acquired

Accrued expenses and other liabilities

Total liabilities acquired

Purchase consideration on acquisition

The recognized goodwill is primarily attributable to the benefits the Company expects to derive from enhanced market opportunities.

The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years.

The following table presents the preliminary intangible assets acquired from Aecus:

(in thousands)

Customer Base

Customer Backlog

The acquisition was not material to the Company's results of operations, financial position, or cash flows and therefore, the pro forma impact of these acquisitions is not presented.

From acquisition date through the month ended December 29, 2017, Aecus contributed $3.9 million of revenue before reimbursable expenses and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes of $0.5 million.

The acquisition related costs incurred during 2017 totaled $0.1 million and were all classified in selling, general and administrative costs in the Company’s consolidated statements of operations.

The goodwill and intangibles resulting from this transaction are not expected to be deductible under UK tax regulations.

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

Acquisitions (continued)

Chartered Institute of Management Accountants

In October 2017, Hackett-REL, Ltd., a subsidiary of the Company located in the United Kingdom, acquired The Chartered Institute of Management Accountants' share of the Certified GBS Professionals program.

This acquisition allows those studying under the program and their employers to benefit further from the Company’s sector specific expertise and focus on the growing global business services market.

Purchase consideration was $2.0 million in cash and was funded with the Company’s available funds.

Also, in connection with this transaction, the Alliance and Program Development Agreement between the Company, Hackett-REL, Ltd and The Chartered Institute of Management Accountants was terminated.

The purchase price was allocated to tangible and intangible assets acquired based on their estimated fair values.

The intangible asset will amortize over a four-year period.

Due to the projected earnout results, during the first quarter of 2019, the acquisition-related purchase consideration and compensation expense allocated to both the selling shareholders and key employees resulted in a benefit of $ 1.2 million in earnings from operations on the consolidated statement of operations related to the contingent earnout liability for the Jibe acquisition.

During the fourth quarter of 2019, the contingent liabilities were settled.

Geographic and Service Group Information

8 unchanged sentences

Total long-lived assets

As of December 27, 2019, December 28, 2018 and December 29, 2017, foreign assets included $14.6 million, $14.5 million and $15.1 million, respectively, of goodwill related to the REL, Archstone and Aecus acquisitions, in fiscal 2005, 2009 and 2017, respectively.

As of January 1, 2021 and December 27, 2019, foreign assets included $ 15.3 million and $ 14.6 million, respectively, of goodwill related to acquisitions, in fiscal years 2005, 2009 and 2017.

THE HACKETT GROUP, INC.

1 unchanged sentence

Quarterly Financial Information (unaudited)

The following tables present unaudited supplemental quarterly financial information for the years ended December 27, 2019 and December 28, 2018, (in thousands, except per share data):

The following tables present unaudited supplemental quarterly financial information for the years ended January 1, 2021 and December 27, 2019 (in thousands, except per share data):

Quarter Ended

2 unchanged sentences

September 25, 2020

December 27, 2019

January 1, 2021

Revenue from continuing operations before reimbursements

Operating income (1)

Income from continuing operations (1)

Income (loss) from discontinued operations (2)

Net income (1)

Basic net income per common share (4):

Income per common share from continuing operations

Income (loss) per common share from discontinued operations (2)

Net income (loss) per common share

Diluted net income per common share (4):

Income per common share from continuing operations

Income (loss) per common share from discontinued operations (2)

Net income (loss) per common share

Operating income (loss) (1)

Income (loss) from continuing operations (1)

Loss from discontinued operations (2)

Net income (loss) (1)

Basic net income (loss) per common share (3):

Income (loss) per common share from continuing operations

Loss per common share from discontinued operations (2)

Basic net income (loss) per common share

Diluted net income (loss) per common share (3):

Income (loss) per common share from continuing operations

Loss per common share from discontinued operations (2)

Diluted net income (loss) per common share

Quarter Ended

5 unchanged sentences

Operating income

Income (loss) from continuing operations (3)

Income from continuing operations (4)

Income (loss) from discontinued operations (2)

1 unchanged sentence

Basic net income per common share (3)

Income (loss) per common share from continuing operations

Income per common share from continuing operations

Income (loss) per common share from discontinued operations (2)

Net income (loss) per common share

Basic net income per common share

Diluted net income per common share (3)

Income (loss) per common share from continuing operations

Income per common share from continuing operations

Income (loss) per common share from discontinued operations (2)

Net income (loss) per common share

The fourth quarter of 2019 included a charge for restructuring of $3.3 million and a charge for an asset impairment of $1.2 million.

Diluted net income per common share

The second quarter of 2020 included restructuring charges of $ 5.0 million and the fourth quarter of 2020 included asset impairments of $ 3.9 million and restructuring charges of $ 1.6 million.

Discontinued operations relate to the discontinuance of the European based REL Working Capital group in 2018.

The fourth quarter of 2018 included a charge for asset impairments of $6.3 million.

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.

The fourth quarter of 2019 included restructuring charges and asset impairments of $ 3.3 million and $ 1.2 million, respectively.

THE HACKETT GROUP, INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED DECEMBER 27, 2019, December 28, 2018 AND December 29, 2017

YEARS ENDED January 1, 2021, December 27, 2019, and December 28, 2018

(in thousands)

Allowance for Doubtful Accounts

Year Ended December 27, 2019

Year Ended January 1, 2021

Year Ended December 27, 2019

Year Ended December 28, 2018

CHANGES IN AND DISAGREMENTS WITH ACCOU NTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE .

CHANGES IN AND DISAGREMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-K

Item 8. Financial Statements and Supplementary Data