10-K 1 hckt-20160101x10k.htm 10-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

☒ | ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED January 1, 2016

OR

☐ | TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE TRANSITION PERIOD FROM TO

COMMISSION FILE NUMBER 0-24343

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

FLORIDA | 65-0750100
(State or other jurisdiction of incorporation or organization) | (I.R.S. Employer Identification No.)
1001 Brickell Bay Drive, Suite 3000 Miami, Florida | 33131
(Address of principal executive offices) | (Zip Code)

(305) 375-8005

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

(Title of each class) | (Name of each exchange on which registered)
Common Stock, par value $.001 per share | NASDAQ Stock Market

Securities registered pursuant to Section 12(g) of the Act:

None

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes ☐ No ☒

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Exchange Act. Yes ☐ No ☒

Indicate by check mark whether the registrant: (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes ☒ No ☐

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large Accelerated Filer | ☐ | Accelerated Filer | ☒
Non-accelerated Filer | ☐ (Do not check if a smaller reporting company) | Smaller reporting company | ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

The aggregate market value of the common stock held by non-affiliates of the registrant was $310,389,146 on July 3, 2015 based on the last reported sale price of the registrant’s common stock on the NASDAQ Global Market.

The number of shares of the registrant’s common stock outstanding on March 10, 2016 was 30,157,675.

DOCUMENTS INCORPORATED BY REFERENCE

Part III of this Annual Report on Form 10-K incorporates by reference certain portions of the registrant’s proxy statement for its 2016 Annual Meeting of Shareholders filed with the Commission not later than 120 days after the end of the fiscal year covered by this report.

THE HACKETT GROUP, INC.

TABLE OF CONTENTS

|  | Page
FORM 10-K PART I
ITEM 1. | Business | 3
ITEM 1A. | Risk Factors | 10
ITEM 1B. | Unresolved Staff Comments | 13
ITEM 2. | Properties | 13
ITEM 3. | Legal Proceedings | 13
ITEM 4. | Mine Safety Disclosures | 14
PART II
ITEM 5. | Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities | 15
ITEM 6. | Selected Financial Data | 18
ITEM 7. | Management’s Discussion and Analysis of Financial Condition and Results of Operations | 20
ITEM 7A. | Quantitative and Qualitative Disclosures About Market Risk | 27
ITEM 8. | Financial Statements and Supplementary Data | 29
ITEM 9. | Changes in and Disagreements With Accountants on Accounting and Financial Disclosure | 55
ITEM 9A. | Controls and Procedures | 55
PART III
ITEM 10. | Directors, Executive Officers and Corporate Governance | 58
ITEM 11. | Executive Compensation | 58
ITEM 12. | Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters | 58
ITEM 13. | Certain Relationships and Related Transactions, and Director Independence | 58
ITEM 14. | Principal Accounting Fees and Services | 58
PART IV
ITEM 15. | Exhibits and Financial Statement Schedules | 58
Signatures | 59
Index to Exhibits | 60

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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference in it include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that could impact such forward-looking statements include, among others, our ability to attract additional business, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the business and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our customers, risks of competition, price and margin trends, and changes in general economic conditions, foreign exchange rates and interest rates. An additional description of our risk factors is described in Part I – Item 1A. “Risk Factors”. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

PART I

ITEM 1. BUSINESS

GENERAL

In this Annual Report on Form 10-K, unless the context otherwise requires, “Hackett,” the “Company,” “we,” “us,” and “our” refer to The Hackett Group, Inc. and its subsidiaries and predecessors. We were originally incorporated on April 23, 1997.

The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies. Services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-winning Oracle EPM and SAP practices.

The Hackett Group has completed more than 12,000 benchmarking and performance studies with major organizations, including 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 52% of the FTSE 100. These studies drive its Best Practice Intelligence Center™ which includes the firm's benchmarking metrics, best practices repository, and best practice configuration and process flows accelerators, which enable The Hackett Group’s clients and partners to achieve world-class performance.

In the US, we continued to experience strong demand for our services under lower than expected GDP growth conditions for the year. In Western Europe, corporate decision making continued to be volatile throughout the year across our primary markets leading to lower than planned demand and operating results. Given our strong US client base, the activity in the US more than offset the European volatility. As we enter 2016, we expect U.S. market conditions to continue to be healthy. Relative to International, which is primarily Western Europe, we expect activity to be volatile. We expect approximately 2.0% GDP growth in the U.S., consistent with the two previous years; however, we remain cautious about our expectations for improved demand in Western Europe, but we know most recent growth revision for the region calls for approximately1% GDP growth. Global organizations continue to recognize the need to drive sustainable productivity improvement as they look to be competitive in a global macro-economic environment with restricted growth. Global growth opportunities require organizations to build global standards and to drive operating excellence based on the regional growth opportunities defined by the markets that they serve. Many organizations continue to make the global and regional organizational changes commensurate with the varying regional market conditions. We believe that our offerings are well aligned with the demands that all organizations will continue to experience during a period of slow and volatile economic growth. We will continue to ensure that our clients understand that our unique best practices intellectual capital, along with our expanding implementation capabilities will enable them to identify and implement necessary performance improvement initiatives in a targeted and timely manner.

When this economic backdrop is coupled with the rapidly emerging digital transformation age that we are just entering, there is a convergence underway that has the potential to transform existing industries and companies. Cloud-based infrastructure and applications, virtual business and technology networks, and business analytics are coming together with rapidly transitioning employee and consumer bases that are increasingly adept to new mobile technologies and business models. This convergence is creating tremendous new opportunities for companies that can transform and take advantage of them.

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The traditional approach to business transformation is based on a model of value creation involving optimization of linear processes and execution of work. This model no longer adequately reflects the reality of today’s digitally-connected world, which revolves around digital value networks as opposed to traditional value chains. A second critical element of digital age value creation is customer-centricity. A new digital business transformation framework needs to be adopted that goes beyond the traditional and more linear people/process/technology model and reflects customer-centricity and value networks. Such a framework must be customer value aligned, best practice oriented, continuous and technology- and people-led. Uber is a prime example of a customer-centric value network, disrupting traditional industries.

These emerging organizational models, driven by new technologies, will require organizations to re-evaluate their current operating platform, go-to-market strategies and consider emerging market opportunities. To do so, organizations will have to understand and decide how best to organize, enable, source and manage their business while both leveraging and utilizing emerging technologies. This will place increased emphasis on risk management and tangible return on their business and technological investments. We believe large enterprises will continue to focus their performance improvement spending on strategies and tools that help them generate more value from their business investments in the form of enhanced productivity and efficiency. We also expect companies to continue to look for ways to automate workflow, centralize and standardize execution. We believe that our unique insight into how leading global companies continue to excel and effectively adopt new technologies will continue to assist our clients with existing and emerging operating considerations.

OUR PROPRIETARY BEST PRACTICE IMPLEMENTATION INTELLECTUAL CAPITAL

Hackett uses its proprietary Best Practice Implementation (“BPI”) intellectual capital to help clients improve their performance. Our benchmark offerings allow clients to empirically quantify their performance improvement opportunity at an actionable level. It also provides us visibility into how leading global companies deploy technology or organizational strategies to optimize their performance. This insight results in a proprietary Best Practices Repository and with software configuration and organizational strategies which are only available from the unique vantage point provided from our Benchmarking solution. Utilizing the benchmarking metrics and repository of best practices, combined with the global strategy and implementation insight of our transformation and technology associates, Hackett has also created a series of organizational and technology accelerators that allow clients to effect proven sustainable performance improvement. Our proprietary BPI intellectual capital, which is imbedded within our consulting global delivery methodology, allows us to help clients accelerate their time to benefit from these improvements.

Our BPI approach leverages our inventory of Hackett-Certified™ practices, observed through benchmark and other BPI engagements, to correlate best practices with superior performance levels. We utilize Capability Maturity Models to better understand our client’s capabilities and organizational maturity, so that we can determine the level of performance that they can realistically pursue. In addition, we utilize Hackett’s intellectual capital in the form of best practice process flows and software configuration guides to integrate Hackett’s empirically proven best practices directly into business processes and workflows that are enabled by enterprise software applications. The repository of best practice process flows and software configuration guides reside in the Best Practice Intelligence Center portal and are used on a project to ensure that best practices are identified and implemented, whenever possible. This coordinated approach addresses people, process, information and technology all within the framework of our Best Practices

Because Hackett solutions are based on Hackett-Certified™ best practices, we believe that clients gain significant advantages. Clients can have confidence that their solutions are based on strategies from the world’s leading companies. More importantly, Hackett solutions deliver enhanced efficiency, improved effectiveness and reduced implementation risk.

The BPI approach often begins with a clear understanding of current performance, which is normally gained through benchmarking key processes and comparing the results to world-class levels and industry standards captured in the Hackett database. We then help clients prioritize and select the appropriate best practices to implement through a coordinated performance improvement strategy. Without a coordinated strategy that addresses the seven key business components which include organization and governance, process design, process sourcing, service placement, information, enabling technology and skills and talent, we believe companies risk losing a significant portion of business case benefits of their investments. We have designed detailed best practice process flows based on Hackett’s deep knowledge of world-class business performance which enable clients to streamline and automate key processes, and generate performance improvements quickly and efficiently at both the functional and enterprise level.

Similarly, we integrate Hackett-Certified™ best practices directly into technology solutions. We believe it is imperative that companies simplify and automate processes to meet best practice standards before new technology implementations and upgrades are completed. The automation of inefficient processes only serves to continue to drive up costs, cycle times and error rates. We have completed detailed fit-gap analyses in most functional areas of major business application packages including Oracle and SAP to determine their ability to support best practices. Application-specific tools, implementation guides and process flows allow us to optimize the configuration of best of breed software, while limiting customization. BPI establishes the foundation for improved performance.

We believe the combination of optimized processes, best practice-based business applications and enhanced business intelligence environments allow our clients to achieve and sustain significant business performance improvement. The specific client

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circumstances normally dictate how they engage us. Our goal is to be responsive to client needs, and to establish a continuous and trusted relationship. We have developed a series of offerings that allow us to efficiently help the client without regard to where they are in their performance improvement lifecycle.

COMPETITION

The strategic business advisory and technology consulting marketplace continues to be extremely competitive. The marketplace will remain competitive as companies continue to look for ways to improve their organizational effectiveness. Our competitors include international accounting firms; international, national and regional strategic consulting and systems implementation firms; and the IT services divisions of application software firms. Mergers and consolidations throughout our industry have resulted in higher levels of competition. We believe that the principal competitive factors in the industries in which we compete include skills and capabilities of people, innovative services and product offerings, perceived ability to add value, reputation and client references, price, scope of services, service delivery approaches, technical and industry expertise, quality of services and solutions, ability to deliver results on a timely basis, availability of appropriate resources, and global reach and scale. We acknowledge that many of our competitors are larger however we believe very few, if any, of our competitors have proprietary intellectual capital similar to the benchmarking based performance metrics and BPI insight that emanates from our Transformational Benchmark and Best Practices Advisory offerings.

In spite of our size relative to our competitor group, we believe our competitive position is distinct. With Hackett’s best practice intellectual capital and its direct link to our BPI approach, we believe we can empirically and objectively assist our clients. Our ability to apply best practices to client operations via proven techniques is at the core of our competitive standing.

Similarly, we believe that Hackett is the definitive source for best practice performance metrics and strategies. Hackett is the only organization that has conducted more than 12,000 benchmark and performance studies over 22 years at over 5,000 clients, generating proprietary data sets spanning performance metrics and correlating best practices with superior performance. The combination of Hackett benchmark data, along with deep expertise and knowledge in evaluating, designing and implementing business transformation strategies leveraging our proprietary Best Practices Repository, delivers a powerful and distinct value proposition for our clients.

Our culture of client collaboration leverages the power of our cross-functional and service line teams to increase revenue and strengthen relationships. We believe that this culture, along with terrific talent and with our intellectual capital-centric approach, gives us a distinct competitive advantage.

STRATEGY

Our focus will be on executing the following strategies:

| · |  | Expand our brand or market permission to our other offerings. We believe that our long term growth prospects lie in our ability to extend our unique market permission to help clients and strategic partners measure their performance improvement opportunity, using our proprietary benchmark database into our other offerings. We have started to extend our permission through the strategic relationship that results from our Best Practices Advisory Programs. However, our most significant growth opportunity is in our ability to extend our brand and market permission into our enterprise transformation and other best practice implementation offerings which create a significant opportunity to grow revenue per client.

| · |  | Continue to position and grow Hackett as an IP-centric strategic advisory organization. We believe that the Hackett brand is widely recognized for benchmarking metrics and best practice strategies. By building a series of highly complementary on-site and off-site offerings that allow our client’s access to our Intellectual Property (“IP”) which is based on our best practice process and technology implementation insight, we are able to build trusted strategic relationships with our clients. Depending upon where our clients are in their assessment or implementation of performance improvement initiatives, we offer them a combination of offerings that support their efforts. If they need on-site planning, design and/or implementation support, we offer them a combination of benchmarking and transformation support. Our long term strategy is to continue to build our brand by building new offerings and capabilities around our unmatched Best Practice Implementation intellectual capital in order to serve clients strategically and whenever possible, continuously.

We believe that clients that leverage our IP are more likely to allow us to serve them more broadly. IP-based services enhance our opportunities to serve clients remotely, continuously and more profitably. Our goal is to use our unique intellectual capital to establish a strategic relationship with our clients directly or through strategic alliances and channels and to further use that entry point to introduce our business transformation and technology capabilities. Our long-term goal is to be able to ascribe an increasing percentage of our total annual revenues to clients who are continuously engaged with us through our executive and best practices advisory programs, and through our Hackett Performance Exchange. At the end of the fourth quarter of 2015 our Executive and Best Practice Advisory Members totaled 960 across 305 clients. Consistent with prior quarters, over 40% of our Hackett sales were also Advisory clients, which continues to support the leverage of this entry or IP-wedge offering.

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If they need off-site access to our IP and advisors to help them either assess or execute on their own, they can avail themselves of our Executive or Best Practices Advisory Programs. The key is for the client to know that we can support them strategically by leveraging our unique IP and insight so that we are able to build a strategic relationship which is appropriate for them. We also believe that clients that value our IP will turn to us for other services when the need arises, allowing us over time to ascribe a larger amount of our total revenue to a growing client base, which will improve the predictability of our results. What was clearly different as we entered 2015 is that we now see the potential to leverage our IP through new external strategic partners and their channels. We are now exploring ways to use our IP to help others sell and deliver their offerings, thereby extending the value add they deliver to their clients, and perhaps also providing us with an opportunity to introduce our other services.

| · |  | Introduce New IP–centric Offerings. We are now seeing new opportunities through new strategic alliances and channels to use our IP to help others sell and deliver their offerings. In the fourth quarter of 2015 we launched a series of such alliances as described below:

In the fourth quarter of 2015, we launched a program with ADP that added a dedicated Hackett Best Practices advisory program to ADP’s Vantage HCM® solution. Our early indications from the ADP sales force as well as their clients are very favorable. We already have several clients that are utilizing the new Hackett Best Practice program in their ADP Vantage implementations, we expect our pipeline as well as closed deals to build throughout the upcoming year.

We also launched the Association of Certified GBS Professionals Program with CIMA, the Chartered Institute of Management Accountants. We believe this relationship will allow us to build an entirely new professional development business that provides globally recognized certifications for shared services and global business service professionals. Our plan is to augment our existing entry level program with an Executive level program next April and the Managerial level program by next July. At that time we will have our complete curriculum fully rolled out. We have over 20 clients who have already committed to a Pilot program and use our entry level course for the assessment. We believe our ability to ramp throughout the year will accelerate as we rollout the other two programs and clients complete initial pilot programs.

Lastly, we also announced our new joint marketing plan with Oracle that will include the sale of the Hackett Performance Exchange along with the sale of Oracle’s new Business Intelligence Cloud Service or BICS. We have started to expose a large number of Oracle’s BI sales force to this joint offering which will continue throughout 2016. This program now has a few clients and we believe this activity will increase as Oracle becomes more familiar with both their new cloud solution as well as the integrated value of HPE.

Our Benchmarking and Best Practice IP leverage strategy allows us to increase our client base, profitability and increase revenue per client. It would also represent an increase in recurring revenue at much higher margins due to the way these services are provided and contracted.

We have developed a performance management dashboard called the Hackett Performance Exchange, (“HPE”). In 2013 and 2012, we worked closely with our participating launch member clients to validate our targeted functionality and value proposition. This new dashboard offering should allow us to benchmark and monitor the performance improvement opportunity of key operating processes. This offering securely extracts operating information directly from a client’s ERP system which allows them to measure and compare their performance to Hackett peer and world class standards. For clients that run current versions of Oracle and SAP software, this solution is fully automated, requiring limited client time to set up and populate and also provides for electronic access over various devices. In addition to HPE, we also continue to look for ways to leverage our proprietary “IP” through new offerings and other external channels.

| · |  | Continue to expand our BPI tools. BPI incorporates intellectual capital from Hackett into our implementation tools and techniques. For clients, the end results are tangible cost and performance gains and improved returns on their organizational and technology investments. Many clients attribute their decision to employ us based on our BPI approach and tools. Our objective is to help clients make smarter business process and software configuration decisions as a result of our BPI methods and knowledge. We are continuously updating our BPI content and tools through benchmarking, enterprise transformation and research activities. Additional BPI updates are also driven by new software releases that drive innovation in business process automation. In 2015, we invested in the automation and further integration of our various metrics, best practices and best practice acceleration tools. This effort will continue in 2016.

| · |  | Create strategic relationships that help us leverage and expand our Hackett intellectual capital base as well as grow our revenue. We continue to believe that there are other organizations which can help us grow revenue and intellectual capital consistent with our strategy. Such relationships include programs that we have executed with other consulting organizations, industry trade groups and software providers.

| · |  | Recruit and develop talent. As we continue to grow and realize the potential of our business model, it has become increasingly evident that the primary limit to our growth will be our ability to attract, retain, develop and motivate associates. We continue to invest in associate development programs that are specifically targeted to improve our go-to-market and delivery execution.

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| · |  | Leverage our offshore capabilities. Leveraging an offshore resource capability to support the delivery of our offerings has been a key strategy for our organization. Our facilities in Hyderabad, India and Montevideo, Uruguay (Oracle EPM business acquired in 2014) allow us to increase operational efficiencies and build targeted key capabilities that can appropriately support the delivery of our offerings and internal functional teams.

| · |  | Seek out strategic acquisitions. We will continue to pursue strategic acquisitions that strengthen our ability to compete and expand our IP. We believe that our unique Hackett access and our BPI approach, coupled with our strong balance sheet and infrastructure, can be utilized to support a larger organization. We plan to pursue acquisitions that are accretive or have strong growth prospects, and most importantly, have strong synergy with our best practice intellectual capital focus.

OUR OFFERINGS

We offer a comprehensive range of services, including executive advisory programs, benchmarking, business transformation and technology consulting services. With strategic and functional knowledge in finance, human resources, information technology, procurement, supply chain management, corporate services, customer service, and sales and marketing, our expertise extends across the enterprise. We have completed successful engagements in a variety of industries, including automotive, consumer goods, financial services, technology, life sciences, manufacturing, media and entertainment, retail, telecommunications, transportation and utilities.

The Hackett Group

| · |  | Executive and Best Practices Advisory Programs

On-demand access provides world-class performance metrics, peer-learning opportunities and best practice implementation advice. The scope of Hackett’s advisory programs is defined by business function (Executive Advisory) and by end-to-end process coverage (Process Advisory) and by Software Program (ADP Vantage) or Strategic Partner (CIMA). Our advisory programs include a mix of the following deliverables:

| · |  | Best Practice Intelligence Center: Online, searchable repository of best practices, performance metrics, conference presentations and associated research available to Executive and Best Practices Advisory Program Members and their support teams.

| · |  | Best Practice Accelerators: Dedicated web based access to best practices, customized software configuration tools, best practice process flows used to support the sale, configuration and organizational implementation and post implementation support efforts of Partner software.

| · |  | Advisor Inquiry: Hackett’s inquiry services are used by clients for quick access to fact-based advice on proven approaches and methods to increase the efficiency and effectiveness of selling, general and administrative processes.

| · |  | Best Practice Research: Empirically-based research and insight derived from Hackett benchmark, performance and transformation studies. Our research provides detailed insights into the most significant proven approaches in use at world-class organizations that yield superior business results.

| · |  | Peer Interaction: Regular member-led webcasts, annual Best Practice Conferences, annual Member Forums, membership performance surveys and client-submitted content, provide ongoing peer learning and networking opportunities.

| · |  | Benchmarking Services

Our benchmarking group dates back to 1991, and has measured and evaluated the efficiency and effectiveness of enterprise functions for over 5,000 organizations globally. This includes 93% of the Dow Jones Industrials, 86% of the Fortune 100, 87% of the DAX 30 and 52% of the FTSE 100. Ongoing studies are conducted in a wide range of areas, including selling, general and administrative, finance, human resources, information technology, procurement, enterprise performance management, shared service centers and working capital management. Hackett has identified over 2,000 best practices for over 115 processes in these key functional areas and uses proprietary performance measurement tools and data collection processes that enable companies to complete the performance measurement cycle and identify and quantify improvement opportunities in as little as four weeks. Benchmarks are used by our clients to objectively establish priorities, generate organizational consensus, align compensation to establish performance goals, and develop the required business case for business and technology investments.

| · |  | Business Transformation

Our Business Transformation programs help clients develop a coordinated strategy for achieving performance improvements across the enterprise. Our experienced teams utilize Hackett performance measurement data to link performance gains to industry best practices. Our strategic capabilities include operational assessments, process and organization design, change management and the effective application of technology. We combine best practices knowledge with business expertise and broad technology capabilities, which we believe enables our programs to optimize return on client investments in people, process, technology and information.

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Through REL, a global leader in generating cash flow improvement from working capital, we offer services which are designed to help companies improve cash flow from operations through improved working capital management, reduced costs and increased service quality.

| · |  | EPM & BI Solutions

Our EPM/BI practice focuses on helping clients enhance the decision-making capability in their businesses. These improvements cover many aspects of service delivery, including process improvement, technology deployment, organizational alignment, information and data definition and skills and competency alignment. Solutions typically reside in 3 primary areas: Core Financial Close and Consolidation, Integrated Business Planning, and Reporting / Advanced Analytics. Solution innovations have taken the practice into areas such as Big Data, Cloud technology data management and governance, and Industry-specific analytic templates. This practice works closely with Oracle technology offerings and is the #1 Oracle EPM partner for 2013, 2014 and 2015.

ERP Solutions

Our ERP Solutions professionals help clients choose and deploy the software applications that best meet their needs and objectives. Our expertise is focused on SAP ERP (with primary focus on Life Sciences and Consumer Goods). The group offers comprehensive services from planning, architecture, and vendor evaluation and selection through implementation, customization, testing and integration. Comprehensive fit-gap analyses of all major packages against Hackett Best Practices are utilized by our ERP Solutions teams. BPI tools and templates help integrate best practices into business and analytical applications. The group also offers post-implementation support, change management, exception management, process transparency, system documentation and end-user training, all of which are designed to enhance return on investment. We also provide off-shore application development and Application Maintenance and Support (“AMS”) services. These services include post-implementation support for select business application and infrastructure platforms. Our ERP Solutions group also includes a division responsible for the sale of the SAP suite of ERP applications.

CLIENTS

We focus on developing long-term client relationships with Global 2000 firms and other sophisticated buyers of business and IT consulting services. During 2015, 2014 and 2013, our ten most significant clients accounted for 24%, 21% and 20% of revenue, respectively, and during 2015, our largest client generated 4% of total revenue and 3% of total revenue in 2014 and 2013. We believe that we have achieved a high level of satisfaction across our client base. The responses to our client satisfaction surveys have been positive. We receive surveys from a significant number of our engagements which are utilized in a rigorous process to improve our delivery execution, sales processes, methodologies and training.

BUSINESS DEVELOPMENT AND MARKETING

Our extensive client base and relationships with Global 2000 firms remain our most significant sources of new business. Our revenue generation strategy is formulated to ensure that we are addressing multiple facets of business development. The categories below define our business development resources. Our primary goal is to continue to increase awareness of our brand which we have created around Hackett’s empirical knowledge capital and BPI in the extended enterprise that we now serve. We have a regional sales and market development effort in both North America and Europe, so we can better coordinate the sales and marketing messages from our various offerings. Our compensation programs for our associates reflect an emphasis on optimizing our total revenue relationship with our clients while continuing to emphasize the growth of our Executive Advisory Program clients. Our technology groups, we have continued to utilize Hackett intellectual capital that resides in our BPI tools as a way to differentiate the relationships we have with the software providers and with our clients.

BUSINESS DEVELOPMENT RESOURCES

Although virtually all of our advisors and consultants have the ability to and are expected to contribute to new revenue opportunities, our primary internal business development resources are comprised of the following:

| · |  | The Leadership Team, Principals and Senior Directors are comprised of our senior leaders who have a combination of executive, regional, practice and anchor account responsibilities. In addition to their management responsibilities, this group of associates is responsible for growing the business by fostering executive-level relationships within accounts and leveraging their existing contacts in the marketplace.

| · |  | The Sales Organization is comprised of associates who are 100% dedicated to generating sales. They are deployed geographically in key markets, are primarily focused on developing new relationships and are aligned to our core practice areas within their target accounts. They also handle opportunities in their geographic territories as they arise.

| · |  | The Business Development Associates are comprised of trained groups of telemarketing specialists who are conversant with their respective solution areas. Lead generation is coordinated with our marketing and sales groups to ensure that our inbound and outbound efforts are synchronized with targeted marketing and sales programs.

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| · |  | The Delivery Organization is comprised of our billable associates who work at client locations. We encourage associates to pursue additional business development opportunities through their normal course of delivering existing projects thereby helping us expand our business within existing accounts.

In addition to our business development resources, we have a corporate marketing and communications organization responsible for overseeing our marketing programs, public relations and employee communications activities.

We have organized our market focus into the following categories:

| · |  | Strategic Accounts are comprised of large prospects and existing relationships which we believe will have a significant revenue relationship within the next 18 months. Strategic account criteria include the size of the company, industry affiliation, propensity to buy external consulting services and contacts within the account. The sales representative working closely with regional leadership is primarily responsible for identifying business opportunities in the account, acting as the single point of coordination for the client, and performing the general duties of account manager.

| · |  | Regional Accounts are accounts within a specified geographic location. These accounts mostly include large prospects, dormant clients, existing medium-sized clients and mid-tier market accounts and are handled primarily on an opportunistic basis, except for active clients where delivery teams are focused on driving additional revenue.

| · |  | Strategic Alliance Accounts are accounts that allow us to partner with organizations of greater scale or different skill sets or with software developers enabling all parties to jointly market their products and services to prospective clients.

MANAGEMENT SYSTEMS

Our management control systems are comprised of various accounting, billing, financial reporting, human resources, marketing and resource allocations systems, many of which are integrated with our knowledge management system, Mind~Share. We believe that Mind~Share significantly enhances our ability to serve our clients efficiently by allowing our knowledge-base to be shared by all associates worldwide on a real-time basis. Our well-developed, flexible, scalable infrastructure has allowed us to quickly integrate the new employees and business systems we have acquired.

TALENT MANAGEMENT

We fully believe that our culture fosters intellectual creativity, collaboration and innovation. We believe in building relationships with both our associates and clients. We believe the best solutions come from teams of diverse individuals addressing problems collectively and from multiple dimensions, including the business, technological and human dimensions. We believe that the most effective working environment is one where everyone is encouraged to contribute and is rewarded for that contribution. Our core values are the strongest expression of our working style and represent what we stand for. These core values are:

| · |  | Continuous development of our associates, our unique content business model and our knowledge base;

| · |  | Diversity of backgrounds, skills and experiences;

| · |  | Knowledge capture, contribution and utilization; and

| · |  | Collaboration with one another, our partners and our clients.

Our human resources staff includes seasoned professionals in North America, Europe and Asia Pacific who support our practices by, among other things, administering our benefit programs and facilitating the hiring process. Our human resources staff also includes dedicated individuals who recruit consultants with both business and technology expertise. Our recruiting team supports our hiring process by focusing on the highest demand solution areas of our business to ensure an adequate pipeline of new associates. We also have an employee referral program, which rewards existing employees who source new hires.

As of January 1, 2016, we had 971 associates, excluding subcontractors, 79% of whom were billable professionals. We do not have any associates that are subject to collective bargaining arrangements; however, in France our associates enjoy the benefit of certain government regulations based on industry classification. We have entered into nondisclosure and non-solicitation agreements with virtually all of our personnel. From time to time, we also engage consultants as independent contractors.

COMMUNITY INVOLVEMENT

One important way we put our values into action is through our commitment to the communities where we work. The mission of our Community Councils, which operate in each of the cities where we have offices, is to strive to make the markets, communities and clients we serve better than how we found them. We do so by building a strong sense of community, with collaboration and personal interaction from all of our associates, through both volunteer and service programs and social gatherings.

INTELLECTUAL PROPERTY

We have obtained trademark registrations for The Hackett Group and Book of Numbers and various other names and logos, and we own registrations for certain of our other trademarks in the United States and abroad. We believe that the establishment

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of these marks is an important part to our strategy of expanding the brand recognition we have built around our empirical knowledge capital.

AVAILABLE INFORMATION

We make our public filings with the Securities and Exchange Commission (“SEC”), including our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and all exhibits and amendments to these reports, available free of charge at our website www.thehackettgroup.com as soon as reasonably practicable after we electronically file such material with, or furnish it to, the SEC. Any material that we file with the SEC may be read and copied at the SEC’s Public Reference Room at 100 F Street, N.E., Washington, D.C. 20549 or at www.sec.gov. Information on the operation of the Public Reference Room may be obtained by calling the SEC at 1-800-SEC-0330.

Also available on our website, free of charge, are copies of our Code of Conduct and Ethics, and the charters for the Audit Committee, Compensation Committee and Nominating and Governance Committee of our Board of Directors. We intend to disclose any amendment to, or waiver from, a provision of our Code of Conduct and Ethics applicable to our senior financial officers, including our Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Corporate Controller on our website within four business days following the date of the amendment or waiver.

ITEM 1A. RISK FACTORS

Our business is subject to risks. The following important factors could cause actual results to differ materially from those contained in forward-looking statements made in this Annual Report on Form 10-K or printed elsewhere by management from time to time.

Our results of operations could be negatively affected by global and regional economic conditions.

Global and regional economic conditions may affect our clients’ businesses and the markets they serve. A substantial or prolonged economic downturn, weak or uncertain economic conditions or similar factors could adversely affect our clients’ financial condition which may reduce our clients’ demand for our services, force price reductions, cause project cancellations, or delay consulting services for which they have engaged us. In addition, if we are unable to successfully anticipate the changing economic conditions, we may be unable to effectively plan for and respond to those changes, and our business could be negatively affected.

Our quarterly operating results may vary.

Our financial results may fluctuate from quarter to quarter. In future quarters, our operating results may not meet public market analysts’ and investors’ expectations. If that happens, the price of our common stock may fall. Many factors can cause these fluctuations, including:

| · |  | number, size, timing and scope of client engagements;

| · |  | customer concentration;

| · |  | long and unpredictable sales cycles;

| · |  | contract terms of client engagements;

| · |  | degrees of completion of client engagements;

| · |  | client engagement delays or cancellations;

| · |  | competition for and utilization of employees;

| · |  | how well we estimate the resources and effort we need to complete client engagements;

| · |  | the integration of acquired businesses;

| · |  | pricing changes in the industry;

| · |  | economic conditions specific to business and information technology consulting; and

| · |  | global economic conditions.

A high percentage of our operating expenses, particularly personnel and rent, are fixed in advance of any particular quarter. As a result, if we experience unanticipated changes in client engagements or in consultant utilization rates, we could experience large variations in quarterly operating results and losses in any particular quarter. Due to these factors, we believe our quarter-to-quarter operating results should not be used to predict future performance.

If we are unable to maintain our reputation and expand our brand name recognition, we may have difficulty attracting new business and retaining current clients and employees.

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We believe that establishing and maintaining a good reputation and name recognition are critical for attracting and retaining clients and employees in our industry. We also believe that the importance of reputation and name recognition will continue to increase due to the number of providers of business consulting and IT services. If our reputation is damaged or if potential clients are not familiar with us or with the solutions we provide, we may be unable to attract new, or retain existing, clients and employees. Promotion and enhancement of our name will depend largely on our success in continuing to provide effective solutions. If clients do not perceive our solutions to be effective or of high quality, our brand name and reputation will suffer. In addition, if solutions we provide have defects, critical business functions of our clients may fail, and we could suffer adverse publicity as well as economic liability.

We depend heavily on a limited number of clients.

We have derived, and believe that we will continue to derive, a significant portion of our revenue from a limited number of clients for which we perform large projects. In 2015, our ten largest clients accounted for 24% of our aggregate revenue. In addition, revenue from a large client may constitute a significant portion of our total revenue in any particular quarter. Our customer contracts generally can be cancelled for convenience by the customer upon 30 days’ notice. The loss of any of our large clients for any reason, including as a result of the acquisition of that client by another entity, our failure to meet that client’s expectations, the client’s decision to reduce spending on technology-related projects, or failure to collect amounts owed to us from our client could have a material adverse effect on our business, financial condition and results of operations.

We have risks associated with potential acquisitions or investments.

Since our inception, we have expanded through acquisitions. In the future, we plan to pursue additional acquisitions as opportunities arise. We may not be able to successfully integrate businesses which we may acquire in the future without substantial expense, delays or other operational or financial problems. We may not be able to identify, acquire or profitably manage additional businesses. Also, acquisitions may involve a number of risks, including:

| · |  | diversion of management’s attention;

| · |  | failure to retain key personnel;

| · |  | failure to retain existing clients;

| · |  | unanticipated events or circumstances;

| · |  | unknown claims or liabilities;

| · |  | amortization of certain acquired intangible assets; and

| · |  | operating in new or unfamiliar geographies.

Client dissatisfaction or performance problems at a single acquired business could have a material adverse impact on our reputation as a whole. Further, we cannot assure you that our future acquired businesses will generate anticipated revenue or earnings.

Difficulties in integrating businesses we acquire in the future may demand time and attention from our senior management.

Integrating businesses we acquire in the future may involve unanticipated delays, costs and/or other operational and financial problems. In integrating acquired businesses, we may not achieve expected economies of scale or profitability, or realize sufficient revenue to justify our investment. If we encounter unexpected problems as we try to integrate an acquired firm into our business, our management may be required to expend time and attention to address the problems, which would divert their time and attention from other aspects of our business.

Our markets are highly competitive.

We may not be able to compete effectively with current or future competitors. The business consulting and IT services markets are highly competitive. We expect competition to further intensify as these markets continue to evolve. Some of our competitors have longer operating histories, larger client bases, longer relationships with their clients, greater brand or name recognition and significantly greater financial, technical and marketing resources than we do. As a result, our competitors may be in a stronger position to respond more quickly to new or emerging technologies and changes in client requirements and to devote greater resources than we can to the development, promotion and sale of their services. Competitors could lower their prices, potentially forcing us to lower our prices and suffer reduced operating margins. We face competition from international accounting firms; international, national and regional strategic consulting and systems implementation firms; and the IT services divisions of application software firms.

In addition, there are relatively low barriers to entry into the business consulting and IT services market. We do not own any patented technology that would stop competitors from entering this market and providing services similar to ours. As a result, the emergence of new competitors may pose a threat to our business. Existing or future competitors may develop and offer services that are superior to, or have greater market acceptance, than ours, which could significantly decrease our revenue and the value of your investment.

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We may not be able to hire, train, motivate, retain and manage professional staff.

To succeed, we must hire, train, motivate, retain and manage highly skilled employees. Competition for skilled employees who can perform the services we offer is intense. We might not be able to hire enough skilled employees or train, motivate, retain and manage the employees we hire. This could hinder our ability to complete existing client engagements and bid for new ones. Hiring, training, motivating, retaining and managing employees with the skills we need is time-consuming and expensive.

We could lose money on our contracts.

As part of our strategy, from time to time, we enter into capped or fixed-price contracts, in addition to contracts based on payment for time and materials. Because of the complexity of many of our client engagements, accurately estimating the cost, scope and duration of a particular engagement can be a difficult task. We maintain an Office of Risk Management (“ORM”) that evaluates and attempts to mitigate delivery risk associated with complex projects. In connection with their review, ORM analyzes the critical estimates associated with these projects. If we fail to make these estimates accurately, we could be forced to devote additional resources to these engagements for which we will not receive additional compensation. To the extent that an expenditure of additional resources is required on an engagement, this could reduce the profitability of, or result in a loss on, the engagement. We may be unsuccessful in negotiating with clients regarding changes to the cost, scope or duration of specific engagements. To the extent we do not sufficiently communicate to our clients, or our clients fail to adequately appreciate the nature and extent of any of these types of changes to an engagement, our reputation may be harmed and we may suffer losses on an engagement.

Lack of detailed written contracts could impair our ability to recognize revenue for services performed, collect fees, protect our IP and protect ourselves from liability to others.

We protect ourselves by entering into detailed written contracts with our clients covering the terms and contingencies of the client engagement. In some cases, however, consistent with what we believe to be industry practice, work is performed for clients on the basis of a limited statement of work or verbal agreement before a detailed written contract can be finalized. Revenue is not recognized on a project prior to receiving a signed contract. To the extent that we fail to have detailed written contracts in place, our ability to collect fees, protect our IP and protect ourselves from liability to others may be impaired.

Our corporate governance provisions may deter a financially attractive takeover attempt.

Provisions of our charter and by-laws may discourage, delay or prevent a merger or acquisition which shareholders may consider favorable, including transactions in which shareholders would receive a premium for their shares. These provisions include the following:

| · |  | shareholders must comply with advance notice requirements before raising a matter at a meeting of shareholders or nominating a director for election;

| · |  | our Board of Directors is staggered into three classes and the members may be removed only for cause upon the affirmative vote of holders of at least two-thirds of the shares entitled to vote;

| · |  | we would not be required to hold a special meeting to consider a takeover proposal unless holders of more than a majority of the shares entitled to vote on the matter were to submit a written demand or demands for us to do so; and

| · |  | our Board of Directors may, without obtaining shareholder approval, classify and issue up to 1,250,000 shares of preferred stock with powers, preferences, designations and rights that may make it more difficult for a third party to acquire us.

We may lose large clients or may not be able to secure targeted follow-on work or client retention rates.

Our client engagements are generally short-term arrangements, and most clients can reduce or cancel their contracts for our services with a 30 days’ notice and without penalty. As a result, if we lose a major client or large client engagement, our revenue will be adversely affected. We perform varying amounts of work for specific clients from year to year. A major client in one year may not use our services in another year. In addition, we may derive revenue from a major client that constitutes a large portion of total revenue for particular quarters. If we lose any major clients or any of our clients cancel programs or significantly reduce the scope of a large engagement, our business, financial condition, and results of operations could be materially and adversely affected. Also, if we fail to collect a large accounts receivable, we could be subjected to significant financial exposure. Consequently, you should not predict or anticipate our future revenue based upon the number of clients we currently have or the number and size of our existing client engagements.

We also derive a portion of our revenue from annual memberships for our Executive Advisory Programs. Our growth prospects therefore depend on our ability to achieve and sustain renewal rates on programs and to successfully launch new programs. Failure to achieve expected renewal rate levels or to successfully launch new programs and services could have an adverse effect on our operating results.

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If we are unable to protect our IP rights or infringe on the IP rights of third parties, our business may be harmed.

We rely upon a combination of nondisclosure and other contractual arrangements and trade secrets, copyright and trademark laws to protect our proprietary rights and the proprietary rights of third parties from whom we license IP. Although we enter into confidentiality agreements with our employees and limit distribution of proprietary information, there can be no assurance that the steps we have taken in this regard will be adequate to deter misappropriation of our IP, or that we will be able to detect unauthorized use and take appropriate steps to enforce our IP rights.

Although we believe that our services do not infringe on the IP rights of others and that we have all rights necessary to utilize the IP employed in our business, we are subject to the risk of claims alleging infringement of third-party IP rights. Any claims could require us to spend significant sums in litigation, pay damages, develop non-infringing IP or acquire licenses to the IP that is the subject of asserted infringement.

The market price of our common stock may fluctuate widely.

The market price of our common stock could fluctuate substantially due to:

| · |  | future announcements concerning us or our competitors;

| · |  | quarterly fluctuations in operating results;

| · |  | announcements of acquisitions or technological innovations;

| · |  | changes in earnings estimates or recommendations by analysts; or

| · |  | current market volatility.

In addition, the stock prices of many business and technology services companies fluctuate widely for reasons which may be unrelated to operating results. Fluctuation in the market price of our common stock may impact our ability to finance our operations and retain personnel.

We earn revenue, incur costs and maintain cash balances in multiple currencies, and currency fluctuations could adversely affect our financial results.

We have increasing international operations, where we earn revenue and incur costs in various foreign currencies, primarily the British Pound, the Euro and the Australian Dollar. Doing business in these foreign currencies exposes us to foreign currency risks in numerous areas, including revenue, purchases, payroll and investments. Certain foreign currency exposures are naturally offset within an international business unit, because revenue and costs are denominated in the same foreign currency, and certain cash balances are held in U.S. Dollar denominated accounts. However, due to the increasing size and importance of our international operations, fluctuations in foreign currency exchange rates could materially impact our results.

Our cash position includes amounts denominated in foreign currencies. We manage our worldwide cash requirements considering available funds from our subsidiaries and the cost effectiveness with which these funds can be accessed. The repatriation of cash balances from certain of our subsidiaries outside the U.S. could have adverse tax consequences and be limited by foreign currency exchange controls. However, those balances are generally available without legal restrictions to fund ordinary business operations. Any fluctuations in foreign currency exchange rates could materially impact the availability and amount of these funds available for transfer.

ITEM 1B. UNRESOLVED STAFF COMMENTS

None.

ITEM 2. PROPERTIES

Our principal executive office is currently located at 1001 Brickell Bay Drive, Floor 30, Miami, Florida 33131. The lease on this premise covers 10,896 square feet and expires June 30, 2020. We also have offices in Atlanta, Chicago, New York, Philadelphia, San Francisco, Frankfurt, London, Paris, Montevideo, Hyderabad and Sydney. As of January 1, 2016, we had operating leases that expire on various dates through December 2024. We believe that we will be able to obtain suitable new or replacement space as needed. We do not own real estate and do not intend to invest in real estate or real estate-related assets.

ITEM 3. LEGAL PROCEEDINGS

We are involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on our consolidated financial position, cash flows or results of operations.

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ITEM 4. MINE SAFETY DISCLOSURES

Not applicable.

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PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY SECURITIES

Our common stock is traded under the NASDAQ symbol, "HCKT". The following table sets forth for the fiscal periods indicated, the high and low sales prices of the common stock, as reported on the NASDAQ:

2015 |  | High |  | Low
Fourth Quarter |  | $ | 20.02 |  | $ | 13.12
Third Quarter |  | $ | 15.23 |  | $ | 12.07
Second Quarter |  | $ | 14.20 |  | $ | 8.66
First Quarter |  | $ | 9.58 |  | $ | 7.31
2014 |  | High |  | Low
Fourth Quarter |  | $ | 9.37 |  | $ | 5.82
Third Quarter |  | $ | 6.41 |  | $ | 5.80
Second Quarter |  | $ | 6.48 |  | $ | 5.78
First Quarter |  | $ | 6.30 |  | $ | 5.76

The closing sale price for the common stock on March 10, 2016, was $13.29.

As of March 10, 2016, there were 249 holders of record of our common stock and 30,157,675 shares of common stock outstanding.

Securities Authorized for Issuance under Equity Compensation Plans

Information appearing under the caption “Equity Compensation Plan Information” in the 2016 Proxy Statement is hereby incorporated by reference.

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Performance Graph

The following graph compares our cumulative total shareholder return since December 31, 2010 with the NASDAQ Composite Index and a peer group index composed of other companies with similar business models identified below. The graph assumes that the value of the investment in our common stock and each index (including reinvestment of dividends) was $100 on December 31, 2010.

|  | 12/31/10 |  | 12/30/11 |  | 12/28/12 |  | 12/27/13 |  | 1/2/15 |  | 1/1/16
The Hackett Group, Inc. |  | $ | 100.00 |  | $ | 106.55 |  | $ | 116.77 |  | $ | 184.37 |  | $ | 261.86 |  | $ | 490.26
NASDAQ Composite Index |  | $ | 100.00 |  | $ | 100.53 |  | $ | 116.92 |  | $ | 166.19 |  | $ | 188.78 |  | $ | 199.95
Peer Group |  | $ | 100.00 |  | $ | 114.08 |  | $ | 106.67 |  | $ | 173.89 |  | $ | 168.35 |  | $ | 149.45

The Peer Group includes Edgewater Technology, Inc., FTI Consulting, Inc., Huron Consulting Group, Inc., Information Services Group, Inc., and The Corporate Executive Board Company.

Company Dividend Policy

In December 2012, we announced an annual dividend program of $0.10 per share. In December 2012 and 2013, we paid annual dividends of $0.10 per share, or $3.1 million to shareholders of record as of close of business on December 20, 2012 and on December 10, 2013, respectively. In 2014, we increased the dividend to $0.12 per share, or $3.5 million, to shareholders of record as of close of business on December 10, 2014. In 2015, we increased the annual dividend to $0.20 per share to be paid on a semi-annual basis, or $3.1 million and $3.2 million to shareholders of record on June 29, 2015 and December 28, 2015, respectively. Subsequent to January 1, 2016, the annual dividend was further increased to $0.26 per share to be paid on a semi-annual basis. Our credit agreement contains restrictions on our ability to declare dividends and repurchase shares. The declaration of dividends shall at all times be subject to the final determination of our Board of Directors that a dividend is prudent at that time in consideration of the needs of the business and other factors including the ability to pay dividends under our credit agreement.

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Purchases of Equity Securities

We have an ongoing authorization from our Board of Directors to repurchase shares of our common stock. The repurchase plan was first announced on July 30, 2002. All repurchases under this program are discretionary and are made in the open market or through privately negotiated transactions, subject to market conditions and trading restrictions. There is no expiration date on the current authorization. The following table summarizes our share repurchases during the year ended January 1, 2016 under this authorization:

|  |  |  |  |  |  | Total Number |  | Maximum Dollar
|  |  |  |  |  |  | of Shares Purchased |  | Value of Shares That
|  | Total Number |  |  | Average |  | as Part of Publicly |  | May Yet be Purchased
|  | of Shares |  |  | Price Paid |  | Announced |  | Under the
Period |  | Purchased |  |  | per Share |  | Program |  | Program
Balance as of January 2, 2015 |  | — |  | $ | — |  | — |  | $ | 3,665,104
January 3, 2015 to October 2, 2015 |  | 148,918 |  | $ | 9.10 |  | 148,918 |  | $ | 2,309,346
October 3, 2015 to October 30, 2015 |  | — |  | $ | — |  | — |  | $ | 2,309,346
October 31, 2015 to November 27, 2015 |  | — |  | $ | — |  | — |  | $ | 2,309,346
November 28, 2015 to January 1, 2016 |  | — |  | $ | — |  | — |  | $ | 2,309,346
|  | 148,918 |  | $ | 9.10 |  | 148,918 |  |  |

As of January 1, 2016, the cumulative authorization was for up to $95.0 million with cumulative purchases under the plan of $92.7 million, leaving $2.3 million available for future purchases. Subsequent to fiscal year end, the Company’s Board of Directors approved an additional $5.0 million authorization, bringing the total authorization to $100.0 million. In addition, subsequent to January 1, 2016, we have repurchased 0.3 million shares of our common stock, at an average price per share of $13.83 for a total cost of $4.2 million, leaving $3.1 million available for future purchases as of March 10, 2016.

Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on our employee’s behalf. In 2015, 297 thousand shares were withheld and not issued for a cost of $2.5 million and in 2014, 435 thousand shares were withheld and not issued for a cost of $2.7 million.

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ITEM 6. SELECTED FINANCIAL DATA

The following consolidated financial data sets forth our selected financial information as of and for each of the years in the five-year period ended January 1, 2016, and has been derived from our audited consolidated financial statements. The selected consolidated financial data should be read together with our consolidated financial statements, related notes thereto and with “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27, |  | December 28, |  | December 30,
|  | 2016 |  | 2015 |  | 2013 |  | 2012 |  | 2011
Consolidated Statement of Operations Data: |  |  | (in thousands, except per share data)
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue before reimbursements |  | $ | 234,581 |  | $ | 213,519 |  | $ | 200,391 |  | $ | 199,749 |  | $ | 186,676
Reimbursements |  |  | 26,359 |  |  | 23,218 |  |  | 23,439 |  |  | 22,987 |  |  | 22,387
Total revenue (1) |  |  | 260,940 |  |  | 236,737 |  |  | 223,830 |  |  | 222,736 |  |  | 209,063
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of service: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs before reimbursable expenses (2) |  |  | 147,024 |  |  | 138,958 |  |  | 130,456 |  |  | 125,912 |  |  | 115,719
Reimbursable expenses |  |  | 26,359 |  |  | 23,218 |  |  | 23,439 |  |  | 22,987 |  |  | 22,387
Total cost of service |  |  | 173,383 |  |  | 162,176 |  |  | 153,895 |  |  | 148,899 |  |  | 138,106
Selling, general and administrative costs |  |  | 65,632 |  |  | 61,386 |  |  | 54,208 |  |  | 56,997 |  |  | 54,058
Bargain purchase gain from acquisition (3) |  |  | — |  |  | (3,015) |  |  | — |  |  | — |  |  | —
Restructuring costs (benefit) |  |  | — |  |  | 3,604 |  |  | — |  |  | (211) |  |  | —
Total costs and operating expenses |  |  | 239,015 |  |  | 224,151 |  |  | 208,103 |  |  | 205,685 |  |  | 192,164
Operating income |  |  | 21,925 |  |  | 12,586 |  |  | 15,727 |  |  | 17,051 |  |  | 16,899
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest (expense) income, net (4) |  |  | (409) |  |  | (620) |  |  | (465) |  |  | (610) |  |  | 33
Income from continuing operations before income taxes |  |  | 21,516 |  |  | 11,966 |  |  | 15,262 |  |  | 16,441 |  |  | 16,932
Income tax expense (benefit) (5) |  |  | 7,707 |  |  | 2,255 |  |  | 6,398 |  |  | (478) |  |  | (4,495)
Income from continuing operations |  |  | 13,809 |  |  | 9,711 |  |  | 8,864 |  |  | 16,919 |  |  | 21,427
(Loss) income from discontinued operations |  |  | — |  |  | — |  |  | (135) |  |  | (222) |  |  | 342
Net income |  | $ | 13,809 |  | $ | 9,711 |  | $ | 8,729 |  | $ | 16,697 |  | $ | 21,769
Basic net income per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income per common share from continuing operations |  | $ | 0.47 |  | $ | 0.34 |  | $ | 0.29 |  | $ | 0.54 |  | $ | 0.54
(Loss) income per common share from discontinued operations |  |  | — |  |  | — |  |  | — |  |  | (0.01) |  |  | 0.01
Net income per common share |  | $ | 0.47 |  | $ | 0.34 |  | $ | 0.29 |  | $ | 0.53 |  | $ | 0.55
Diluted net income per common share: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income per common share from continuing operations |  | $ | 0.43 |  | $ | 0.33 |  | $ | 0.28 |  | $ | 0.51 |  | $ | 0.51
(Loss) income per common share from discontinued operations |  |  | — |  |  | — |  |  | (0.01) |  |  | (0.01) |  |  | 0.01
Net income per common share |  | $ | 0.43 |  | $ | 0.33 |  | $ | 0.27 |  | $ | 0.50 |  | $ | 0.52
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Basic |  |  | 29,620 |  |  | 28,718 |  |  | 30,283 |  |  | 31,704 |  |  | 39,895
Diluted |  |  | 31,968 |  |  | 29,881 |  |  | 32,116 |  |  | 33,511 |  |  | 41,875
Consolidated Balance Sheet Data: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cash and cash equivalent |  | $ | 23,503 |  | $ | 14,608 |  | $ | 18,199 |  | $ | 16,906 |  | $ | 32,936
Restricted cash |  | $ | — |  | $ | — |  | $ | 354 |  | $ | 683 |  | $ | 885
Working capital |  | $ | 17,375 |  | $ | 15,418 |  | $ | 20,767 |  | $ | 19,020 |  | $ | 35,038
Total assets |  | $ | 160,379 |  | $ | 149,598 |  | $ | 145,188 |  | $ | 149,180 |  | $ | 160,451
Long-term debt |  | $ | — |  | $ | 18,263 |  | $ | 19,029 |  | $ | 22,105 |  | $ | —
Shareholders' equity |  | $ | 102,144 |  | $ | 89,788 |  | $ | 93,176 |  | $ | 94,726 |  | $ | 130,248
Dividends paid/declared per share |  | $ | 0.20 |  | $ | 0.12 |  | $ | 0.10 |  | $ | 0.10 |  | $ | —

| (1) |  | In January 2014, we acquired Technolab, an EPM AMS business. As a result of the acquisition, our 2014 results of operations included $10.3 million in total revenue from Technolab.

| (2) |  | Fiscal year 2014 includes acquisition-related compensation expense of $4.3 million from the acquisition of Technolab, an EPM AMS business.

| (3) |  | Fiscal year 2014 includes a bargain purchase gain from the acquisition of Technolab, an EPM AMS business. See Note 15 to our consolidated financial statements included in this Annual Report.

| (4) |  | Interest expense relates to interest on outstanding borrowings under our Credit Facility which was entered into in February 2012. See Note 8 to our consolidated financial statements included in this annual report.

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| (5) |  | Fiscal years 2012 and 2011 include the benefit for the release of $6.7 million and $5.3 million, respectively, of deferred income tax asset valuation allowance.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

Overview

Hackett, originally incorporated on April 23, 1997, is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the comprehensive Hackett database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients improve performance and maximize returns on technology investments.

Hackett is a strategic advisory firm and a world leader in best practice research, benchmarking, business transformation and working capital management services which empirically defines and enables world-class enterprise performance. Hackett empirically defines world-class performance in sales, general and administrative and certain supply chain activities with analysis gained through more than 12,000 benchmark and performance studies over 22 years at over 4,300 of the world’s leading companies.

Hackett’s combined capabilities include executive advisory programs, benchmarking, business transformation working capital management and technology solutions, with corresponding offshore support.

In the following discussion, “Hackett” represents our total company. “The Hackett Group” encompasses our Benchmarking, Business Transformation, Executive Advisory, Enterprise Performance Management (“EPM”) and EPM Application Maintenance and Support (“AMS”) groups. “ERP Solutions” encompasses our SAP ERP Technology and SAP Maintenance groups.

During the first quarter of 2013, we exited the Oracle ERP implementation practice, which is separate and distinct from our Oracle EPM practice. The transaction was not material to our consolidated financial statements, however, the following information has been recast to exclude activity related to the business.

Critical Accounting Policies

In the ordinary course of business, we make a number of estimates and assumptions relating to the reporting of results of operations and financial position in conformity with generally accepted accounting principles in the United States (“GAAP”). Actual results could differ significantly from those estimates under different assumptions and conditions. We believe the following discussion addresses our most critical accounting policies. These policies require management to exercise judgment on issues that are often difficult, subjective and complex due to the necessity of estimating the effect of matters that are inherently uncertain.

Revenue Recognition

Our revenue is principally derived from fees for services generated on a project-by-project basis. Revenue for services rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis.

Revenue for time and materials contracts is recognized based on the number of hours worked by our consultants at an agreed upon rate per hour and is recognized in the period in which services are performed.

Revenue related to fixed-fee or capped-fee contracts is recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to be recognized in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays us for reimbursable expenses. There are situations where the number of hours to complete projects may exceed our original estimate, as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, our project delivery, Office of Risk Management and finance personnel review hours incurred and estimated total labor hours to complete projects. Any revisions in these estimates are reflected in the period in which they become known. If our estimates indicate that a contract loss will occur, a loss provision will be recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct costs of the contract exceed the estimated total revenue that will be generated by the contract. These costs are included in total cost of service.

Revenue from advisory services is recognized ratably over the life of the client agreements.

Additionally, we earn revenue from the resale of software licenses and maintenance contracts. Revenue for the resale of software and software licenses is recognized upon contract execution and customer receipt of software. Revenue from maintenance contracts is recognized ratably over the life of the agreements.

Revenue for contracts with multiple elements is allocated based on the respective selling price of the individual elements.

Unbilled revenue represents revenue for services performed that have not been invoiced. If we do not accurately estimate the scope of the work to be performed, or we do not manage our projects properly within the planned periods of time, or we do not meet our clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such reductions in margins or contract losses could be material to our results of operations.

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Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue.

Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.

The agreements entered into in connection with a project, whether time and materials, or fixed-fee or capped-fee based, typically allow our clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by us through the effective date of the termination. In addition, from time to time we enter into agreements with our clients that limit our right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit us from performing a defined range of services which we might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Allowances for Doubtful Accounts

We maintain allowances for doubtful accounts for estimated losses resulting from our clients not making required payments. Periodically, we review accounts receivable to assess our estimates of collectability. Management critically reviews accounts receivable and analyzes historical bad debts, past-due accounts, client credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of our clients were to deteriorate, resulting in their inability to make payments, additional allowances may be required.

Long-Lived Assets (excluding Goodwill and Other Intangible Assets)

Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value. Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values.

Business Combinations

For transactions that are considered business combinations, we utilize fair values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are recorded as expenses as they are incurred. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values become available. A bargain purchase gain on an acquisition occurs when the net of the estimated fair value of the assets acquired and liabilities assumed exceeds the consideration paid.

Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment. Finite-lived intangible assets are amortized over their useful lives and are subject to impairment evaluations. The excess cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill.

Goodwill is tested at least annually for impairment at the reporting unit level. The reporting units are The Hackett Group (including Benchmarking, Business Transformation, Business Transformation EPM, Strategy and Operations and Executive Advisory Programs) and Hackett Technology Solutions (including SAP ERP and AMS, Oracle EPM and EPM AMS). In assessing the recoverability of goodwill and intangible assets, we make estimates based on assumptions regarding various factors to determine if impairment tests are met. These estimates contain management’s judgment, using appropriate and customary assumptions available at the time. We performed our annual step one impairment test of our goodwill in the fourth quarter of fiscal 2015 and determined that goodwill was not impaired.

Other intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value. Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values. Other intangible assets arise from business combinations and consist of customer relationships, customer backlog and trademarks that are amortized on a straight-line or accelerated basis over periods of up to five years.

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Stock Based Compensation

We recognize compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards, with limited exceptions, over the requisite service period.

Restructuring Reserves

Restructuring reserves reflect judgments and estimates of our ultimate costs of severance, closure and consolidation of facilities and settlement of contractual obligations under our operating leases, including sublease rental rates, absorption period to sublease space and other related costs. We reassess the reserve requirements to complete each individual plan under our restructuring programs at the end of each reporting period. If these estimates change in the future or actual results differ from our estimates, we may be required to record additional charges.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse. Deferred income taxes also reflect the impact of certain state operating loss and tax credit carryforwards. A valuation allowance is provided if we believe it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in our judgment about the realizability of the related deferred tax asset, is included in the current tax provision.

We adopted a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. We report penalties and tax-related interest expense as a component of income tax expense.

Contingent Liabilities

We have certain contingent liabilities that arise in the ordinary course of our business activities. We accrue contingent liabilities when it is probable that future expenditures will be made, and when such expenditures can be reasonably estimated. Reserves for contingent liabilities are reflected in our consolidated financial statements based on management’s assessment, along with legal counsel, of the expected outcome of the contingencies. If the final outcome of our contingencies differs adversely from that currently expected, it would result in income or a charge to earnings when determined.

The foregoing list was not intended to be a comprehensive list of all of our accounting policies. In many cases, the accounting treatment of a particular transaction is specifically dictated by GAAP, with no need for us to judge the application. There are also areas in which our judgment in selecting any available alternative would not produce a materially different result. See our consolidated financial statements and related notes thereto included elsewhere in this Annual Report on Form 10-K, which contain accounting policies and other disclosures required by GAAP.

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Results of Operations

Our fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on the Friday closest to December 31. Fiscal years 2015, 2014 and 2013 ended on January 1, 2016, January 2, 2015 and December 27, 2013, respectively. References to a year included in this document refer to a fiscal year rather than a calendar year.

Adjusted non-GAAP information is provided to enhance the understanding of the Company’s financial performance and is reconciled to the Company’s GAAP information in the tables below. In our quarterly earnings announcements, we refer to adjusted non-GAAP information as “pro forma”, which is unaudited.

References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense, intangible asset amortization expense, other one-time acquisition-related income and expense, restructuring charges and assumes a normalized tax rate.

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenue before reimbursements of such results (in thousands, except per share amounts), as well as related adjusted non-GAAP information.

|  |  | Twelve Months Ended
|  |  | January 1, |  |  |  |  | January 2, |  |  |  |  | December 27, |  |
|  |  | 2016 |  |  |  |  | 2015 |  |  |  |  | 2013 |  |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Revenue before reimbursements |  | $ | 234,581 |  | 100% |  | $ | 213,519 |  | 100% |  | $ | 200,391 |  | 100%
Reimbursements |  |  | 26,359 |  |  |  |  | 23,218 |  |  |  |  | 23,439 |  |
Total revenue |  |  | 260,940 |  |  |  |  | 236,737 |  |  |  |  | 223,830 |  |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Cost of service: |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs |  |  | 141,665 |  | 60% |  |  | 131,962 |  | 62% |  |  | 127,172 |  | 63%
Non-cash stock compensation expense |  |  | 4,432 |  |  |  |  | 2,656 |  |  |  |  | 2,453 |  |
Acquisition-related stock compensation expense |  |  | 927 |  |  |  |  | 900 |  |  |  |  | 831 |  |
Acquisition consideration reflected as compensation expense |  |  | - |  |  |  |  | 3,440 |  |  |  |  | - |  |
Reimbursable expenses |  |  | 26,359 |  |  |  |  | 23,218 |  |  |  |  | 23,439 |  |
Total cost of service |  |  | 173,383 |  |  |  |  | 162,176 |  |  |  |  | 153,895 |  |
Selling, general and administrative costs |  |  | 58,423 |  | 25% |  |  | 56,240 |  | 26% |  |  | 50,583 |  | 25%
Non-cash stock compensation expense |  |  | 2,344 |  |  |  |  | 2,337 |  |  |  |  | 2,358 |  |
SARs-related non-cash compensation expense |  |  | 2,658 |  |  |  |  | 477 |  |  |  |  | 477 |  |
Acquisition-related costs |  |  | - |  |  |  |  | 120 |  |  |  |  | 188 |  |
Amortization of intangible assets |  |  | 2,207 |  |  |  |  | 2,212 |  |  |  |  | 602 |  |
Total selling, general, and administrative expenses |  |  | 65,632 |  | 28% |  |  | 61,386 |  | 29% |  |  | 54,208 |  | 27%
Bargain purchase gain from acquisition |  |  | - |  |  |  |  | (3,015) |  |  |  |  | - |  |
Restructuring costs |  |  | - |  |  |  |  | 3,604 |  |  |  |  | - |  |
Total costs and operating expenses |  |  | 239,015 |  |  |  |  | 224,151 |  |  |  |  | 208,103 |  |
Income from operations |  |  | 21,925 |  | 9% |  |  | 12,586 |  | 6% |  |  | 15,727 |  | 8%
Other income (expense): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Interest income |  |  | 3 |  |  |  |  | 6 |  |  |  |  | 7 |  |
Interest expense |  |  | (412) |  |  |  |  | (626) |  |  |  |  | (472) |  |
Income from continuing operations before income taxes |  |  | 21,516 |  | 9% |  |  | 11,966 |  | 6% |  |  | 15,262 |  | 8%
Income tax expense |  |  | 7,707 |  | 3% |  |  | 2,255 |  | 1% |  |  | 6,398 |  | 3%
Income from continuing operations |  |  | 13,809 |  |  |  |  | 9,711 |  |  |  |  | 8,864 |  |
Loss from discontinued operations |  |  | - |  |  |  |  | - |  |  |  |  | (135) |  |
Net income |  | $ | 13,809 |  | 6% |  | $ | 9,711 |  | 5% |  | $ | 8,729 |  | 4%
Diluted net income per common share |  | $ | 0.43 |  |  |  | $ | 0.33 |  |  |  | $ | 0.27 |  |
Adjusted non-GAAP data (unaudited): |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Income from continuing operations before income taxes |  | $ | 21,516 |  |  |  | $ | 11,966 |  |  |  | $ | 15,262 |  |
Bargain purchase gain from acquisition |  |  | - |  |  |  |  | (3,015) |  |  |  |  | - |  |
Non-cash stock compensation expense |  |  | 6,776 |  |  |  |  | 4,993 |  |  |  |  | 4,811 |  |

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SARs-related non-cash compensation expense |  |  | 2,658 |  |  |  |  | 477 |  |  |  |  | 477 |  |
Acquisition-related stock compensation expense |  |  | 927 |  |  |  |  | 900 |  |  |  |  | 831 |  |
Acquisition-related compensation expense |  |  | - |  |  |  |  | 3,440 |  |  |  |  | - |  |
Acquisition-related costs |  |  | - |  |  |  |  | 120 |  |  |  |  | 188 |  |
Restructuring costs |  |  | - |  |  |  |  | 3,604 |  |  |  |  | - |  |
Amortization of intangible assets |  |  | 2,207 |  |  |  |  | 2,212 |  |  |  |  | 602 |  |
Adjusted non-GAAP income before income taxes |  |  | 34,084 |  |  |  |  | 24,697 |  |  |  |  | 22,171 |  |
Adjusted non-GAAP income tax expense |  |  | 10,225 |  | 30% |  |  | 7,847 |  | 32% |  |  | 8,868 |  | 40%
Adjusted non-GAAP net income |  | $ | 23,859 |  |  |  | $ | 16,850 |  |  |  | $ | 13,303 |  |
Adjusted non-GAAP diluted net income per share |  | $ | 0.75 |  |  |  | $ | 0.56 |  |  |  | $ | 0.41 |  |
Adjusted non-GAAP gross margin (1) |  | $ | 92,916 |  | 40% |  | $ | 81,557 |  | 38% |  | $ | 73,219 |  | 37%

| (1) |  | Adjusted non-GAAP gross margin is revenue before reimbursable expenses less personnel costs before reimbursable expenses.

Comparison of 2015 to 2014

Overview. References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense, intangible asset amortization expense, acquisition related charges and gains, restructuring charges and assumes a normalized 30% cash tax rate.

Our continued strong U.S. demand drove our results as our momentum was realized across virtually all of our U.S. practices. Our strong results were in spite of weak European results and the unfavorable impact of foreign currency which reduced our adjusted non-GAAP earnings per share by approximately four cents.

Revenue. We are a global company with operations primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by currency exchange rate fluctuations. The exchange rate fluctuations did have a significant impact on comparisons between 2015 and 2014. Revenue is analyzed based on geographic location of engagement team personnel.

Our total Company revenue increased 10%, or 13% in constant currency, to $260.9 million in 2015, as compared to $236.7 million in 2014. Our strong 2015 results were driven by over 14% revenue growth from our North American service offerings. Excluding ERP Solutions, which was down 2% in 2015, we achieved 19% growth in our Hackett domestic services, including our EPM group. Our growth in the U.S. is a direct result of several key strategies. First, by growing our “wedge offerings”, or benchmarking and best practice advisory offerings, which leverage our IP for strategic access to leading global companies, led to an increase in downstream consulting revenue growth and higher margins. This is a great example of how the unique value of our IP extends through our consulting offerings. Second, by consolidating several of our Hackett practices, we have seen improvement in collaboration and cross-selling which has allowed us to serve clients more broadly. As an example, revenue from our top twenty U.S. clients this year grew over 50% from the prior year. Third, by continuing to add and upgrade talent, as well as, building a more efficient resource pyramid and delivery model, we have improved gross margins despite headcount increases. Fourth, even though it did not influence our 2015 results, by identifying new channels with our strategic partners with focus on our IP, we expect to open up new recurring revenue and high margin offerings that could redefine our organizational model as the first true performance improvement “IP as a service business” during the next five years.

Our domestic growth was partially offset by weak European revenue which has decreased 8% year over year, but increased 4% on a constant currency basis. Our international revenue accounted for 16%, or 17% in constant currency, of our total revenue in 2015, as compared to 19% in 2014.

Reimbursements as a percentage of total revenue were 10% during both 2015 and 2014. In 2015 and 2014, no customer accounted for more than 5% of our total revenue.

Total Cost of Service. Cost of service consists of personnel costs, which are comprised of salaries, benefits incentive compensation for consultants and subcontractor fees; acquisition-related compensation costs relating to the acquisition of Technolab, an EPM AMS business that we acquired in the first quarter of 2014; non-cash stock compensation expense; and reimbursable expenses associated with projects.

Adjusted non-GAAP personnel costs increased 7% to $141.7 million in 2015 from $132.0 million in 2014. The increase in the absolute dollar amount was primarily a result of increased employee headcount and higher subcontractor costs to support

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increasing revenue, as well as, higher incentive compensation costs commensurate with Company performance. Total adjusted non-GAAP personnel costs before reimbursable expenses, as a percentage of revenue before reimbursements, were 60% in 2015, as compared to 62% in 2014, due to the improved leverage from increased revenue.

The total Company adjusted non-GAAP gross margin was 40% of net revenues in 2015, as compared to 38% in the previous year.

Non-cash compensation expense, included in cost of sales, increased $1.8 million in 2015, as compared to 2014, primarily due to the impact of historical equity awards on the current year.

Selling, General and Administrative (“SG&A”). Adjusted non-GAAP SG&A costs increased 4% to $58.4 million in 2015, from $56.2 million in 2014 primarily due to higher selling-related expenses and incentive compensation accruals commensurate with Company performance. Adjusted non-GAAP SG&A costs as a percentage of revenue before reimbursements were 25% in 2015 and 26% in 2014 due to the improved leverage from increased revenue.

SARs-related non-cash compensation expense, included in total SG&A, increased $2.2 million in 2015, as compared to 2014, due to the non-recurring, non-cash stock compensation expense related to the performance-based SARs awards tied to the achievement of the pro-forma EBITDA performance target. This expense represented 100% of the non-cash compensation expense for these equity awards. See Note 10, “Stock Based Compensation” to our consolidated financial statements included in this Annual Report on Form 10-K for further information.

Amortization of Intangible Assets. Amortization expense was $2.2 million in both 2015 and 2014. The amortization expense in 2015 and 2014 was primarily due to the amortization of the intangible assets acquired in our 2014 EPM AMS acquisition of Technolab International Corporation (“Technolab”).

Bargain Purchase Gain from Acquisition. During the first quarter of 2014, we acquired and accounted for certain assets and liabilities of Technolab. At closing, the Seller received $3.0 million in cash, not subject to vesting, and $1.0 million in stock, subject to service vesting. Additionally, the seller had the ability to earn up to $8.0 million in a combination of cash, not subject to service vesting, and stock, subject to service vesting, based on a one year profitability based earn-out. The amounts paid to the Seller at closing in stock, as well as the amounts earned as part of the earn-out due to the Seller in cash, not subject to service vesting, and stock, subject to service vesting, were accounted for as compensation expense. During the quarter ended October 2, 2015, we settled the contingent earn-out with cash and issued equity in accordance with the purchase agreement.

Restructuring Costs. During 2014, we recorded restructuring costs of $3.6 million, primarily for reductions in consultants and office leases in Europe. These actions were taken to reduce the impact on our consolidated results from the continued volatility in demand in our European markets.

Income Taxes. In 2015, we recorded income tax expense of $7.7 million, which reflected an effective tax rate of 35.8% for certain federal, foreign and state taxes. In 2014, we recorded income tax expense of $2.3 million, which reflected an effective tax rate of 18.8% for certain federal, foreign and state taxes. Excluding the one-time purchase accounting benefit from the 2014 acquisition, our effective tax rate was 30.7%.

For tax purposes, as of January 1, 2016, we had a total of $7.6 million of foreign net operating loss carry forwards, primarily in the U.K. and $2.3 million of U.S. state net operating loss carryforwards. We have fully utilized our U.S. federal net operating loss carryforwards in the fourth quarter of 2015.

Comparison of 2014 to 2013

Overview. References to adjusted non-GAAP results specifically exclude non-cash stock compensation expense, intangible asset amortization expense, acquisition related charges and gains, restructuring charges and assumes a normalized 30% cash tax rate.

We are a global company with operations primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by currency exchange rate fluctuations. The exchange rate fluctuations did not have a significant impact on comparisons between 2014 and 2013. Revenues are analyzed based on geographic location of engagement team personnel.

Revenue. Our 2013 results were severely disrupted in the fourth quarter by the significant drop in European revenues offset the solid gains achieved in the U.S. during that year. The weak European performance carried into 2014, so we acted swiftly and took the necessary actions in Europe to reduce our operating costs consistent with the marketplace’s demand volatility. In the first quarter we also closed an important acquisition in the AMS area which strongly complements our market leading EPM transformation and technology implementation capabilities. These actions, along with other investments we made in 2013 to increase our sales in our

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strategically important Benchmarking and Executive Advisory groups, which further impacted the performance of our Business Transformation groups in the U.S., helped to position us for success in 2014.

Total Company revenue increased 6% to $236.7 million in 2014 from $223.8 million in 2013. Excluding the acquisition of EPM AMS business purchased in 2014, North American revenues were up approximately 4%, with International revenues down 9% for the fiscal year. The Company’s international revenues accounted for 19% and 20% in 2014 and 2013, respectively.

Reimbursements as a percentage of total revenue were 10% during both 2014 and 2013. In 2014 and 2013, no customer accounted for more than 5% of our total revenue.

Total Cost of Service. Cost of service consists of personnel costs, which are comprised of salaries, benefits incentive compensation for consultants and subcontractor fees; acquisition-related compensation costs relating to the EPM AMS business acquired in January 2014; non-cash stock compensation expense; and reimbursable expenses associated with projects.

Adjusted non-GAAP personnel costs increased 4% to $132.0 million, or 62% of net revenues, in 2014 from $127.2 million, or 63% of net revenues in 2013. The increase was primarily a result of the increased headcount due to the acquisition of the EPM AMS business in January 2014. Excluding the incremental personnel costs as a result of the acquisition, total personnel costs decreased less than 1% to $126.9 million, or 62% of net revenues. This decrease was primarily due to lower European personnel costs and the transition to a more traditional resource model.

As a result, total Company adjusted non-GAAP gross margin was 38% of net revenues, as compared to 37% in the previous year.

Selling, General and Administrative. Adjusted non-GAAP SG&A costs increased 11% to $56.2 million in 2014, or 26% of net revenues, from $50.6 million, or 25% of net revenues, in 2013. The one percent increase is primarily due to increased incentive compensation accruals and selling costs commensurate with our improved Company performance.

Amortization of Intangible Assets. Amortization expense increased to $2.2 million in 2014, as compared to $0.6 million in 2013, as a result of intangible assets acquired as part of the EMP AMS acquisition in January 2014.

Bargain Purchase Gain from Acquisition. During the first quarter of 2014, we acquired and accounted for certain assets and liabilities of Technolab. At closing, the Seller received $3.0 million in cash, not subject to vesting, and $1.0 million in stock, subject to service vesting. Additionally, the seller had the ability to earn up to $8.0 million in a combination of cash, not subject to service vesting, and stock, subject to service vesting, based on a one year profitability based earn-out. The amounts paid to the Seller at closing in stock, as well as the amounts earned as part of the earn-out due to the Seller in cash, not subject to service vesting, and stock, subject to service vesting, were accounted for as compensation expense.

Restructuring Costs. During 2014, we recorded restructuring costs of $3.6 million, primarily for reductions in consultants and office leases in Europe. These actions were taken as a result of our continued volatility in demand in our European markets.

Income Taxes. In 2014, we recorded income tax expense of $2.3 million, which reflected an effective tax rate of 18.8% for certain federal, foreign and state taxes. Excluding the one-time purchase accounting benefit from the 2014 acquisition, our effective tax rate was 30.7%. In 2013, we recorded income tax expense of $6.4 million, which reflected an effective tax rate of 42.3% for certain federal, foreign and state taxes. The decrease from 2014 was primarily the result of a more favorable geographical mix of taxable income.

For tax purposes, as of January 2, 2015, we had a total of $23.7 million of U.S. federal and foreign net operating loss carryforwards of which $12.0 million related to U.S. and $11.7 million relate to foreign operations, primarily in the U.K. Additionally, as of January 2, 2015, we had $3.1 million of U.S. state net operating loss carryforwards.

Liquidity and Capital Resources

As of January 1, 2016 and January 2, 2015, we had $23.5 million and $14.6 million of cash and cash equivalents, respectively. We currently believe that available funds (including the cash on hand and funds available for borrowing under the revolving line), and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. We may decide to raise additional funds in order to fund expansion, to develop new or enhance products and services, to respond to competitive pressures or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.

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The following table summarizes our cash flow activity (in thousands):

|  | Year Ended
|  | January 1, |  | January 2,
|  | 2016 |  | 2015
Cash flows provided by operating activities |  | $ | 36,177 |  | $ | 18,759
Cash flows used in investing activities |  | $ | (3,002) |  | $ | (5,098)
Cash flows used in financing activities |  | $ | (24,237) |  | $ | (17,282)

Cash Flows from Operating Activities

Net cash provided by operating activities was $36.2 million in 2015, as compared $18.8 million in 2014. The increase in the cash flows from operations primarily related to higher net income adjusted for non-cash items and increases in liabilities primarily due to incentive compensation accruals and dividends payable. These increases were partially offset by an increase in accounts receivable and unbilled revenue.

Cash Flows from Investing Activities

Net cash used in investing activities was $3.0 million in 2015, as compared to $5.1 million in 2014. The higher usage of cash in 2014 was primarily attributable to net cash consideration paid for the EPM AMS acquisition. Both periods include approximately $3.0 million in capital expenditures on the continued development of the benchmark technology and hardware purchases.

Cash Flows from Financing Activities

Net cash used in financing activities was $24.2 million in 2015 and $17.3 million in 2014. The usage of cash in 2015 was primarily related to the full payoff of the debt of $18.3 million, total stock repurchases of $3.8 million, including $1.4 million under the Board open market purchase authorization and $2.4 million to satisfy employee net vesting obligations, and $3.1 million of dividend payments. The usage of cash in 2014 was primarily related to total stock repurchases of $13.7 million, including $11.0 million under the Board open market purchase authorization and $2.7 million to satisfy employee net vesting obligations, as well as $3.5 million of dividend payments and $1.0 million net debt pay-down.

There were no material capital commitments as of January 1, 2016 and no future Revolver or Amended Term Loan principal payments. As of January 1, 2016, the debt facility was paid off in full. The following table summarizes our future lease commitments under our non-cancelable operating leases as of January 1, 2016 (in thousands):

Contractual Obligations |  | Total |  | Less Than 1 Year |  | 1-3 Years |  | 4-5 Years |  | More Than 5 Years
Short-term debt obligations (1) |  | $ | — |  | $ | — |  | $ | — |  | $ | — |  | $ | —
Long-term debt obligations (1) |  |  | — |  |  | — |  |  | — |  |  | — |  |  | —
Operating lease obligations |  |  | 8,501 |  |  | 1,921 |  |  | 2,899 |  |  | 2,194 |  |  | 1,487
Total |  | $ | 8,501 |  | $ | 1,921 |  | $ | 2,899 |  | $ | 2,194 |  | $ | 1,487

| (1) |  | Excludes the fee on the amount of any unused commitment that we may be obligated to pay under our Revolver or Amended Term Loan, as such amounts vary and cannot be estimated. See Note 8 to our consolidated financial statements included in this Annual Report on Form 10-K.

Off-Balance Sheet Arrangements

We did not have any off-balance sheet arrangements as of January 1, 2016.

Recently Issued Accounting Standards

For discussion of recently issued accounting standards, see Note 1 to our consolidated financial statements included in this Annual Report on Form 10-K.

ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

As of January 1, 2016, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the Credit Facility, which is subject to variable interest rates. The interest rates per annum applicable to loans under the Credit Facility will be, at our option, equal to either a

27

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 2015 results of operations.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates, as a portion of our revenue, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound, the Euro and the Australian Dollar. These exposures may change over time as business practices evolve. Currently, we do not hold any derivative contracts that hedge our foreign currency risk, but we may adopt such strategies in the future.

For a discussion of the risks we face as a result of foreign currency fluctuations, see “Item 1A. Risk Factors” in Part I of this report.

28

ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA

THE HACKETT GROUP, INC.

INDEX TO FINANCIAL STATEMENTS AND SCHEDULE

| Page
Reports of Independent Registered Public Accounting Firm s | 30
Consolidated Balance Sheets as of January 1, 2016 and January 2, 2015 | 32
Consolidated Statements of Operations for the Years Ended January 1, 2016, January 2, 2015 and December 27, 2013 | 33
Consolidated Statements of Comprehensive Income for the Years Ended January 1, 2016, January 2, 2015 and December 27, 2013 | 34
Consolidated Statements of Shareholders’ Equity for the Years Ended January 1, 2016, January 2, 2015 and December 27, 2013 | 35
Consolidated Statements of Cash Flows for the Years Ended January 1, 2016, January 2, 2015 and December 27, 2013 | 36
Notes to Consolidated Financial Statements | 37
Schedule II—Valuation and Qualifying Accounts and Reserves | 54

29

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

The Hackett Group, Inc.

We have audited the accompanying consolidated balance sheet of The Hackett Group, Inc. as of January 1, 2016, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows for the year ended January 1, 2016. Our audit also included the financial statement schedule of The Hackett Group, Inc. listed in Item 15(a). These financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hackett Group, Inc. as of January 1, 2016, and the results of their operations and their cash flows for the year ended January 1, 2016, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), The Hackett Group, Inc.'s internal control over financial reporting as of January 1, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013, and our report dated March 16, 2016 expressed an unqualified opinion on the effectiveness of The Hackett Group, Inc.’s internal control over financial reporting.

/s/ RSM US LLP

Fort Lauderdale, Florida

March 16, 2016

30

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Board of Directors and Shareholders

The Hackett Group, Inc.

Miami, Florida

We have audited the accompanying consolidated balance sheet of The Hackett Group, Inc. as of January 2, 2015 and the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for each of the two years in the period ended January 2, 2015. In connection with our audits of the financial statements, we have also audited the financial statement schedule listed in the accompanying index. These financial statements and schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the financial statements and schedule. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of The Hackett Group, Inc. at January 2, 2015, and the results of its operations and its cash flows for each of the two years in the period ended January 2, 2015, in conformity with accounting principles generally accepted in the United States of America.

Also, in our opinion, the financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly, in all material respects, the information set forth therein.

Miami, Florida | /s/ BDO USA, LLP
March 18, 2015 | Certified Public Accountants

31

THE HACKETT GROUP, INC.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

|  | January 1, |  | January 2,
|  | 2016 |  | 2015
ASSETS |  |  |  |  |  |
Current assets: |  |  |  |  |  |
Cash and cash equivalents |  | $ | 23,503 |  | $ | 14,608
Accounts receivable and unbilled revenue, net of allowance of $1,881 and $1,330 |  |  |  |  |  |
at January 1, 2016 and January 2, 2015, respectively |  |  | 42,046 |  |  | 37,421
Prepaid expenses and other current assets |  |  | 1,938 |  |  | 1,839
Total current assets |  |  | 67,487 |  |  | 53,868
Property and equipment, net |  |  | 14,102 |  |  | 13,753
Other assets |  |  | 4,206 |  |  | 6,548
Goodwill |  |  | 74,584 |  |  | 75,429
Total assets |  | $ | 160,379 |  |  | 149,598
LIABILITIES AND SHAREHOLDERS' EQUITY |  |  |  |  |  |
Current liabilities: |  |  |  |  |  |
Accounts payable |  | $ | 8,300 |  | $ | 7,549
Accrued expenses and other liabilities |  |  | 41,812 |  |  | 30,901
Total current liabilities |  |  | 50,112 |  |  | 38,450
Non-current deferred tax liability, net |  |  | 8,123 |  |  | 3,097
Long-term debt |  |  | — |  |  | 18,263
Total liabilities |  |  | 58,235 |  |  | 59,810
Commitments and contingencies |  |  |  |  |  |
Shareholders' equity: |  |  |  |  |  |
Preferred stock, $.001 par value, 1,250,000 shares authorized, none issued and outstanding |  |  | — |  |  | —
Common stock, $.001 par value, 125,000,000 shares authorized; 53,847,479 and 53,203,395 |  |  |  |  |  |
shares issued at January 1, 2016 and January 2, 2015, respectively |  |  | 54 |  |  | 53
Additional paid-in capital |  |  | 272,887 |  |  | 264,912
Treasury stock, at cost, 24,138,694 and 23,989,776 shares at January 1, 2016 and |  |  |  |  |  |
January 2, 2015, respectively |  |  | (92,691) |  |  | (91,335)
Accumulated deficit |  |  | (70,134) |  |  | (77,677)
Accumulated other comprehensive loss |  |  | (7,972) |  |  | (6,165)
Total shareholders' equity |  |  | 102,144 |  |  | 89,788
Total liabilities and shareholders' equity |  | $ | 160,379 |  | $ | 149,598

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

32

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

|  |  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Revenue: |  |  |  |  |  |  |  |  |
Revenue before reimbursements |  | $ | 234,581 |  | $ | 213,519 |  | $ | 200,391
Reimbursements |  |  | 26,359 |  |  | 23,218 |  |  | 23,439
Total revenue |  |  | 260,940 |  |  | 236,737 |  |  | 223,830
Costs and expenses: |  |  |  |  |  |  |  |  |
Cost of service: |  |  |  |  |  |  |  |  |
Personnel costs before reimbursable expenses |  |  |  |  |  |  |  |  |
(includes $5,359, $3,556 and $3,284 of stock compensation |  |  |  |  |  |  |  |  |
expense in 2015, 2014 and 2013, respectively) |  |  | 147,024 |  |  | 138,958 |  |  | 130,456
Reimbursable expenses |  |  | 26,359 |  |  | 23,218 |  |  | 23,439
Total cost of service |  |  | 173,383 |  |  | 162,176 |  |  | 153,895
Selling, general and administrative costs |  |  |  |  |  |  |  |  |
(includes $5,002, $2,814 and $2,835 of stock compensation |  |  |  |  |  |  |  |  |
expense in 2015, 2014 and 2013, respectively) |  |  | 65,632 |  |  | 61,386 |  |  | 54,208
Bargain purchase gain from acquisition |  |  | — |  |  | (3,015) |  |  | —
Restructuring cost |  |  | — |  |  | 3,604 |  |  | —
Total costs and operating expenses |  |  | 239,015 |  |  | 224,151 |  |  | 208,103
Operating income |  |  | 21,925 |  |  | 12,586 |  |  | 15,727
Other income (expense): |  |  |  |  |  |  |  |  |
Interest income |  |  | 3 |  |  | 6 |  |  | 7
Interest expense |  |  | (412) |  |  | (626) |  |  | (472)
Income from continuing operations before income taxes |  |  | 21,516 |  |  | 11,966 |  |  | 15,262
Income tax expense |  |  | 7,707 |  |  | 2,255 |  |  | 6,398
Income from continuing operations |  |  | 13,809 |  |  | 9,711 |  |  | 8,864
Loss from discontinued operations |  |  | — |  |  | — |  |  | (135)
Net income |  | $ | 13,809 |  | $ | 9,711 |  | $ | 8,729
Basic net income per common share: |  |  |  |  |  |  |  |  |
Income per common share from continuing operations |  | $ | 0.47 |  | $ | 0.34 |  | $ | 0.29
Loss per common share from discontinued operations |  |  | — |  |  | — |  |  | —
Net income per common share |  | $ | 0.47 |  | $ | 0.34 |  | $ | 0.29
Diluted net income per common share: |  |  |  |  |  |  |  |  |
Income per common share from continuing operations |  | $ | 0.43 |  | $ | 0.33 |  | $ | 0.28
Loss per common share from discontinued operations |  |  | — |  |  | — |  |  | (0.01)
Net income per common share |  | $ | 0.43 |  | $ | 0.33 |  | $ | 0.27
Weighted average common shares outstanding: |  |  |  |  |  |  |  |  |
Basic |  |  | 29,620 |  |  | 28,718 |  |  | 30,283
Diluted |  |  | 31,968 |  |  | 29,881 |  |  | 32,116

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

33

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

(in thousands)

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Net income |  | $ | 13,809 |  | $ | 9,711 |  | $ | 8,729
Foreign currency translation adjustment |  |  | (1,807) |  |  | (1,714) |  |  | 53
Total comprehensive income |  | $ | 12,002 |  | $ | 7,997 |  | $ | 8,782

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

34

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY

(in thousands)

|  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  | Accumulated |  |  |
|  |  |  |  |  |  | Additional |  |  |  |  |  |  |  |  |  | Other |  | Total
|  | Common Stock |  | Paid in |  | Treasury Stock |  | Accumulated |  | Comprehensive |  | Shareholders'
|  | Shares |  | Amount |  | Capital |  | Shares |  | Amount |  | Deficit |  | Income (Loss) |  | Equity
Balance at December 28, 2012 |  | 52,236 |  | $ | 52 |  | $ | 263,135 |  | (21,171) |  | $ | (74,444) |  | $ | (89,513) |  | $ | (4,504) |  | $ | 94,726
Issuance of common stock |  | 890 |  |  | 1 |  |  | (95) |  | — |  |  | — |  |  | — |  |  | — |  |  | (94)
Treasury stock purchased |  | — |  |  | — |  |  | — |  | (1,018) |  |  | (5,962) |  |  | — |  |  | — |  |  | (5,962)
Common stock purchased through |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
Tender Offer |  | (983) |  |  | (1) |  |  | (7,169) |  | — |  |  | — |  |  | — |  |  | — |  |  | (7,170)
Amortization of restricted stock units |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
and common stock subject to |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
vesting requirements |  | — |  |  | — |  |  | 5,990 |  | — |  |  | — |  |  | — |  |  | — |  |  | 5,990
Dividend payment |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | (3,096) |  |  | — |  |  | (3,096)
Net income |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | 8,729 |  |  | — |  |  | 8,729
Foreign currency translation |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | — |  |  | 53 |  |  | 53
Balance at December 27, 2013 |  | 52,143 |  | $ | 52 |  | $ | 261,861 |  | (22,189) |  | $ | (80,406) |  | $ | (83,880) |  | $ | (4,451) |  | $ | 93,176
Issuance of common stock |  | 1,060 |  |  | 1 |  |  | (1,837) |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,836)
Treasury stock purchased |  | — |  |  | — |  |  | — |  | (1,800) |  |  | (10,929) |  |  | — |  |  | — |  |  | (10,929)
Amortization of restricted stock units |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
and common stock subject to |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
vesting requirements |  | — |  |  | — |  |  | 4,888 |  | — |  |  | — |  |  | — |  |  | — |  |  | 4,888
Dividend payment |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | (3,508) |  |  | — |  |  | (3,508)
Net income |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | 9,711 |  |  | — |  |  | 9,711
Foreign currency translation |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | — |  |  | (1,714) |  |  | (1,714)
Balance at January 2, 2015 |  | 53,203 |  | $ | 53 |  | $ | 264,912 |  | (23,989) |  | $ | (91,335) |  | $ | (77,677) |  | $ | (6,165) |  | $ | 89,788
Issuance of common stock |  | 644 |  |  | 1 |  |  | (1,543) |  | — |  |  | — |  |  | — |  |  | — |  |  | (1,542)
Treasury stock purchased |  | — |  |  | — |  |  | — |  | (149) |  |  | (1,356) |  |  | — |  |  | — |  |  | (1,356)
Amortization of restricted stock units |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
and common stock subject to |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |  |
vesting requirements |  | — |  |  | — |  |  | 9,518 |  | — |  |  | — |  |  | — |  |  | — |  |  | 9,518
Dividends paid or declared |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | (6,266) |  |  | — |  |  | (6,266)
Net income |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | 13,809 |  |  | — |  |  | 13,809
Foreign currency translation |  | — |  |  | — |  |  | — |  | — |  |  | — |  |  | — |  |  | (1,807) |  |  | (1,807)
Balance at January 1, 2016 |  | 53,847 |  | $ | 54 |  | $ | 272,887 |  | (24,138) |  | $ | (92,691) |  | $ | (70,134) |  | $ | (7,972) |  | $ | 102,144

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

35

THE HACKETT GROUP, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Cash flows from operating activities: |  |  |  |  |  |  |  |  |
Net income |  | $ | 13,809 |  | $ | 9,711 |  | $ | 8,729
Adjustments to reconcile net income to net |  |  |  |  |  |  |  |  |
cash provided by operating activities: |  |  |  |  |  |  |  |  |
Depreciation expense |  |  | 2,582 |  |  | 2,357 |  |  | 1,883
Amortization expense |  |  | 2,207 |  |  | 2,212 |  |  | 602
Amortization of debt issuance costs |  |  | 98 |  |  | 95 |  |  | 96
Provision for doubtful accounts |  |  | 89 |  |  | 785 |  |  | 742
Loss (gain) on foreign currency transactions |  |  | 170 |  |  | 8 |  |  | (4)
Restructuring costs |  |  | — |  |  | 3,604 |  |  | —
Non-cash stock compensation expense |  |  | 10,361 |  |  | 6,370 |  |  | 6,119
Acquisition consideration reflected as compensation expense |  |  | (3,440) |  |  | — |  |  | —
Bargain purchase gain from acquisition |  |  | — |  |  | (3,015) |  |  | —
Deferred income tax expense |  |  | 5,026 |  |  | 1,949 |  |  | 5,705
Changes in assets and liabilities, net of acquisition: |  |  |  |  |  |  |  |  |
(Increase) decrease in accounts receivable and unbilled revenue |  |  | (4,761) |  |  | (2,848) |  |  | 1,841
Decrease in prepaid expenses and other assets |  |  | 312 |  |  | 42 |  |  | 514
Increase (decrease) in accounts payable |  |  | 390 |  |  | (171) |  |  | 369
Increase (decrease) in accrued expenses and other liabilities |  |  | 9,334 |  |  | (2,340) |  |  | (1,164)
Net cash provided by operating activities |  |  | 36,177 |  |  | 18,759 |  |  | 25,432
Cash flows from investing activities: |  |  |  |  |  |  |  |  |
Purchases of property and equipment |  |  | (3,002) |  |  | (3,097) |  |  | (2,068)
Cash consideration paid for acquisition |  |  | — |  |  | (2,877) |  |  | —
Cash acquired in acquisition |  |  | — |  |  | 522 |  |  | —
Decrease in restricted cash |  |  | — |  |  | 354 |  |  | 329
Net cash used in investing activities |  |  | (3,002) |  |  | (5,098) |  |  | (1,739)
Cash flows from financing activities: |  |  |  |  |  |  |  |  |
Proceeds from borrowings |  |  | 2,500 |  |  | 10,500 |  |  | 11,002
Payment of debt borrowings |  |  | (20,763) |  |  | (11,487) |  |  | (16,974)
Debt issuance costs |  |  | (14) |  |  | (22) |  |  | (129)
Dividends paid |  |  | (3,067) |  |  | (3,508) |  |  | (3,096)
Proceeds from issuance of common stock |  |  | 945 |  |  | 937 |  |  | 1,080
Repurchases of common stock |  |  | (3,838) |  |  | (13,702) |  |  | (14,305)
Net cash used in financing activities |  |  | (24,237) |  |  | (17,282) |  |  | (22,422)
Effect of exchange rate on cash |  |  | (43) |  |  | 30 |  |  | 22
Net increase (decrease) in cash and cash equivalents |  |  | 8,895 |  |  | (3,591) |  |  | 1,293
Cash and cash equivalents at beginning of year |  |  | 14,608 |  |  | 18,199 |  |  | 16,906
Cash and cash equivalents at end of year |  | $ | 23,503 |  | $ | 14,608 |  | $ | 18,199
Supplemental disclosure of cash flow information: |  |  |  |  |  |  |  |  |
Cash paid for income taxes |  | $ | 268 |  | $ | 893 |  | $ | 684
Cash paid for interest |  | $ | 335 |  | $ | 538 |  | $ | 338

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

36

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information

Nature of Business

The Hackett Group is an intellectual property-based strategic consultancy and leading enterprise benchmarking and best practices implementation firm to global companies. Services include business transformation, enterprise performance management, working capital management, and global business services. The Hackett Group also provides dedicated expertise in business strategy, operations, finance, human capital management, strategic sourcing, procurement, and information technology, including its award-winning Oracle EPM and SAP practices.

Basis of Presentation and Consolidation

The accompanying consolidated financial statements include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. The Company consolidates the assets, liabilities, and results of operations of its entities.

Fiscal Year

The Company’s fiscal year generally consists of a 52-week period and periodically consists of a 53-week period as each fiscal year ends on the Friday closest to December 31. Fiscal years 2015, 2014 and 2013 ended on January 1, 2016, January 2, 2015 and December 27, 2013, respectively. References to a year included in the consolidated financial statements refer to a fiscal year rather than a calendar year.

Cash and Cash Equivalents and Restricted Cash

The Company considers all short-term investments with maturities of three months or less to be cash equivalents. Due to the short maturity period of cash equivalents, the carrying amount of these instruments approximates fair market value. The Company places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. The Company has not experienced any loss to date on these investments.

As of January 1, 2016 and January 2, 2015, the Company did not have any restricted cash balances.

Allowance for Doubtful Accounts

The Company maintains allowances for doubtful accounts for estimated losses resulting from its clients not making required payments. Management makes estimates of the collectability of accounts receivable and critically reviews accounts receivable and analyzes historical bad debts, past-due accounts, client credit-worthiness and current economic trends when evaluating the adequacy of the allowance for doubtful accounts. If the financial condition of the Company’s clients were to deteriorate, resulting in their inability to make payments, additional allowances may be required.

Dividends

In December 2012, the Company’s Board of Directors approved the initiation of an annual cash dividend program in the amount of $0.10 per share. In 2014, the Company’s Board of Directors approved an increase in the annual dividend payment from $0.10 per share to $0.12 per share. In 2015, the Company’s Board of Directors approved an increase in the annual dividend payment from $0.12 to $0.20 per share, to be paid semi-annually. Subsequent to fiscal 2015, the Company’s Board of Directors approved an increase in the annual dividend to $0.26 per share, to be paid semi-annually. The Company’s dividend policy is reviewed periodically by the Board of Directors. The amount and timing of all dividend payments is subject to the discretion of the Board of Directors and will depend upon business conditions, contractual obligations, legal restrictions, results of operations, financial conditions and other factors.

Property and Equipment, Net

Property and equipment are recorded at cost. Depreciation is calculated to amortize the depreciable assets over their useful lives using the straight-line method and commences when the asset is placed in service. The range of estimated useful lives is three to ten years. Leasehold improvements are amortized on a straight-line basis over the term of the lease or the estimated useful life of the improvement, whichever is shorter. Expenditures for repairs and maintenance are charged to expense as incurred. Expenditures for betterments and major improvements are capitalized. The carrying amount of assets sold or retired and related accumulated depreciation are removed from the balance sheet in the year of disposal and any resulting gains or losses are included in the consolidated statements of operations.

37

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

The Company capitalizes the costs of internal-use software, which generally includes hardware, software, and payroll-related costs for employees who are directly associated with, and who devote time, to the development of internal-use computer software.

Long-Lived Assets (excluding Goodwill and Other Intangible Assets)

Long-lived assets are reviewed for impairment whenever events or circumstances indicate that the carrying amount of an asset may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value. Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values.

Business Combinations

For transactions that are considered business combinations, the Company utilizes fair values in determining the carrying values of the purchased assets and assumed liabilities, which are recorded at fair value at acquisition date, and identifiable intangible assets are recorded at fair value. Costs directly related to the business combinations are recorded as expenses as they are incurred. Fair values are subject to refinement for up to one year after the closing date of an acquisition as information relative to closing date fair values become available. A bargain purchase gain on an acquisition occurs when the net of the estimated fair value of the assets acquired and liabilities assumed exceeds the consideration paid.

Goodwill and Other Intangible Assets

Goodwill and intangible assets deemed to have indefinite lives are not amortized, but rather are tested for impairment on an annual basis, or more frequently if events or changes in circumstances indicate potential impairment. Finite-lived intangible assets are amortized over their useful lives. The excess cost of the acquisition over the fair value of the net assets acquired is recorded as goodwill.

Goodwill is tested at least annually for impairment at the reporting unit level utilizing the market approach. The reporting units consist of The Hackett Group (including Benchmarking, Business Transformation, Business Transformation Enterprise Performance Management (“EPM”), Strategy and Operations and Executive Advisory Programs) and Hackett Technology Solutions (including SAP ERP and SAP Application Maintenance and Support (“AMS”), Oracle EPM and EPM AMS). In assessing the recoverability of goodwill and intangible assets, the Company utilizes the market approach and makes estimates based on assumptions regarding various factors to determine if impairment tests are met. The market approach utilizes valuation multiples based on operating data from publicly traded companies within the same industry. Multiples derived from guideline companies provide an indication of how much a knowledgeable investor in the marketplace would be willing to pay for a company. These multiples are then applied to the Company’s reporting units to arrive at an indication of value. This approach contains management’s judgment, using appropriate and customary assumptions available at the time.

The Company performed its annual step one impairment test of goodwill in the fourth quarter of fiscal years 2015 and 2014 and determined that goodwill was not impaired. The carrying amount and activity of goodwill attributable to The Hackett Group and Hackett Technology Solutions was as follows (in thousands):

|  |  |  |  | Hackett |  |  |
|  | The Hackett |  | Technology |  |  |
|  | Group |  | Solutions |  | Total
Balance at December 27, 2013 |  |  | 45,149 |  |  | 31,134 |  |  | 76,283
Foreign currency translation adjustment |  |  | (854) |  |  | — |  |  | (854)
Balance at January 2, 2015 |  |  | 44,295 |  |  | 31,134 |  |  | 75,429
Foreign currency translation adjustment |  |  | (845) |  |  | — |  |  | (845)
Balance at January 1, 2016 |  | $ | 43,450 |  | $ | 31,134 |  | $ | 74,584

Other intangible assets are tested for potential impairment whenever events or changes in circumstances suggest that the carrying value of an asset may not be fully recoverable. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset are compared to the asset’s carrying amount to determine if there has been an impairment. The amount of an impairment is calculated as the difference between the fair value of the asset and its carrying value. Estimates of future undiscounted cash flows are based on management’s view of growth rates for the related business, anticipated future economic conditions and estimates of residual values. Other intangible assets arise from business combinations and consist of customer relationships, customer backlog and trademarks that are amortized on a straight-line or accelerated basis over periods of up to five years.

38

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

Other intangible assets, included in other assets in the accompanying consolidated balance sheets, consist of the following (in thousands):

|  |  |  |  | January 1, |  | January 2,
|  |  |  |  | 2016 |  | 2015
Gross carrying amount |  |  |  |  | $ | 22,448 |  | $ | 22,448
Accumulated amortization |  |  |  |  |  | (18,679) |  |  | (16,472)
Foreign currency translation adjustment |  |  |  |  |  | 33 |  |  | 33
|  |  |  |  | $ | 3,802 |  | $ | 6,009

All of the Company’s intangible assets are expected to be fully amortized by the end of 2018. For the year ended January 1, 2016, the Company recorded $2.2 million of amortization expense. The estimated future amortization expense of intangible assets as of January 1, 2016 is as follows: $1.1 million in 2016, $1.3 million in 2017 and $1.4 million in 2018. See Note 15 for further discussion.

Revenue Recognition

Revenue is principally derived from fees for services generated on a project-by-project basis. Revenue for services rendered is recognized on a time and materials basis or on a fixed-fee or capped-fee basis.

Revenue for time and materials contracts is recognized based on the number of hours worked by our consultants at an agreed upon rate per hour and is recognized in the period in which services are performed.

Revenue related to fixed-fee or capped-fee contracts is recognized on the proportional performance method of accounting based on the ratio of labor hours incurred to estimated total labor hours. This percentage is multiplied by the contracted dollar amount of the project to determine the amount of revenue to recognize in an accounting period. The contracted dollar amount used in this calculation excludes the amount the client pays for reimbursable expenses. There are situations where the number of hours to complete projects may exceed the original estimate. These increases can be as a result of an increase in project scope, unforeseen events that arise, or the inability of the client or the delivery team to fulfill their responsibilities. On an on-going basis, project delivery, Office of Risk Management and finance personnel review hours incurred and estimated total labor hours to complete projects. Any revisions in these estimates are reflected in the period in which they become known. If the Company estimates indicate that a contract loss will occur, a loss provision will be recorded in the period in which the loss first becomes probable and reasonably estimable. Contract losses are determined to be the amount by which the estimated direct costs of the contract exceed the estimated total revenue that will be generated by the contract and are included in total cost of service.

Revenue from advisory services is recognized ratably over the life of the agreements.

Additionally, the Company earns revenue from the resale of software licenses and maintenance contracts. Revenue for the resale software and software licenses is recognized upon contract execution and customer receipt of software. Revenue from maintenance contracts is recognized ratably over the life of the agreements.

Revenue for contracts with multiple elements is allocated based on the respective selling price of the individual elements.

Unbilled revenue represents revenue for services performed that have not been invoiced. If the Company does not accurately estimate the scope of the work to be performed, or does not manage its projects properly within the planned periods of time, or does not meet clients’ expectations under the contracts, then future consulting margins may be negatively affected or losses on existing contracts may need to be recognized. Any such reductions in margins or contract losses could be material to the Company’s results of operations.

Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue.

Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service.

39

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

The agreements entered into in connection with a project, whether time and materials based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team.

Stock Based Compensation

The Company recognizes compensation expense for awards of equity instruments to employees based on the grant-date fair value of those awards, with limited exceptions, over the requisite service period.

Restructuring Reserves

Restructuring reserves reflect judgments and estimates of the Company’s ultimate costs of severance, closure and consolidation of facilities and settlement of contractual obligations under its operating leases, including sublease rental rates, absorption period to sublease space and other related costs. The Company reassesses the reserve requirements to complete each individual plan under the restructuring programs at the end of each reporting period. If these estimates change in the future or actual results differ from the Company’s estimates, additional charges may be required.

Income Taxes

Deferred tax assets and liabilities are determined based on differences between the financial reporting carrying values and tax bases of assets and liabilities, and are measured by using enacted tax rates expected to apply to taxable income in the years in which those differences are expected to reverse. Deferred income taxes also reflect the impact of certain state operating loss and tax credit carryforwards. A valuation allowance is provided if the Company believes it is more likely than not that all or some portion of the deferred tax asset will not be realized. An increase or decrease in the valuation allowance, if any, that results from a change in circumstances, and which causes a change in the Company’s judgment about the realizability of the related deferred tax asset, is included in the tax provision.

The Company utilized a more-likely-than-not threshold for financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition of income tax assets and liabilities, classification of current and deferred income tax assets and liabilities, accounting for interest and penalties associated with tax positions, accounting for income taxes in interim periods and income tax disclosures. The Company reports penalties and tax-related interest expense as a component of income tax expense.

Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to employees, the calculation includes only the vested portion of such stock.

The potential issuance of common shares upon the exercise, conversion or vesting of unvested restricted stock units, common stock subject to vesting, stock options and stock appreciation right units ("SARs"), as calculated under the treasury stock method, may be dilutive. Diluted net income per share is computed by dividing the net income by the weighted average number of common shares outstanding, and will increase by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and diluted weighted average shares:

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Basic weighted average common shares outstanding |  |  | 29,620,361 |  |  | 28,718,263 |  |  | 30,283,298
Effect of dilutive securities: |  |  |  |  |  |  |  |  |
Unvested restricted stock units and common stock subject |  |  |  |  |  |  |  |  |
to vesting requirements issued to employees |  |  | 1,617,820 |  |  | 1,152,974 |  |  | 1,809,565
Common stock issuable upon the exercise of stock options and SARs |  |  | 729,447 |  |  | 9,765 |  |  | 22,802
Dilutive weighted average common shares outstanding |  |  | 31,967,628 |  |  | 29,881,002 |  |  | 32,115,665

40

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

There were 0.5 million, 0.3 million and 0.8 million shares of underlying awards granted excluded from the above reconciliation for the years ended 2015, 2014 and 2013, 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 January 1, 2016 and January 2, 2015, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments.

The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated its carrying amount using Level 2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach.

Concentration of Credit Risk

The Company provides services primarily to Global 2000 companies and other sophisticated buyers of business consulting and information technology services. The Company performs ongoing credit evaluations of its major customers and maintains reserves for potential credit losses. In 2015, 2014 and 2013 no customer accounted for more than 5% of total revenue.

Management’s Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Actual results could differ from those estimates.

Other Comprehensive Income

The Company reports its comprehensive income in accordance with FASB ASC Topic 220, Comprehensive Income, which establishes standards for reporting and presenting comprehensive income and its components in a full set of financial statements. Other comprehensive income consists of net income and cumulative currency translation adjustments.

Translation of Non-U.S. Currency Amounts

The assets and liabilities held by the Company’s foreign entities that have a functional currency other than the U.S. Dollar are translated into U.S. Dollars at exchange rates in effect at the end of each reporting period. Foreign entity revenue and expenses are translated into U.S. Dollars at the average rates that prevailed during the period. The resulting net translation gains and losses are reported as foreign currency translation adjustments in shareholders’ equity as a component of accumulated other comprehensive income. Gains and losses from foreign currency transactions are included in net income.

Segment Reporting

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

Recent Accounting Pronouncements

In May 2014, the FASB issued guidance on revenue recognition, which provides for a single, principles-based model for revenue recognition and replaces the existing revenue recognition guidance. The guidance is effective for annual and interim periods beginning on or after December 15, 2017 and will replace most existing revenue recognition guidance under U.S. GAAP when it becomes effective. It permits the use of either a retrospective or cumulative effect transition method and early adoption is permitted, however not before December 15, 2016. The Company has not yet selected a transition method and is in the process of evaluating the effect this standard will have on its consolidated financial statements and related disclosures.

In April 2015, the FASB issued amendments to its guidance which are intended to simplify the balance sheet presentation of debt issuance costs. These amendments require that debt issuance costs related to a recognized debt liability be presented in the balance sheet as a direct deduction from the carrying amount of the debt liability, consistent with debt discounts. The recognition and measurement guidance for debt issuance costs are not affected by this update. The amendments are effective for annual and interim periods beginning after December 15, 2015 and requires a retrospective transition method. Early adoption is permitted for financial

41

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Basis of Presentation and General Information (continued)

statements that have not been previously issued. The Company does not expect the adoption to have a material impact on its consolidated financial statements.

On November 20, 2015, the FASB issued guidance which requires an entity to present all deferred tax assets and liabilities as non-current in a classified balance sheet. The update becomes effective January 1, 2017, however early adoption is permitted. The Company chose early adoption for the periods presented.

In February 2016, the FASB issued guidance on leases which supersedes the current lease guidance. The core principle requires lessees to recognize the assets and liabilities that arise from nearly all leases in the statement of financial position. Accounting applied by lessors will remain largely consistent with previous guidance, additional changes set to align lessor accounting with the revised lessee model and the FASB’s revenue recognition guidance. The amendments are effective for fiscal years beginning after December 15, 2018, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of this standard on its consolidated financial statements.

Reclassifications

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

| · |  | The Company reclassified on the Consolidated Statements of Cash Flows the dollar value of shares having a value equal to tax withholding, which were withheld and never issued. In lieu of issuing the shares, taxes were paid on the employee’s behalf. In 2014 and 2013, $2.7 million and $1.2 million, respectively, related to the net shares withheld was reclassified from cash flows from operations to cash flows from financing activities to conform to current period presentation; and

| · |  | In accordance with new guidance, the Company reclassified its current deferred tax asset to net against the non-current deferred tax liability on the Consolidated Balance Sheet. The impact in 2015 and 2014 was $0.5 million and $2.8 million, respectively.

2. Fair Value Measurement

The Company records its assets and liabilities in accordance with FASB ASC Topic 820, Fair Value Measurements and Disclosures (“ASC 820”). ASC 820 defines fair value as the exchange price that would be received for an asset or paid to transfer a liability (exit price) in the principal or most advantageous market for the asset or liability in an orderly transaction between market participants on the measurement date. ASC 820 also establishes a fair value hierarchy which requires an entity to maximize the use of observable inputs and minimize the use of unobservable inputs when measuring fair value. ASC 820 describes the following three levels of inputs that may be used to measure fair value:

Level 1: Quoted market prices in active markets for identical assets or liabilities

Level 2: Observable market-based inputs or unobservable inputs that are corroborated by market data

Level 3: Unobservable inputs that are not corroborated by market data

3. Accounts Receivable and Unbilled Revenue, Net

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

|  | January 1, |  | January 2,
|  | 2016 |  | 2015
Accounts receivable |  | $ | 33,159 |  | $ | 28,154
Unbilled revenue |  |  | 10,768 |  |  | 10,597
Allowance for doubtful accounts |  |  | (1,881) |  |  | (1,330)
|  | $ | 42,046 |  | $ | 37,421

Accounts receivable as of January 1, 2016 and January 2, 2015, is net of uncollected advanced billings. Unbilled revenue as of January 1, 2016 and January 2, 2015 includes recognized recoverable costs and accrued profits on contracts for which billings had not been presented to clients.

42

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

4. Property and Equipment, net

|  | January 1, |  | January 2,
|  | 2016 |  | 2015
Equipment |  | $ | 6,460 |  | $ | 6,044
Software |  |  | 24,049 |  |  | 21,604
Leasehold improvements |  |  | 431 |  |  | 454
Furniture and fixtures |  |  | 494 |  |  | 498
|  |  | 31,434 |  |  | 28,600
Less accumulated depreciation |  |  | (17,332) |  |  | (14,847)
|  | $ | 14,102 |  | $ | 13,753

Depreciation expense for the years ended January 1, 2016, January 2, 2015 and December 27, 2013, was $2.6 million, $2.4 million, and $1.9 million, respectively, and is included in selling, general and administrative costs in the accompanying consolidated statements of operations.

5. Accrued Expenses and Other Liabilities

Accrued expenses and other liabilities consist of the following (in thousands):

|  | January 1, |  | January 2,
|  | 2016 |  | 2015
Accrued compensation and benefits |  | $ | 3,934 |  | $ | 3,266
Accrued bonuses |  |  | 13,279 |  |  | 7,682
Accrued dividend payable |  |  | 3,199 |  |  | —
Accrued restructuring related expenses |  |  | — |  |  | 270
Deferred revenue |  |  | 11,433 |  |  | 8,896
Accrued Technolab earn-out liability |  |  | — |  |  | 3,440
Accrued sales, use, franchise and VAT tax |  |  | 1,946 |  |  | 1,977
Other accrued expenses |  |  | 8,021 |  |  | 5,370
Total accrued expenses and other liabilities |  | $ | 41,812 |  | $ | 30,901

6. Lease Commitments

The Company has operating lease agreements for its premises that expire on various dates through December 2024. Rent expense for the years ended January 1, 2016, January 2, 2015 and December 27, 2013 was $2.2 million, $2.2 million and $1.9 million, respectively.

Future minimum lease commitments under non-cancelable operating leases as of January 1, 2016, are as follows (in thousands):

|  |  |  |  | Rental
|  |  |  |  | Payments
2016 |  |  |  |  | $ | 1,921
2017 |  |  |  |  |  | 1,574
2018 |  |  |  |  |  | 1,325
2019 |  |  |  |  |  | 1,266
2020 |  |  |  |  |  | 928
Thereafter |  |  |  |  |  | 1,487
Total |  |  |  |  | $ | 8,501

7. Restructuring Costs

During 2014, the Company recorded restructuring costs of $3.6 million, primarily for reductions in consultants and functional support personnel in Europe. These actions were taken as a result of the continued decline in demand in the Company’s European markets. The Company took steps to reduce its costs to better align its overall cost structure and organization with anticipated demand for its services.

43

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

7. Restructuring Costs (continued)

As of January 1, 2016, the Company had settled all of its commitments related to employee severance costs and down-sizing of office leases. As of January 2, 2015, the $0.3 million remaining in commitments related to employee severance costs and down-sizing of office leases.

The following tables set forth the detail and activity in the restructuring expense accruals (in thousands):

|  | Severance and |  | Exit, Closure |  |  |
|  | Other |  | and |  |  |
|  | Employee |  | Consolidation |  |  |
|  | Costs |  | of Facilities |  | Total
Accrual balance at December 27, 2013 |  | $ | — |  | $ | 134 |  | $ | 134
2014 additions |  |  | 3,534 |  |  | 70 |  |  | 3,604
2014 expenditures |  |  | (3,313) |  |  | (155) |  |  | (3,468)
Accrual balance at January 2, 2015 |  | $ | 221 |  | $ | 49 |  | $ | 270
2015 additions |  |  | — |  |  | — |  |  | —
2015 expenditures |  |  | (221) |  |  | (49) |  |  | (270)
Accrual balance at January 1, 2016 |  | $ | — |  | $ | — |  | $ | —

8. Credit Facility

On February 21, 2012, the Company entered into a credit agreement with Bank of America, N.A. Under the credit agreement, Bank of America, N.A. agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $30.0 million pursuant to a term loan (the “Term Loan,” and together with the Revolver, the “Credit Facility”).

On August 27, 2013, the Company amended and restated the credit agreement (the "Credit Agreement") with Bank of America to finance a tender offer for shares of its common stock completed in October 2013. The Credit Agreement was amended and restated to:

| · |  | provide for up to additional $17.0 million of borrowing under the Term Loan (the "Amended Term Loan" and together with the Revolver, the "Amended Credit Facility") and

| · |  | extend the maturity date on the Revolver and the Amended Term Loan to August 27, 2018, five years from the date of the amendment and restatement of the Credit Agreement.

As of January 1, 2016, the Company had paid off its principal amount outstanding in full on the Amended Term Loan and had no balance outstanding under either facility. As of January 1, 2016, the Company had fully utilized the $30.0 million commitment on the Amended Term Loan, and had approximately $20.0 million available under the Revolver. As of January 2, 2015, the Company had $18.3 million principal amount outstanding on the Amended Term Loan and a zero balance outstanding on the Revolver. Subsequent to year end, the Company borrowed $5.0 million from the Revolver.

The obligations of the Company under the Amended Credit Facility are guaranteed by active existing and future material U.S. subsidiaries of the Company and are secured by substantially all of the existing and future property and assets of the Company (subject to certain exceptions).

The interest rates per annum applicable to loans under the Amended Credit Facility will be at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. As of January 1, 2016, the interest rate per annum was 1.90%. The applicable margin percentage is based on the consolidated leverage ratio. As of January 1, 2016, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances.

The Company is subject to certain covenants and exceptions, including total consolidated leverage, fixed cost coverage and liquidity requirements.

In connection with the Credit Facility, the Company incurred $0.6 million of debt issuance costs. These costs are amortized over the remaining life of the Credit Facility and are included in Other Assets in the consolidated balance sheet.

The Revolver matures on August 27, 2018, whereas the Amended Term Loan required amortization of principal in equal quarterly payment installments from December 31, 2013 through August 27, 2018. As of January 1, 2016, the Company had prepaid the entirety of the Amended Term Loan mandatory principal amortization and did not have an outstanding balance on its Revolver.

44

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes

The Company files federal income tax returns, as well as multiple state, local and foreign jurisdiction tax returns. A number of years may elapse before an uncertain tax position is audited and finally resolved. While it is often difficult to predict the final outcome or the timing of resolution on any particular uncertain tax position, the Company believes that its reserves for income taxes reflect the most probable outcome. The Company adjusts these reserves, as well as the related interest, in light of changing facts and circumstances. The resolution of a matter would be recognized as an adjustment to the provision for income taxes and the effective tax rate in the period of resolution. The Company is no longer subject to examinations of its federal income tax returns by the Internal Revenue Service for years through 2011 and all significant state, local and foreign matters have been concluded for years
through 2011.

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

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Domestic |  | $ | 16,249 |  | $ | 6,549 |  | $ | 15,823
Foreign |  |  | 5,267 |  |  | 5,417 |  |  | (696)
Income before income taxes |  | $ | 21,516 |  | $ | 11,966 |  | $ | 15,127

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

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Current tax expense (benefit) |  |  |  |  |  |  |  |  |
Federal |  | $ | 2,042 |  | $ | 155 |  | $ | 10
State |  |  | 463 |  |  | 131 |  |  | 530
Foreign |  |  | 224 |  |  | 132 |  |  | 103
|  |  | 2,729 |  |  | 418 |  |  | 643
Deferred tax expense (benefit) |  |  |  |  |  |  |  |  |
Federal |  |  | 3,566 |  |  | 200 |  |  | 6,450
State |  |  | 529 |  |  | (238) |  |  | 394
Foreign |  |  | 883 |  |  | 1,875 |  |  | (1,089)
|  |  | 4,978 |  |  | 1,837 |  |  | 5,755
Income tax expense |  | $ | 7,707 |  | $ | 2,255 |  | $ | 6,398

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

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
U.S statutory income tax expense rate |  | 35.0 | % |  | 35.0 | % |  | 35.0 | %
State income taxes, net of federal income tax expense |  | 3.0 |  |  | (0.6) |  |  | 4.0 |
Valuation reduction |  | (0.8) |  |  | (1.0) |  |  | (0.5) |
Meals and entertainment |  | 1.2 |  |  | 2.0 |  |  | 1.7 |
Foreign rate differential |  | (3.1) |  |  | (10.6) |  |  | 1.0 |
Bargain purchase gain |  | — |  |  | (8.7) |  |  | — |
Foreign exchange loss |  | (0.2) |  |  | 0.1 |  |  | 0.4 |
Other, net |  | 0.7 |  |  | 2.6 |  |  | 0.7 |
Effective tax rate |  | 35.8 | % |  | 18.8 | % |  | 42.3 | %

45

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

The components of the net deferred income tax asset (liability) are as follows (in thousands):

|  |  |  |  | Year Ended
|  |  |  |  | January 1, |  | January 2,
|  |  |  |  | 2016 |  | 2015
Deferred income tax assets: |  |  |  |  |  |  |  |  |
Allowance for doubtful accounts |  |  |  |  | $ | 436 |  | $ | 518
Net operating loss and tax credits carryforward |  |  |  |  |  | 3,229 |  |  | 9,283
Accrued expenses and other liabilities |  |  |  |  |  | 4,943 |  |  | 3,160
|  |  |  |  |  | 8,608 |  |  | 12,961
Valuation allowance |  |  |  |  |  | (1,287) |  |  | (1,452)
|  |  |  |  |  | 7,321 |  |  | 11,509
Deferred income tax liabilities: |  |  |  |  |  |  |  |  |
Depreciation |  |  |  |  |  | (4,929) |  |  | (4,628)
Tax over book amortization on goodwill and intangibles |  |  |  |  |  | (10,204) |  |  | (9,872)
Other items |  |  |  |  |  | (311) |  |  | (106)
|  |  |  |  |  | (15,444) |  |  | (14,606)
Net deferred income tax liability |  |  |  |  | $ | (8,123) |  | $ | (3,097)

As of January 1, 2016, the Company had $2.3 million of U.S. state net operating loss carryforwards. Additionally, at January 1, 2016, the Company had $7.6 million of foreign net operating loss carryforwards, of which $3.1 million related to operations in the U.K., $1.1 million related to operations in France and $0.5 million related to operations in Germany. A significant amount of the foreign net operating losses may be carried forward indefinitely.

The liability method of accounting for deferred income taxes requires a valuation allowance against deferred tax assets if, based on the weight of available evidence, it is more likely than not that some or all of the deferred tax assets will not be realized. In determining the need for valuation allowances the Company considers evidence such as history of losses and general economic conditions. At January 1, 2016 and January 2, 2015, the Company had a valuation allowance of $1.3 million and $1.5 million, respectively, to reduce deferred income tax assets primarily related to foreign and state net operating loss and tax credit carryforwards.

The undistributed earnings in foreign subsidiaries of approximately $2.5 million are permanently invested abroad and will not be repatriated to the U.S. in the foreseeable future. Because they are considered to be indefinitely reinvested, no U.S. federal or state deferred income taxes have been provided on these earnings. Upon distribution of those earnings, in the form of dividends or otherwise, the Company would be subject to both U.S. income taxes (subject to an adjustment for foreign tax credits) and withholding taxes payable to the various foreign countries in which it operates. Because of the availability of U.S. foreign tax credits, it is not practicable to determine the U.S. foreign income tax liability that would be payable if such earnings were not reinvested indefinitely.

Penalties and tax-related interest expense are reported as a component of income tax expense. For the years ended January 1, 2016 and January 2, 2015 the total amount of accrued income tax-related interest and penalties was $202 thousand and $357 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 January 1, 2016 and January 2, 2015 (in thousands):

|  |  |  |  | Year Ended
|  |  |  |  | January 1, |  | January 2,
|  |  |  |  | 2016 |  | 2015
Beginning balance |  |  |  |  | $ | 792 |  | $ | 716
Additions based on tax positions |  |  |  |  |  | 15 |  |  | 76
Reduction for prior year tax deductions |  |  |  |  |  | (95) |  |  | —
Ending balance |  |  |  |  | $ | 712 |  | $ | 792

As of January 1, 2016 and January 2, 2015, the ASC 740-10 liability of $0.7 million and $0.8 million, respectively, was classified as a current liability and included in the current portion of the accrued expenses and other liabilities in the accompanying consolidated balance sheets.

46

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

9. Income Taxes (continued)

The Company does not believe there will be any material changes in its unrecognized tax positions over the next twelve months. The reversal of ASC 740-10 tax liabilities as of January 1, 2016 and January 2, 2015 would have a favorable impact on the effective tax rate in future period.

10. Stock Based Compensation

Stock Plans

Total share based compensation included in net income for the years ended January 1, 2016, January 2, 2015 and December 27, 2013 is as follows:

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Restricted stock units |  | $ | 6,776 |  | $ | 4,994 |  | $ | 4,864
Stock options and stock appreciation rights |  |  | 2,658 |  |  | 477 |  |  | 477
Common stock subject to vesting requirements |  |  | 927 |  |  | 899 |  |  | 778
|  | $ | 10,361 |  | $ | 6,370 |  | $ | 6,119

The number of shares available for future issuance under the Company's stock plans as of January 1, 2016 were 2,199,778. The Company issues new shares as they are required to be delivered under the plan.

Stock Options and SARs

The Company has granted stock options to employees and directors of the Company at exercise prices equal to the market value of the stock at the date of grant. The options generally vest ratably over four years, based on continued employment, with a maximum term of ten years.

Stock option activity under the Company’s stock option plans for the year ended January 1, 2016 is summarized as follows:

|  | Option Shares |  |  | Weighted Average Exercise Price |  | Weighted Average Remaining Contractual Term |  |  | Aggregate Intrinsic Value
Outstanding as of January 2, 2015 |  | 297,667 |  | $ | 4.00 |  |  |  |  |
Exercised |  | (67,500) |  |  | 3.99 |  |  |  |  |
Forfeited or expired |  | — |  |  | — |  |  |  |  |
Outstanding as of January 1, 2016 |  | 230,167 |  | $ | 4.00 |  | 6.20 |  | $ | 2,778,178
Exercisable at January 1, 2016 |  | 90,167 |  | $ | 4.00 |  | 6.21 |  | $ | 1,088,378

A summary of the Company’s stock option activity for the years ended January 2, 2015 and December 27, 2013 was as follows:

|  | January 2, 2015 |  | December 27, 2013
|  | Option Shares |  |  | Weighted Average Exercise Price |  | Option Shares |  |  | Weighted Average Exercise Price
Outstanding at beginning of year |  | 366,714 |  | $ | 4.39 |  | 3,898,864 |  | $ | 4.34
Exercised |  | (8,750) |  |  | 4.04 |  | (109,683) |  |  | 4.29
Forfeited or expired (1) |  | (60,297) |  |  | 6.35 |  | (3,422,467) |  |  | 4.33
Outstanding at end of year |  | 297,667 |  | $ | 4.00 |  | 366,714 |  | $ | 4.39
Exercisable at end of year |  | 17,667 |  | $ | 3.96 |  | 86,714 |  | $ | 5.63

| (1) |  | Includes 2,916,563 of unvested performance-based stock options granted in 2012 and subsequently surrendered and replaced with SARs in 2013 and 470,000 vested stock options surrendered in 2013 and replaced with SARs. See SARs discussion below.

47

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stock Based Compensation (continued)

The fair value of the SARs and stock options is estimated using the Black-Scholes option pricing valuation model. The determination of fair value is affected by the Company's stock price, expected stock price volatility, expected term of the award and the risk-free rate of interest.

Other information pertaining to stock option activity during the years ended January 1, 2016, January 2, 2015 and December 27, 2013 was as follows (in thousands):

|  | Year Ended
|  | January 1, 2016 |  | January 2, 2015 |  | December 27, 2013
Total intrinsic value of stock options exercised |  | $ | 660 |  | $ | 36 |  | $ | 163

The following table summarizes information about the Company’s stock options outstanding:

|  | Options Outstanding |  | Options Exercisable
Range of Exercise Prices |  | Number Outstanding |  | Weighted Average Remaining Contractual Life (Years) |  |  | Weighted Average Exercise Price |  | Number Exercisable |  |  | Weighted Average Exercise Price
$0.00 - $4.00 |  | 230,167 |  | 6.20 |  | $ | 4.00 |  | 90,167 |  | $ | 4.00

On February 8, 2012, the Compensation Committee approved the fiscal year 2012 through 2015 equity compensation target for the Chief Executive Officer and Chief Operating Officer. Under this target, a single performance-based option grant was made to the Company’s Chief Executive Officer and the Chief Operating Officer of 1,912,500 options and 1,004,063 options, respectively, totaling 2,916,563 options, each with an exercise price of $4.00 and a fair value of $1.31. One-half of the options vest upon the achievement of at least 50% growth of pro forma earnings per share and the remaining half vest upon the achievement of at least 50% pro forma EBITDA growth. Pro forma EBITDA is defined as pro forma earnings before interest, taxes and depreciation. Each metric can be achieved at any time during the six-year term of the award based on a trailing twelve month period measured quarterly. The grants will expire if neither target is achieved during the six-year term. The base year for the performance calculation is fiscal 2011 for both pro forma earnings per share and pro forma EBITDA performance targets.

In March of 2013, the performance-based stock option grants were surrendered by the Company’s Chief Executive Officer and Chief Operating Officer and replaced with SARs, totaling 2,916,563, equal in number to the number of options granted to each of them in 2012. The terms and conditions and the specific performance targets that must be achieved in order for the SARs to vest are the same as those of the surrendered options, with the exception that the SARs will be settled in cash, stock or any combination thereof, at the Company’s discretion.

The SARs related to the pro forma EPS target were earned and vested in the first quarter of 2015 with the Audit Committee’s approval of the Company’s 2014 financial statements and the SARs related to the pro forma EBITDA target were earned and vested in the first quarter of 2016 with the Audit Committee’s approval of the Company’s 2015 financial statements. As of January 1, 2016, no SARs had been exercised.

In addition, 470,000 vested stock options were surrendered and replaced with SARs with an extended life during 2013. Subsequently, in 2014, the extended life of the SARS was rescinded and the SARS expired unexercised.

SAR activity for the year ended January 1, 2016 was as follows:

|  | Number of SARs |  | Weighted Average Exercise Price |  | Weighted Average Fair Value
Outstanding as of January 2, 2015 |  |  | 2,916,563 |  | $ | 4.00 |  | $ | 1.31
Expired |  |  | — |  |  | — |  |  | —
Outstanding as of January 1, 2016 |  |  | 2,916,563 |  | $ | 4.00 |  | $ | 1.31
Exercisable at January 1, 2016 |  |  | 1,458,282 |  | $ | 4.00 |  | $ | 0.96

The following assumptions were used to determine the fair value of the SARs granted to employees in 2013:

Expected volatility |  | 43%
Risk-free rate |  | 0.35% - 1.00%
Expected term (in years) |  | 2-6

48

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

10. Stock Based Compensation (continued)

As of January 1, 2016, 100% of total outstanding options and SARs were performance-based. The Company recorded $2.7 million of compensation expense in 2015 and $0.5 million in both 2014 and 2013, related to these options and SARs. As of January 1, 2016, all stock compensation expense related to the outstanding options and SARs had been expensed.

Restricted Stock Units

Under the stock plans, participants may be granted restricted stock units, each of which represents a conditional right to receive a common share in the future. The restricted stock units granted under this plan generally vest over one of the following vesting schedules: (1) a four-year period, with 50% vesting on the second anniversary and 25% of the shares vesting on the third and fourth anniversaries of the grant date, (2) a four-year period, with 25% vesting on the first, second, third and fourth anniversary, or (3) a three-year period with 33% vesting on the first, second and third anniversary. Upon vesting, the restricted stock units will convert into an equivalent number of shares of common stock. The amount of expense relating to the restricted stock units is based on the closing market price of the Company’s common stock on the date of grant and is amortized on a straight-line basis over the applicable requisite service period. Restricted stock unit activity for the year ended January 1, 2016, was as follows:

|  | Number of Restricted Stock Units |  | Weighted Average Grant-Date Fair Value
Nonvested balance as of January 2, 2015 |  |  | 2,315,213 |  | $ | 5.41
Granted |  |  | 741,806 |  |  | 8.50
Vested |  |  | (865,881) |  |  | 4.53
Forfeited |  |  | (55,902) |  |  | 5.19
Nonvested balance as of January 1, 2016 |  |  | 2,135,236 |  | $ | 6.85

The Company recorded restricted stock units based compensation expense of $6.8 million, $5.0 million and $4.9 million in 2015, 2014 and 2013, respectively, which is included in stock compensation expense, based on the vesting provisions of the restricted stock units and the fair market value of the stock on the grant date. As of January 1, 2016, there was $6.9 million of total restricted stock units compensation expense related to the nonvested awards not yet recognized, which is expected to be recognized over a weighted average period of 1.74 years.

Common Stock Subject to Vesting Requirements

Shares of common stock subject to vesting requirements were issued to employees of acquired companies. These shares vest over a period of up to five years. Compensation was based on the market value of the Company’s common stock at the time of grant and is recognized on a straight-line basis. The activity for common stock subject to vesting requirements for the year ended January 1, 2016 was as follows:

|  | Number of Shares of Common Stock Subject to Vesting Requirements |  | Weighted Average Grant-Date Fair Value
Nonvested balance as of January 2, 2015 |  |  | 264,474 |  | $ | 7.54
Granted |  |  | 483,051 |  |  | 9.44
Vested |  |  | — |  |  | —
Nonvested balance as of January 1, 2016 |  |  | 747,525 |  | $ | 8.77

Common stock subject to vesting requirements of $4.6 million was issued in 2015 in relation to the equity portion of the Technolab earn-out. These shares are be subject to a four year vesting period.

The Company recorded compensation expense of $0.9 million, $0.9 million and $0.8 million, during the years ended January 1, 2016, January 2, 2015 and December 27, 2013, respectively, related to common stock subject to vesting requirements. As of January 1, 2016, there was $4.2 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 2.7 years.

11. Shareholders’ Equity

Tender Offer

On August 28, 2013, the Company announced a tender offer to purchase up to $35.75 million in value of shares of its common stock, $0.001 par value per share, at a price not greater than $6.50 nor less than $5.75 per share, to the seller in cash, less any applicable withholding taxes and without interest (the "Offer"). On September 26, 2013, the Company amended the Offer (the "Amended Offer")

49

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

11. Shareholders’ Equity (continued)

to increase the price range at which it would purchase its common stock to a range of not greater than $7.00 nor less than $6.50 per share and to decrease the dollar amount of the Offer to $25.0 million. The Amended Offer was completed on October 15, 2013, with the Company purchasing approximately 1.0 million shares of its common stock at a purchase price of $7.00 per share, for an aggregate cost of approximately $6.9 million, excluding fees and expenses related to the Amended Offer. The 1.0 million shares represented approximately 3% of the Company's issued and outstanding shares of common stock at that time. The Company financed the Amended Offer from borrowings under the Amended Term Loan under its existing Credit Facility. See Note 8 for further detail.

Employee Stock Purchase Plan

Effective July 1, 1998, the Company adopted an Employee Stock Purchase Plan to provide substantially all employees who have completed three months of service as of the beginning of an offering period an opportunity to purchase shares of its common stock through payroll deductions. Purchases on any one grant are limited to 10% of eligible compensation. Shares of the Company’s common stock may be purchased by employees at six-month intervals at 95% of the fair market value on the last trading day of each six-month period. The aggregate fair market value, determined as of the first trading date of the offering period, of shares purchased by an employee may not exceed $25,000 annually. The Employee Stock Purchase Plan expires on July 1, 2018. A total of 4,275,000 shares of common stock are available for purchase under the plan with a limit of 400,000 shares of common stock to be issued per offering period. For plan years 2015, 2014, and 2013, 48,356 shares, 94,333 shares and 113,905 shares, respectively, were issued.

Treasury Stock

On July 30, 2002, the Company announced that its Board of Directors approved the repurchase of up to $5.0 million of the Company’s common stock. Since the inception of the repurchase plan, the Board of Directors approved the repurchase of an additional $90.0 million of the Company’s common stock, thereby increasing the total program size to $95.0 million as of January 1, 2016. As of January 1, 2016, the Company had effected cumulative purchases under the plan of $92.7 million, leaving $2.3 million available for future purchases. Subsequent to January 1, 2016, the Company’s Board of Directors approved an additional $5.0 million repurchase authorization, increasing the total program size to $100.0 million. Under the repurchase plan, the Company may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions, subject to market conditions and trading restrictions, excluding the above mentioned tender offers. During 2015 and 2014, the Company repurchased 0.1 million and 1.8 million shares of its common stock, respectively, at an average price per share of $9.10 and $6.07, respectively, for a total cost of $1.4 million and $11.0 million, respectively. As of January 1, 2016 and January 2, 2015, the Company had repurchased 24.1 million and 24.0 million shares of its common stock, respectively, at an average price of $3.84 and $3.81 per share, respectively. In addition, subsequent to year end, the Company has bought back 0.3 million of its common stock at an average price per share of $13.83 for a total cost of $4.2 million, leaving $3.1 million available for future purchases as of March 10, 2016. The Company holds repurchased shares of its common stock as treasury stock and accounts for treasury stock under the cost method.

Shares purchased under the repurchase plan do not include shares withheld to satisfy withholding tax obligations. These withheld shares are never issued and in lieu of issuing the shares, taxes were paid on the employee’s behalf. In 2015 and 2014, 297 thousand shares were withheld and not issued for a cost of $2.5 million and 435 thousand shares were withheld and not issued for a cost of $2.7 million, respectively. Subsequent to January 1, 2016, 253 thousand shares have been withheld for a total cost of $3.5 million.

Dividends

In December 2012, the Company announced an annual dividend program of $0.10 per share. In December 2012 and 2013, the Company paid annual dividends of $0.10 per share, or $3.1 million to shareholders of record as of close of business on December 20, 2012 and on December 10, 2013, respectively. In 2014, the Company increased the dividend to $0.12 per share, or $3.5 million, to shareholders of record as of close of business on December 10, 2014. In 2015, the Company increased the annual dividend to $0.20 per share to be paid on a semi-annual basis which resulted in aggregate dividends of $3.1 million and $3.2 million paid to shareholders of record on June 29, 2015 and December 28, 2015, respectively. These dividends were paid from U.S. domestic sources and are accounted for as an increase to retained deficit. The dividend declared in December 2015 was paid in January 2016. Subsequent to January 1, 2016, the Company increased its annual dividend to $0.26 per share to be paid on a semi-annual basis.

Shareholder Rights Plan

On February 13, 2004, the Company’s Board of Directors adopted a Shareholder Rights Plan. Under the Plan, a dividend of one preferred share purchase right (a “Right”) was declared for each share of common stock of the Company that was outstanding on February 26, 2004.

The Rights had certain anti-takeover effects, in that they would have caused substantial dilution to a person or group that attempted to acquire a significant interest in the Company on terms not approved by the Board of Directors. The Rights expired on February 13, 2014.

50

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

12. Benefit Plan

The Company maintains a 401(k) plan covering all eligible employees. Subject to certain dollar limits, eligible employees may contribute up to 15% of their pre-tax annual compensation to the plan. The Company may make discretionary contributions on an annual basis. During fiscal years 2015, 2014 and 2013, the Company made matching contributions of 25% of employee contributions up to 4% of their gross salaries. The Company’s matching contributions were $0.3 million for each of the fiscal years ended January 1, 2016, January 2, 2015 and December 27, 2013.

13. Transactions with Related Parties

There were no related party transactions in 2015, 2014 or 2013.

14. Litigation

The Company is involved in legal proceedings, claims, and litigation arising in the ordinary course of business not specifically discussed herein. In the opinion of management, the final disposition of such matters will not have a material adverse effect on the Company’s consolidated financial position, cash flows or results of operations.

15. Acquisition

During the quarter ended March 28, 2014, the Company acquired the U.S., Canada and Uruguay operations of Technolab International Corporation ("Technolab"), an EPM AMS business.

At closing, the seller received $3.0 million in cash, not subject to vesting, and $1.0 million in shares subject to vesting, which is being recorded as non-cash compensation over the service vesting period. The seller also had the ability to earn an additional $8.0 million in a combination of cash, not subject to service vesting, and stock, subject to service vesting, based on a one-year profitability-based earn-out contingent upon actual results achieved. The entire cash portion of the earn-out was recorded as compensation expense in 2014. The stock portion of the earn-out is being recorded as compensation expense over the service vesting period. During the third quarter of 2015, the Company settled the contingent earn-out with cash and stock issuances in accordance with the agreement.

The purchase accounting resulted in a bargain purchase gain of $3.0 million on the acquisition and intangible assets with definite lives of $7.7 million which will be amortized over periods ranging from 2 years to 5 years.

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

|  | Purchase Price
|  | Allocation
Total consideration | $ | 3,000
Allocation of purchase price |  |
Cash |  | 522
Accounts receivable |  | 1,346
Total current assets acquired |  | 1,868
Intangible assets |  | 7,749
Total assets acquired |  | 9,617
Accrued expenses and other liabilities |  | 1,711
Deferred tax liability |  | 1,891
Total liabilities acquired |  | 3,602
Net assets identifiable assets | $ | 6,015
Bargain purchase gain on acquisition | $ | 3,015

The application of the acquisition method of accounting resulted in a bargain purchase gain of approximately $3.0 million.

Pro forma results of Technolab have not been presented as the acquisition closed at the beginning of 2014 and therefore, the full year results of Technolab are included in the Company’s consolidated financial results. Technolab contributed total revenue of $10.3 million and contribution before depreciation, amortization, interest, corporate overhead allocation and taxes of $3.3 million.

51

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

15. Acquisition (continued)

The acquired intangible assets with definite lives are amortized over periods ranging from 2 to 5 years. The following table presents the intangible assets acquired from Technolab:

Category |  |  | Amount (in thousands) |  | Useful Life (in years)
Customer Base |  | $ | 4,727 |  | 5
Trade Name |  |  | 115 |  | 2
Customer Backlog |  |  | 2,031 |  | 2
Non-Compete |  |  | 876 |  | 5
|  | $ | 7,749 |  |

16. Geographic and Service Group Information

Revenue, which is primarily based on the country of the Company’s contracting entity is attributed to geographic areas as follows (in thousands):

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
Revenue: |  |  |  |  |  |  |  |  |
North America |  | $ | 218,719 |  | $ | 190,050 |  | $ | 179,539
International (primarily European countries) |  |  | 42,221 |  |  | 46,687 |  |  | 44,291
Total revenue |  | $ | 260,940 |  | $ | 236,737 |  | $ | 223,830

Long-lived assets are attributed to geographic areas as follows (in thousands):

|  |  | January 1, | January 2, |
|  |  | 2016 | 2015 |
Long-lived assets: |  |  |  |  |  |  |
North America |  | $ | 78,230 |  | $ | 80,152 |
International (primarily European countries) |  |  | 14,662 |  |  | 15,578 |
Total long-lived assets |  | $ | 92,892 |  | $ | 95,730 |

As of January 1, 2016, January 2, 2015 and December 27, 2013, foreign assets included $14.1 million, $15.0 million and $15.8 million, respectively, of goodwill related to the REL and Archstone acquisitions, in fiscal 2005 and 2009, respectively.

In the following table, The Hackett Group service group encompasses Benchmarking, Business Transformation and Executive Advisory groups, and includes EPM Technologies. The ERP Solutions group encompasses SAP ERP (in thousands):

|  | Year Ended
|  | January 1, |  | January 2, |  | December 27,
|  | 2016 |  | 2015 |  | 2013
The Hackett Group |  | $ | 221,341 |  | $ | 196,145 |  | $ | 184,112
ERP Solutions |  |  | 39,599 |  |  | 40,592 |  |  | 39,718
Total revenue |  | $ | 260,940 |  | $ | 236,737 |  | $ | 223,830

52

THE HACKETT GROUP, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

17. Quarterly Financial Information (unaudited)

The following table presents unaudited supplemental quarterly financial information for the years ended January 1, 2016 and January 2, 2015 (in thousands, except per share data):

|  | Quarter Ended
|  | April 3, 2015 |  | July 3, 2015 |  | October 2, 2015 |  | January 1, 2016
Total revenue |  | $ | 54,905 |  | $ | 59,423 |  | $ | 59,992 |  | $ | 60,261
Operating income (1) |  | $ | 4,635 |  | $ | 6,049 |  | $ | 4,943 |  | $ | 6,298
Income from continuing operations (1) |  | $ | 4,497 |  | $ | 5,940 |  | $ | 4,842 |  | $ | 6,237
Net income (1) |  | $ | 3,005 |  | $ | 3,691 |  | $ | 3,058 |  | $ | 4,055
Basic net income per common share (3) |  | $ | 0.11 |  | $ | 0.13 |  | $ | 0.11 |  | $ | 0.14
Diluted net income per common share (3) |  | $ | 0.10 |  | $ | 0.12 |  | $ | 0.10 |  | $ | 0.12
|  | Quarter Ended
|  | March 28, 2014 |  | June 27, 2014 |  | September 26, 2014 |  | January 2, 2015
Total revenue |  | $ | 49,418 |  | $ | 55,000 |  | $ | 54,550 |  | $ | 54,551
Operating income (2) |  | $ | 410 |  | $ | 3,966 |  | $ | 3,986 |  | $ | 4,224
Income from continuing operations (2) |  | $ | 287 |  | $ | 3,801 |  | $ | 3,815 |  | $ | 4,063
Net income (2) |  | $ | 405 |  | $ | 2,828 |  | $ | 2,936 |  | $ | 3,542
Basic net income per common share (3) |  | $ | 0.01 |  |  | 0.10 |  |  | 0.10 |  | $ | 0.13
Diluted net income per common share (3) |  | $ | 0.01 |  | $ | 0.09 |  | $ | 0.10 |  | $ | 0.12

| (1) |  | Fiscal quarters ended October 2, 2015 and January 1, 2016, each include $1.3 million of non-recurring, non-cash stock compensation expense related to the performance-based SARs awards tied to the achievement of the pro-forma EBITDA performance target.

| (2) |  | The fiscal quarter ended March 28, 2014, includes a bargain purchase gain from the acquisition of the Technolab EPM AMS of $3.0 million and restructuring costs of $3.6 million.

| (3) |  | 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.

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THE HACKETT GROUP, INC.

SCHEDULE II – VALUATION AND QUALIFYING ACCOUNTS AND RESERVES

YEARS ENDED JANUARY 1, 2016, JANUARY 2, 2015 AND DECEMBER 27, 2013

(in thousands)

|  | Balance at |  | Charge to |  |  |  |  |  |
|  | Beginning |  | Revenue/ |  |  |  |  | Balance at
Allowance for Doubtful Accounts |  | of Year |  | Expense |  | Write-offs |  | End of Year
Year Ended January 1, 2016 |  | $ | 1,330 |  |  | 694 |  |  | (143) |  | $ | 1,881
Year Ended January 2, 2015 |  | $ | 1,674 |  |  | 785 |  |  | (1,129) |  | $ | 1,330
Year Ended December 27, 2013 |  | $ | 1,251 |  |  | 742 |  |  | (319) |  | $ | 1,674

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ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE

On May 20, 2015, the Audit Committee of the Board of Directors of The Hackett Group, Inc. (the “Company” dismissed BDO USA, LLP (“BDO”) as the Company’s independent registered public accounting firm, effective immediately.

The audit reports of BDO on the consolidated financial statements of the Company as of and for the fiscal years ended January 2, 2015 and December 27, 2013 did not contain any adverse opinion or disclaimer of opinion, nor were they qualified or modified as to uncertainty, audit scope, or accounting principles.

During the fiscal years ended January 2, 2015 and December 27, 2013, and through May 20, 2015, there were (i) no “disagreements” as that term is defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions, between the Company and BDO on any matter of accounting principles or practices, financial statement disclosure or auditing scope or procedure, which disagreements, if not resolved to the satisfaction of BDO, would have caused BDO to make reference to the subject matter of the disagreements in its reports on the financial statements for such years, except for the disagreement described below and (ii) no “reportable events” as that term is defined in Item 304(a)(1)(v) of Regulation S-K, except for the material weakness identified below.

As disclosed in the Company’s Annual Report on Form 10-K for the fiscal year ended January 2, 2015 (the “2014 Form 10-K”), we acquired and accounted for certain assets and liabilities of Technolab International Corporation (“Technolab”) during the first quarter of 2014. No issues were raised regarding the Company’s accounting for this transaction by BDO during BDO’s initial review of the transaction during the first quarter. However, BDO’s position changed subsequent to fiscal year-end during the course of its annual audit. The Company’s management initially disagreed with the subsequent position taken by BDO related to the accounting for this transaction, but the Company ultimately accounted for the transaction in accordance with BDO’s subsequent position. The Company’s management concluded that the Company’s internal control over financial reporting was effective as of the end of the period covered by the 2014 Form 10-K. However, BDO’s report on management’s assessment on the Company’s internal control over financial reporting identified a material weakness specifically related to accounting for Technolab acquisition discussed above. The description of the material weakness identified by BDO and management’s assessment of the Company’s internal control over financial reporting contained in Item 9A of the 2014 Form 10-K are incorporated herein by reference. The Audit Committee discussed with BDO the disagreement over the accounting for the Technolab acquisition as well as the material weakness identified by BDO in its report. The Company has authorized BDO to respond fully to the inquiries of the successor independent registered accounting firm concerning the accounting for the Technolab acquisition and the related material weakness.

On May 22, 2015, following the conclusion of a competitive process managed by the Audit Committee, the Company engaged McGladrey LLP, now known as RSM US LLP (“RSM”), as its independent registered public accounting firm for the fiscal year ending January 1, 2016. During the fiscal years ended January 2, 2015 and December 27, 2013 and through May 22, 2015, neither the Company, nor anyone on its behalf, had consulted RSM with respect to (i) the application of accounting principles to a specified transaction, either completed or proposed, or the type of audit opinion that might be rendered on the Company’s consolidated financial statements, and neither a written report was provided to the Company nor oral advice was provided to the Company that RSM concluded was an important factor considered by the Company in reaching a decision as to the accounting, auditing or financial reporting issue; or (ii) any matter that was either the subject of a disagreement (as defined in Item 304(a)(1)(iv) of Regulation S-K and the related instructions) or a reportable event (as described in Item 304(a)(1)(v) of Regulation S-K).

ITEM 9A. CONTROLS AND PROCEDURES

The Company maintains disclosure controls and procedures (“DCP”) that are designed to ensure that information required to be disclosed by us in reports that we file or submit under the Securities Exchange Act of 1934, as amended (“the Exchange Act”), is recorded, processed, summarized, and reported within the time periods specified in the SEC rules and forms, and that such information is accumulated and communicated to the Company’s management, including its Chief Executive Officer (principal executive officer) and Chief Financial Officer (principal financial officer), as appropriate, to allow for timely decisions regarding required disclosure.

The Company, under the supervision and with the participation of the Company’s management, including the Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the design and operation of the Company’s DCP as of the end of the period covered by this report. Based on this evaluation, the Chief Executive Officer and the Chief Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by the Annual Report on Form 10-K.

Changes in internal control over financial reporting

There were no changes in our internal control over financial reporting identified in connection with the evaluation required by paragraph (d) of Exchange Act Rules 13a-15 or 15d-15 that occurred during the three months ended January 1, 2016 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

55

Management’s Report on Internal Control Over Financial Reporting

Our management is responsible for establishing and maintaining adequate internal control over financial reporting, as such term is defined in Exchange Act Rule 13a-15(f). Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the framework in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (COSO) as of and for the year ended January 1, 2016.

Based on our evaluation, utilizing the criteria set forth in “Internal Control – Integrated Framework issued by COSO in 2013,” our management concluded that our internal control over financial reporting was effective as of the end of the period covered by this Annual Report on Form 10-K.

The Company’s independent registered certified public accounting firm has audited our internal control over financial reporting as of January 1, 2016, and has expressed an unqualified opinion thereon.

56

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

The Hackett Group, Inc.

We have audited The Hackett Group, Inc.'s internal control over financial reporting as of January 1, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013. The Hackett Group, Inc.’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the company's internal control over financial reporting based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

A company's internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company's internal control over financial reporting includes those policies and procedures that (a) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (b) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (c) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company's assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

In our opinion, The Hackett Group, Inc. maintained, in all material respects, effective internal control over financial reporting as of January 1, 2016, based on criteria established in Internal Control — Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission in 2013.

We have also audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States), the consolidated balance sheet of The Hackett Group, Inc. as of January 1, 2016, and the related consolidated statements of operations, comprehensive income, shareholders' equity, and cash flows of The Hackett Group, Inc. for the year ended January 1, 2016 and our report dated March 16, 2016 expressed an unqualified opinion.

/s/ RSM US LLP

Fort Lauderdale, Florida

March 16, 2016

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PART III

ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE

Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for the 2016 Annual Meeting of Shareholders.

ITEM 11. EXECUTIVE COMPENSATION

Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for the 2016 Annual Meeting of Shareholders.

ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED STOCKHOLDER MATTERS

Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for the 2016 Annual Meeting of Shareholders.

ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE

Information responsive to this Item is incorporated herein by reference to the Company’s definitive proxy statement for the 2016 Annual Meeting of Shareholders.

ITEM 14. PRINCIPAL ACCOUNTING FEES AND SERVICES

Information appearing under the caption “Fees Paid to Independent Accountants” in the proxy statement for the 2016 Annual Meeting of Shareholders is hereby incorporated by reference.

PART IV

ITEM 15. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES

(a) The following documents are filed as a part of this Form:

1. Financial Statements

The consolidated financial statements filed as part of this report are listed and indexed on page 29. Schedules other than those listed in the index have been omitted because they are not applicable or the required information has been included elsewhere in this report.

2. Financial Statement Schedules

Schedule II — Valuation and Qualifying Accounts and Reserves is included in this report. Schedules other than those listed in the index have been omitted because they are not applicable or the information required to be set forth therein is contained, or incorporated by reference, in the consolidated financial statements of The Hackett Group, Inc. or notes thereto.

3. Exhibits: See Index to Exhibits on page 60.

The Exhibits listed in the accompanying Index to Exhibits are filed or incorporated by reference as part of this report.

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SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Miami, State of Florida, on March 16, 2016.

| THE HACKETT GROUP, INC.
| By: | /s/ Ted A. Fernandez
|  | Ted A. Fernandez
|  | Chief Executive Officer and Chairman of the Board

Pursuant to the requirements of the Securities Act of 1934, this Form 10-K has been signed by the following persons on behalf of the Registrant in the capacities and on the date indicated.

Signatures | Title | Date
/s/ Ted A. Fernandez | Chief Executive Officer and Chairman (Principal Executive Officer) | March 16, 2016
Ted A. Fernandez |
/s/ Robert A. Ramirez | Executive Vice President, Finance and Chief Financial Officer (Principal Financial and Accounting Officer) | March 16, 2016
Robert A. Ramirez |
/s/ David N. Dungan | Chief Operating Officer and Director | March 16, 2016
David N. Dungan |
/s/ Richard Hamlin | Director | March 16, 2016
Richard Hamlin |
/s/ John R. Harris | Director | March 16, 2016
John R. Harris |
/s/ Edwin A. Huston | Director | March 16, 2016
Edwin A. Huston |
/s/ Robert A. Rivero | Director | March 16, 2016
Robert A. Rivero |
/s/ Alan T. G. Wix | Director | March 16, 2016
Alan T. G. Wix |

59

INDEX TO EXHIBITS

Exhibit No. | Exhibit Description
3.1 | Second Amended and Restated Articles of Incorporation of the Registrant, as amended (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 29, 2000).
3.2 | Amended and Restated Bylaws of the Registrant, as amended.
3.3 | Articles of Amendment of the Third Amended and Restated Articles of Incorporation of the Registrant (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 28, 2007).
10.1 | Registrant’s 1998 Stock Option and Incentive Plan (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 (333-64542)).
10.2 | Amendment to Registrant’s 1998 Stock Option and Incentive Plan (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 28, 2001).
10.3 | Form of Employment Agreement entered into between the Registrant and Mr. Dungan (incorporated herein by reference to the Registrant’s Form 10-K for the year ended December 28, 2001).
10.4 | Form of Employment Agreement entered into between the Registrant and each of Messrs. Fernandez, Frank and Knotts (incorporated herein by reference to the Registrant’s Registration Statement on Form S-1 (333-48123)).
10.5 | AnswerThink Consulting Group, Inc. Employee Stock Purchase Plan, as amended (incorporated herein by reference to the Registrant’s Registration Statement on Form S-8 (333-108640)).
10.6 | Amendment to Registrant’s Employee Stock Purchase Plan (incorporated herein by reference to the Registrant’s Form 10-K/A filed on February 15, 2007).
10.9 | Amendment to Employment Agreement between Answerthink, Inc. and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 10-Q dated November 10, 2004).
10.10 | Amendment to Employment Agreement between Answerthink, Inc. and David N. Dungan (incorporated herein by reference to the Registrant’s Form 10-Q dated November 10, 2004).
10.12 | Amendment dated June 10, 2005 to Executive Agreement between Answerthink, Inc. and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 8-K dated June 16, 2005).

60

INDEX TO EXHIBITS

Exhibit No. | Exhibit Description

10.16 | Employment Agreement dated August 1, 2007 between the Registrant and Robert A. Ramirez (incorporated herein by reference to the Registrant’s Form 10-Q dated July 31, 2007).
10.17 | Third Amendment to Employment Agreement between the Registrant and Ted A. Fernandez (incorporated herein by reference to the Registrant’s Form 8-K dated January 2, 2009).
10.18 | Third Amendment to Employment Agreement between the Registrant and David N. Dungan (incorporated herein by reference to the Registrant’s Form 8-K dated January 2, 2009).
10.19 | Stock Appreciation Right Agreement dated March 11, 2013 between the Company and Ted A. Fernandez.
10.20 | Stock Appreciation Right Agreement dated March 11, 2013 between the Company and David N. Dungan.
10.21 | Credit Agreement dated February 21, 2012, and amended on August 27, 2013 and March 18, 2015, among The Hackett Group, Inc., the material domestic subsidiaries of Hackett named on the signature pages there to and Bank of America, N.A., as lender (incorporated herein by reference to the Registrant’s Form 8-K dated February 23, 2012).
21.1 | Subsidiaries of the Registrant (exhibits filed herewith).
23.1 | Consent of RSM US LLP (exhibits filed herewith)
23.2 | Consent of BDO USA, LLP (exhibits filed herewith)
31.2 | Certification by CFO pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
32 | Certification Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (exhibits filed herewith).
101.INS** | XBRL Instance Document
101.SCH** | XBRL Taxonomy Extension Schema
101.CAL** | XBRL Taxonomy Extension Calculation Linkbase
101.DEF** | XBRL Taxonomy Extension Definition Linkbase
101.LAB** | XBRL Taxonomy Extension Label Linkbase
101.PRE** | XBRL Taxonomy Extension Presentation Linkbase

**Pursuant to Rule 406T of Regulation S-T, these interactive data files are deemed not filed or part of a registration statement or prospectus for purposes of Sections 11 or 12 of the Securities Act of 1933 or Section 18 of the Securities Exchange Act of 1934 and otherwise are not subject to liability.

61