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Basis of Presentation and General Information | 12 Months Ended
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Jan. 01, 2021
Organization Consolidation And Presentation Of Financial Statements [Abstract] |
Basis of Presentation and General Information | 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, 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. Intercompany transactions and balances are eliminated upon consolidation. 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 2020, 2019, and 2018 ended on January 1, 2021, December 27, 2019, and December 28, 2018, respectively. References to a year included in the consolidated financial statements refer to a fiscal year rather than a calendar year. Cash The Company considers all short-term investments with maturities of three months or less to be cash equivalents to the extent that it places its temporary cash investments with high credit quality financial institutions. At times, such investments may be in excess of the F.D.I.C. insurance limits. 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 in the amount of $0.10 per share. The Company’s Board of Directors has been gradually increasing the dividend over the years. In 2018, 2019 and 2020, the Company’s Board of Directors approved an increase in the annual dividend to $0.34 per share, $0.36 per share, and $0.38 per share, respectively. In addition, during 2020, the Company’s Board of Directors approved the increase in the frequency of dividend payments to a quarterly basis. During 2020, the Company funded one semi-annual dividend that was declared in 2019 and three quarterly dividends declared in 2020, including the dividend declared in the fourth quarter of 2020. Subsequent to 2020, the Company’s Board of Directors approved the increase in the annual dividend from $0.38 to $0.40 per share to be paid on a quarterly basis and declared the first quarterly dividend of 2021. The dividend policy is reviewed periodically by the Board of Directors. 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 estimated 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. 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 Indefinite Lived 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 the 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 purchased assets and assumed liabilities 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 during the measurement period of up to one year after the closing date of an acquisition as information relative to closing date fair values become available. 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 global Benchmarking, Business Transformation, Strategy and Operations, Executive Advisory Programs and Robotics Process Automation) and Hackett Technology Solutions (including SAP ERP and SAP 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 market participant 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 2020 and 2019 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):
|  | The Hackett |  |  | Hackett Technology |  |  |  |  |
|  | Group |  |  | Solutions |  |  | Total |
Balance at December 28, 2018 |  | $ | 43,535 |  |  | $ | 40,672 |  |  | $ | 84,207 |
Foreign currency translation adjustment |  |  | 371 |  |  |  | — |  |  |  | 371 |
Balance at December 27, 2019 |  |  | 43,906 |  |  |  | 40,672 |  |  |  | 84,578 |
Foreign currency translation adjustment |  |  | 719 |  |  |  | — |  |  |  | 719 |
Balance at January 1, 2021 |  | $ | 44,625 |  |  | $ | 40,672 |  |  | $ | 85,297 |
1. Basis of Presentation and General Information (continued) Finite lived 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 the 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. Other intangible assets, included in other assets in the accompanying consolidated balance sheets, consist of the following (in thousands):
|  |  |  | January 1, |  |  | December 27, |
|  |  |  | 2021 |  |  | 2019 |
Gross carrying amount |  |  |  | $ | 27,269 |  |  | $ | 27,269 |
Accumulated amortization |  |  |  |  | (26,251 | ) |  |  | (25,274 | )
Foreign currency translation adjustment |  |  |  |  | 152 |  |  |  | 121 |
|  |  |  | $ | 1,170 |  |  | $ | 2,116 |
All of the Company’s intangible assets are expected to be fully amortized by the end of 2022. For the years ended January 1, 2021, December 27, 2019 and December 28, 2018, the Company recorded $1.0 million, $1.0 million and $2.4 million of amortization expense, respectively. The estimated future amortization expense of intangible assets as of January 1, 2021 is as follows: $0.9 million in 2021 and $0.3 million in 2022. See Note 15 for further discussion. Revenue Recognition The Company generates substantially all of its revenue from providing professional services to its clients. The Company also generates revenue from software licenses, software support and maintenance and subscriptions to its executive and best practices advisory programs. A single contract could include one or multiple performance obligations. For those contracts that have multiple performance obligations, the Company allocates the total transaction price to each performance obligation based on its relative standalone selling price. The Company determines the standalone selling price based on the respective selling price of the individual elements when sold separately. Revenue is recognized when control of the goods and services provided are transferred to the Company’s customers, in an amount that reflects the consideration it expects to be entitled to in exchange for those goods and services using the following steps: 1) identify the contract, 2) identify the performance obligations, 3) determine the transaction price, 4) allocate the transaction price to the performance obligations in the contract, and 5) recognize revenue as or when the Company satisfies the performance obligations. The Company typically satisfies its performance obligations for professional services over time as the related services are provided. The performance obligations related to software support, maintenance and subscriptions to its executive and best practice advisory programs are typically satisfied evenly over the course of the service period. Other performance obligations, such as software licenses, are satisfied at a point in time. The Company generates revenue under four types of billing arrangements: fixed-fee (including software license revenue); time-and-materials; executive and best practice advisory services; and software sales and software maintenance and support. In fixed-fee billing arrangements, which would also include contracts with capped fees, the Company agrees to a pre-established fee or fee cap in exchange for a predetermined set of professional services. The Company sets the fees based on its estimates of the costs and timing for completing the engagements. The Company generally recognizes revenue under fixed-fee or capped fee arrangements using a proportionate performance approach, which is based on work completed to-date as compared to estimates of the total services to be provided under the engagement. Estimates of total engagement revenue and cost of services are monitored regularly during the term of the engagement. If the Company’s estimates indicate a potential loss, such loss is recognized in the period in which the loss first becomes probable and reasonably estimable. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change. Time-and-material billing arrangements require the client to pay based on the number of hours worked by the Company’s consultants at agreed upon hourly rates. The Company recognizes revenue under time-and-material arrangements as the related services or goods are provided, using the right to invoice practical expedient which allows it to recognize revenue in the amount based on the number of hours worked and the agreed upon hourly rates. The customer is invoiced based on the contractual agreement between the parties, typically bi-weekly, monthly or milestone driven, with net thirty-day terms, however client terms are subject to change. 1. Basis of Presentation and General Information (continued) Advisory services contracts are typically in the form of a subscription agreement which allows the customer access to the Company’s executive and best practice advisory programs. There is typically a single performance obligation and the transaction price is the contractual amount of the subscription agreement. Revenue from advisory services contracts is recognized ratably over the life of the agreements. Customers are typically invoiced at the inception of the contract, with net thirty-day terms, however client terms are subject to change. The resale of software and maintenance contracts are in the form of SAP America software license or maintenance agreements provided by SAP America. SAP is the principal and the Company is the agent in these transactions as the Company does not obtain title to the software and maintenance which is sold simultaneously. The transaction price is the Company’s agreed-upon percentage of the software license or maintenance amount in the contract with the vendor. Revenue for the resale of software licenses is recognized upon contract execution and customer’s receipt of the software. Revenue from maintenance contracts is recognized ratably over the life of the agreements. The customer is typically invoiced at contract inception, with net thirty-day terms, however client terms are subject to change. Revenue before reimbursements excludes reimbursable expenses charged to clients. Reimbursements, which include travel and out-of-pocket expenses, are included in revenue, and an equivalent amount of reimbursable expenses is included in cost of service. The agreements entered into in connection with a project, whether time and materials-based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 30 days’ notice. In the event of termination, the client is contractually required to pay for all time, materials and expenses incurred by the Company through the effective date of the termination. In addition, from time to time the Company enters into agreements with its clients that limit its right to enter into business relationships with specific competitors of that client for a specific time period. These provisions typically prohibit the Company from performing a defined range of services which it might otherwise be willing to perform for potential clients. These provisions are generally limited to six to twelve months and usually apply only to specific employees or the specific project team. The payment terms and conditions in the Company’s customer contracts vary. The agreements entered into in connection with a project, whether time-and-materials-based or fixed-fee or capped-fee based, typically allow clients to terminate early due to breach or for convenience with 30 days’ notice. 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. Differences between the timing of billings and the recognition of revenue are recognized as either contract assets or contract liabilities in the accompanying consolidated balance sheets. Revenue recognized for services performed but not yet billed to clients are recorded as contract assets. Revenue recognized, but for which are not yet entitled to bill because certain events, such as the completion of the measurement period, are recorded as contract assets and included within contract assets. Client prepayments are classified as contract liabilities and recognized over future periods as earned in accordance with the applicable engagement agreement. See Note 3 for the accounts receivable and contract asset balances and see Note 5 for the contract liability balances. During the 12 months ended January 1, 2021, the Company recognized $9.2 million of revenue as a result of changes in the contract liability balance, as compared to $7.7 million for the twelve months ended December 27, 2019. The following table reflects the Company’s disaggregation of revenue before reimbursements from continuing operations for the twelve months ended January 1, 2021 and December 27, 2019:
|  | Year Ended |
|  | January 1, |  |  | December 27, |  |  | December 28, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Consulting |  | $ | 228,080 |  |  | $ | 257,423 |  |  | $ | 260,853 |
Software license sales |  |  | 6,730 |  |  |  | 3,414 |  |  |  | 3,670 |
Revenue before reimbursements from continuing operations |  | $ | 234,810 |  |  | $ | 260,837 |  |  | $ | 264,523 |
Capitalized Sales Commissions Sales commissions earned by the Company’s sales force are considered incremental and recoverable costs of obtaining a contract with a customer. These costs are deferred and then amortized as project revenue is recognized. The Company determined the period of amortization by taking into consideration the customer contract period, which is generally less than 12 months. Commission expense is included in Selling, General and Administrative Costs in the accompanying consolidated statements of operations. As of January 1, 2021 and 1. Basis of Presentation and General Information (continued) December 27, 2019, the Company had $1.5 million, and $1.6 million, respectively, of deferred commissions, of which $1.5 million and $1.4 million was amortized during the 12 months ended January 1, 2021 and December 27, 2019, respectively. No impairment loss was recognized relating to the capitalization of deferred commission. Practical Expedients The Company does not disclose the value of unsatisfied performance obligations for contracts with an original expected length of one year or less. The Company does not assess whether a contract has a significant financing component if the expectation at contract inception is such that the period between payment by the customer and the transfer of the promised goods or services to the customer will be less than one year. Sales tax collected from customers and remitted to the applicable taxing authorities is accounted for on a net basis, with no impact on revenue. Expense reimbursements that are billable to clients are included in total revenue and are substantially all billed as time-and-material billing arrangements. Therefore, the Company recognizes all reimbursable expenses as revenue as the related services are provided, using the right to invoice practical expedient. Reimbursable expenses are recognized as expenses in the period in which the expense is incurred. Any expense reimbursements that are billable to clients under fixed-fee billing arrangements are recognized in line with the proportionate performance approach. 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. Discontinued Operations The Company made the strategic decision to exit Company’s European REL Working Capital business at the end of fiscal year 2018. The sales of this business had been declining over several years prior to this decision as European countries experienced continued economic recoveries and improved cash balances. Companies were holding high cash reserves which drove working capital project sales of this group down across all of Europe. 1. Basis of Presentation and General Information (continued) As of January 1, 2021 and December 27, 2019, the Company did not have any carrying amounts of the major classes of assets and liabilities presented in discontinued operations in its consolidated balance sheet. The following table presents the gain and loss results for the Company’s discontinued operations (in thousands):
|  | Year Ended |
|  | January 1, |  |  | December 27, |  |  | December 28, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Revenue: |  |  |  |  |  |  |  |  |  |  |  |
Revenue before reimbursements |  | $ | - |  |  | $ | 75 |  |  | $ | 2,519 |
Reimbursements |  |  | — |  |  |  | 17 |  |  |  | 496 |
Total revenue |  |  | — |  |  |  | 92 |  |  |  | 3,015 |
Costs and expenses: |  |  |  |  |  |  |  |  |  |  |  |
Cost of service: |  |  |  |  |  |  |  |  |  |  |  |
Personnel costs before reimbursable expenses |  |  | 8 |  |  |  | 28 |  |  |  | 5,340 |
Reimbursable expenses |  |  | — |  |  |  | 17 |  |  |  | 496 |
Total cost of service |  |  | 8 |  |  |  | 45 |  |  |  | 5,836 |
Selling, general and administrative costs |  |  | 165 |  |  |  | 52 |  |  |  | 1,210 |
Total costs and operating expenses |  |  | 173 |  |  |  | 97 |  |  |  | 7,046 |
Loss from discontinued operations before income taxes |  |  | (173 | ) |  |  | (5 | ) |  |  | (4,031 | )
Income tax (benefit) expense |  |  | (1 | ) |  |  | 1 |  |  |  | (581 | )
Loss from discontinued operations |  | $ | (172 | ) |  | $ | (6 | ) |  | $ | (3,450 | )
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 regards 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, |  |  | December 27, |  |  | December 28, |
|  | 2021 |  |  | 2019 |  |  | 2018 |
Basic weighted average common shares outstanding |  |  | 29,988,244 |  |  |  | 29,804,721 |  |  |  | 29,378,643 |
Effect of dilutive securities: |  |  |  |  |  |  |  |  |  |  |  |
Unvested restricted stock units and common stock subject to vesting requirements issued to employees |  |  | 212,496 |  |  |  | 307,422 |  |  |  | 565,950 |
Common stock issuable upon the exercise of stock options and SARs |  |  | 2,203,796 |  |  |  | 2,340,450 |  |  |  | 2,385,813 |
Dilutive weighted average common shares outstanding |  |  | 32,404,536 |  |  |  | 32,452,593 |  |  |  | 32,330,406 |
Fair Value of Financial Instruments The Company’s financial instruments consist of cash, accounts receivable and contract assets, accounts payable and accrued expenses and other liabilities. As of January 1, 2021 and December 27, 2019, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s fair value due to the short-term nature and maturity of these instruments. The Company uses significant other observable market data or assumptions (Level 2 inputs as defined in accounting guidance) that it believes market participants would use in pricing debt. The fair value of the debt approximated its carrying amount using Level 2 inputs, due to the short-term variable interest rates based on market rates utilizing the market approach. 1. Basis of Presentation and General Information (continued) 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 2020, 2019 and 2018, 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 currency translation adjustments. Segment Reporting The Company engages in business activities in one operating segment, which provides business and technology consulting services. Recent Accounting Pronouncements In January 2017, the FASB issued ASU 2017-04, which eliminates Step 2 from the goodwill impairment test. For public companies, this update was effective for interim and annual periods beginning after December 15, 2019, with early adoption permitted for interim and annual goodwill impairment test with a measurement date after January 1, 2017. The adoption did not have a material impact on the Company’s consolidated financial statements. In January 2020, the Company adopted ASU 2016-13 which changes how entities measure credit losses for most financial assets, including trade accounts receivable. The adoption did not have a material impact on the Company’s consolidated financial statements. Reclassifications Certain prior period amounts in the consolidated financial statements, and notes thereto, have been reclassified to conform to current year presentation with no effect on net income or shareholder’s equity.

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