HACKETT GROUP, INC. - Quarter Report: 2008 March (Form 10-Q)

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UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 10-Q

For the quarterly period ended March 28, 2008

OR

For the transition period from              to             

Commission File Number 0-24343

The Hackett Group, Inc.

(Exact name of Registrant as specified in its charter)

(305) 375-8005

(Registrant’s telephone number, including area code)

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

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

Indicate by check mark whether registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).    YES  ¨    NO  x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date:

As of May 2, 2008, there were 41,170,844 shares of common stock outstanding.

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The Hackett Group, Inc.

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PART I-FINANCIAL INFORMATION

The Hackett Group, Inc.

CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

(unaudited)

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

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The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF OPERATIONS

(in thousands, except per share data)

(unaudited)

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

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The Hackett Group, Inc.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(in thousands)

(unaudited)

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

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The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

1. Basis of Presentation and General Information

Basis of Presentation

The consolidated financial statements of The Hackett Group, Inc. (“Hackett” or the “Company”) include the accounts of the Company and all of its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in 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 entities in accordance with Accounting Research Bulletin (“ARB”) No. 51, Consolidated Financial Statements, Statement of Financial Accounting Standards (“SFAS”) No. 94, Consolidation of All Majority-Owned Subsidiaries – an amendment of ARB No. 51, with related amendments of Accounting Principles Board (“APB”) Opinion No. 18 and ARB No. 43, Chapter 12, and the Financial Accounting Standards Board (“FASB”) Interpretation (“FIN”) No. 46, Consolidation of Variable Interest Entities, as revised.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by accounting principles generally accepted in the United States of America for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 28, 2007 included in the Annual Report Form 10-K filed by the Company with the Securities and Exchange Commission. The consolidated results of operations for the quarter ended March 28, 2008 are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the condensed consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard is effective for the Company’s fiscal year beginning December 29, 2007. In accordance with FASB Staff Position FAS No. 157 (“FSP No. 157-2”), Effective Date of FASB Statement No. 157, the FASB has deferred the implementation of the provisions of SFAS No. 157 relating to nonfinancial assets and liabilities until January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on the Company’s results of operations, financial position or liquidity.

At March 28, 2008, the Company’s financial instruments were carried at fair value in the consolidated balance sheet. The fair value of the Company’s short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other liabilities, equaled the respective carrying value due to the short-term nature of these instruments. The fair value of the Company’s investment in the Columbia Strategic Cash Portfolio (“Portfolio”) was based on Portfolio information available to the Company, the market outlook, and the expected timing of the remaining redemptions (see Note 6 for further detail on the Portfolio.)

2. Net Income (Loss) Per Common Share

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

Net income (loss) per common share assuming dilution is computed by dividing net income (loss) by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

Potentially dilutive shares were excluded from the diluted loss per share calculation for the quarter ended March 30, 2007 as their effects would have been anti-dilutive to the net loss incurred by the Company.

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The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

2. Net Income (Loss) Per Common Share (continued)

The following table reconciles basic and diluted weighted average shares:

Approximately 1.2 million stock options were excluded from the computations of diluted net income per common share for the quarter ended March 28, 2008, as their exercise price was higher than the Company’s average stock price.

3. Comprehensive Gain (Loss)

The Company accounts for comprehensive gain (loss) under SFAS No. 130, Reporting Comprehensive Income. Comprehensive gain (loss) is summarized below (in thousands):

4. Collections from Misappropriation

As described in the Company’s Form 8-K filed on November 1, 2006, in October 2006 the Company learned of a misappropriation by its former UK disbursement agent which related to funds earmarked for payroll taxes due to the United Kingdom Inland Revenue. The Company and its former disbursement agent agreed to settlement terms that resulted in the receipt of an initial cash payment of $350 thousand in January 2007 and the receipt of the final cash payment of $2.3 million in October 2007. These receipts were accounted for in collections from misappropriation in the consolidated statements of operations in the period in which they were received.

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The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

5. Restructuring

The Company recorded restructuring costs of $10.9 million and $5.6 million in fiscal years 2002 and 2001, respectively, for reductions in consultants and functional support personnel and for the closure and consolidation of facilities and related exit costs. These actions were taken as a result of the decline in demand for technology services throughout 2001 and 2002. The Company took steps to reduce its costs to better align its overall cost structure and organization with anticipated demand for its services.

In 2004 and 2003, the Company recorded restructuring costs of $3.7 million and $4.9 million, respectively, to increase existing reserves to account for potentially higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease excess facilities. The 2004 and 2003 restructuring costs consisted of additions of $1.8 million and $3.1 million to the 2002 restructuring accrual and $1.9 million and $1.8 million to the 2001 restructuring accrual, respectively. Also in 2004, the 2002 restructuring accrual was reduced by $370 thousand relating to the final settlement of a lease obligation which was recorded as income from discontinued operations in the consolidated statement of operations for year ended December 31, 2004.

In 2005, the Company recorded restructuring costs of $2.9 million which related to $1.1 million for the consolidation of additional facilities and related exit costs not included in previously established reserves, primarily as a result of the REL Consultancy Group (“REL”) acquisition on November 29, 2005, and $1.8 million for increases in previously established reserves in 2002 and 2001 for the closure and consolidation of facilities, of which $1.1 million specifically related to the increase of previously established reserves in order to reflect the negotiated buyout of a New York City lease obligation. As a result of the buyout, the Company was fully released from $20.0 million of future lease obligations, assigned two subleases to the lessor, wrote-off a $1.4 million receivable from the lessor, and paid $3.1 million in cash to the lessor. The remaining $700 thousand related to increases in the reserves to account for higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease facilities based on current market conditions. The 2005 restructuring costs of $1.8 million related to previously established reserves, which consisted of additions of $1.2 million and $600 thousand to the 2002 and 2001 restructuring accruals, respectively.

In 2006, the Company recorded restructuring costs of $6.3 million, which was comprised of $2.8 million relating to the 2005 restructuring for the consolidation of additional facilities and related exit costs primarily as a result of the REL acquisition, and $3.5 million for increases in previously established reserves in 2002 and 2001 for the closure and consolidation of facilities to account for higher estimated losses on the sublease of facilities as a result of lower than expected sublease rates and longer than expected time estimates to sublease facilities based on current market conditions. Included in the $2.8 million is a further reduction of occupied space in our technology-focused facility in Philadelphia and related severance costs for a senior executive as the Company’s primary business model shifted to a proprietary best practice and intellectual capital and strategic advisory services firm.

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The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

5. Restructuring (continued)

The following tables set forth the detail and activity in the restructuring expense accruals during the quarter ended March 28, 2008 (in thousands):

2001 Restructuring Accrual

6. Marketable Investments

As of March 28, 2008 and December 28, 2007, the Company had $4.5 million and $7.0 million, respectively, in Bank of America’s Columbia Strategic Cash Portfolio (“Portfolio”). On December 7, 2007, the Portfolio was closed for redemptions to new investors and is currently under liquidation.

During the quarter ended March 28, 2008, the Company received redemptions from the Portfolio of 2.5 million shares, or 31% of its investment, for approximately $2.5 million or $0.99 per share (par value representing $1.00). Since the closing of the Portfolio, the Company has received total redemptions of 3.3 million shares, or 40% of its investment, for $3.2 million or $0.98 per share. The Portfolio continues to accrue and pay interest which the Company is recording as income only after the collection of the interest is certain.

Based on Portfolio information available to the Company, the market outlook, and the expected timing of the remaining redemptions, the Company has estimated the fair value of the remaining Portfolio shares to be $0.94 per share, consistent with the Company’s estimate of the Portfolio fair value at December 28, 2007. As a result of its estimation of the fair value of the Portfolio, the Company recorded a realized loss on the marketable investments of $450 thousand in the quarter ended December 28, 2007. No impairment was recorded in the quarter ended March 28, 2008.

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The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

7. Accounts Receivable and Unbilled Revenue, Net

Accounts receivable and unbilled revenues, net consisted of the following (in thousands):

Unbilled revenue represents revenue for services performed that have not been invoiced, offset by uncollected advanced billings.

8. Stock Based Compensation

During the quarter ended March 28, 2008, the Company issued 905,108 restricted stock units at a weighted average grant-date fair value of $3.61. Additionally, during the quarter ended March 28, 2008, 15,000 restricted stock units and common stock subject to vesting requirements were forfeited at a weighted average grant-date fair value of $4.66. As of March 28, 2008, the Company had 2,017,789 restricted stock units outstanding at a weighted average grant-date fair value of $3.78.

9. Shareholders’ Equity

Treasury Stock

During the quarter ended March 28, 2008, the Board of Directors approved the repurchase of an additional $5.0 million of the Company’s common stock, thereby increasing the total approval under the Company’s share repurchase program to $45.0 million. Under the repurchase plans, 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. During the quarter ended March 28, 2008, the Company repurchased approximately 1.8 million shares of its common stock at an average price of $3.81, for a total cost of approximately $6.8 million. As of March 28, 2008, the Company has repurchased approximately 11.7 million shares of its common stock at an average price of $3.49 per share, since inception, leaving $4.3 million available under the Company’s buyback program.

Subsequent to March 28, 2008, the Board of Directors approved the repurchase of an additional $5.0 million of the Company’s stock, thereby increasing the total approval for repurchase to $50.0 million.

10. 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 financial position, cash flows or results of operations of the Company.

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The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (continued)

(unaudited)

11. Geographic and Group Information

Revenues were attributed to geographic areas as follows (in thousands):

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

As of March 28, 2008 and December 28, 2007, foreign assets included $18.9 million and $18.8 million, respectively, of goodwill and intangible assets related to the REL acquisition in November 2005.

The Company’s revenue was derived from the following groups (in thousands):

12. Reclassifications

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

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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 business and 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 impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to attract additional and retain existing business, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding our industry, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable, risks of competition, price and margin trends, foreign currency fluctuations and changes in general economic conditions and interest rates. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended December 28, 2007. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise.

OVERVIEW

The Hackett Group, Inc. (“Hackett”), formerly known as Answerthink, Inc. prior to January 1, 2008, 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 that empirically define and enable world-class enterprise performance. Only Hackett empirically defines world-class performance in sales, general and administrative and supply chain activities with analysis gained through more than 4,000 benchmark studies over 16 years at 2,700 of the world’s leading companies.

Hackett’s combined capabilities include business advisory programs, benchmarking, business transformation, working capital management and technology solutions, with corresponding offshore support. Hackett was formed on April 23, 1997.

In the following discussion, “Hackett” represents our total Company, “The Hackett Group” encompasses our Benchmarking, Business Transformation and Executive Advisory groups, and “Hackett Technology Solutions” encompasses our technology groups, including SAP, Oracle and Hyperion.

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Results of Operations

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to revenues of such results.

Quarter Ended March 28, 2008 versus Quarter Ended March 30, 2007

Revenues. Revenues for the quarter ended March 28, 2008 increased 10% to $43.8 million from $39.9 million in the quarter ended March 30, 2007. The following table summarizes gross revenue:

The Hackett Group revenues increased 31%, or $7.1 million, to $30.0 million in the quarter ended March 28, 2008, compared to $22.9 million in the quarter ended March 30, 2007. This growth was primarily attributable to a 35%, or $6.7 million, increase in our Benchmarking and Business Transformation group in the quarter ended March 28, 2008 from the quarter ended March 30, 2007. The increase in The Hackett Group revenue was mostly a result of a change in our go-to-market strategy beginning in early 2007 with the introduction of a new transformational benchmark which integrates a benchmark with a strategic transformation plan. As a result, we have seen a steady increase in the average size of our engagements since the beginning of 2007 through March 28, 2008. During the quarter ended March 28, 2008, one client accounted for 7% of our total revenues, compared to the quarter ended March 30, 2007 in which no customer accounted for greater than 3% of our total revenues.

Additionally, The Hackett Group continued to realize strong growth in Europe with a 39% increase in revenues in the quarter ended March 28, 2008, compared to the quarter ended March 30, 2007. The Hackett Group European revenues accounted for 31% of The Hackett Group total revenues in the quarter ended March 28, 2008, compared to 29% in the quarter ended March 30, 2007.

The revenue increases in The Hackett Group were offset by revenue decreases in Hackett Technology Solutions of 18%, or $3.1 million, to $13.9 million in the quarter ended March 28, 2008, compared to $17.0 million in the quarter ended March 30, 2007. The decrease in revenues in Hackett Technology Solutions was primarily due to the lower revenues from our Oracle group.

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Reimbursements as a percentage of revenues during the quarters ended March 28, 2008 and March 30, 2007 were comparable at 10% and 9%, respectively.

Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants and reimbursable expenses associated with projects. Cost of service before reimbursable expenses increased 5% to $27.5 million in the quarter ended March 28, 2008 from $26.3 million in the quarter ended March 30, 2007. Cost of service as a percentage of revenue was 63% in the quarter ended March 28, 2008 compared to 66% in the quarter ended March 30, 2007. This decrease is primarily due to The Hackett Group’s higher cost per professional and headcount, which is consistent with its revenue growth, partially offset by headcount reductions in Hackett Technology Solutions.

The growth in The Hackett Group revenues has resulted in a favorable impact to net income, as The Hackett Group revenues realized a 43% gross margin for the quarter ended March 28, 2008, compared to Hackett Technology Solutions which realized a 23% gross margin for the same period.

Selling, General and Administrative. Selling, general and administrative costs decreased 24% (excluding foreign currency translation gains 17%) to $12.6 million in the quarter ended March 28, 2008 from $16.5 million in the quarter ended March 30, 2007, primarily from cost containment incentives initiated in early 2007 resulting in the re-alignment of the sales force and revised incentive compensation plans, other general and administrative headcount reductions, and higher gains on foreign currency translation. Selling, general and administrative costs as a percentage of revenues decreased to 29% in the quarter ended March 28, 2008 from 41% in the quarter ended March 30, 2007.

Collections from Misappropriation. Collections from misappropriation of $350 thousand for the quarter ended March 28, 2007, related to collections received on funds that were misappropriated by our former UK disbursement agent. We learned of a misappropriation by our former UK disbursement agent in 2006, which related to funds earmarked for payroll taxes due to the United Kingdom Inland Revenue.

We agreed to settlement terms with our former disbursement agent that resulted in the receipt of an initial cash payment of $350 thousand in January 2007 and the receipt of the final cash payment of $2.3 million in October 2007. These receipts were accounted for in collections from misappropriation, in the consolidated statements of operations in the period in which they were received.

Income Taxes. We recorded income taxes of $107 thousand for the quarter ended March 28, 2008, which reflected estimated annual tax rates of 3% for certain U.S. federal and state taxes. For the quarter ended March 30, 2007, we recorded income taxes of $67 thousand which reflected estimated annual tax rates of 3% for certain U.S. federal and state taxes.

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Liquidity and Capital Resources

We have funded our operations primarily with cash flows generated from operations and the proceeds from our initial public offering. At March 28, 2008 and December 28, 2007, we had $20.2 million and $20.1 million, respectively, classified in cash and cash equivalents in the accompanying consolidated balance sheets, and we had $600 thousand at March 28, 2008 and December 28, 2007 on deposit with a financial institution as collateral for letters of credit classified as restricted cash in the accompanying consolidated balance sheets. At March 28, 2008 and December 28, 2007, we had $4.5 million and $7.0 million, respectively, in Bank of America’s Columbia Strategic Cash Portfolio (“Portfolio”). Prior to December 28, 2007, the Portfolio was classified as cash and cash equivalents and was reclassified to marketable investments at December 28, 2007 and for the prior periods due to the liquidation of the Portfolio and suspension of all redemptions (see Note 6 to the consolidated financial statements for further detail.)

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

Net cash provided by operating activities was $4.7 million for the quarter ended March 28, 2008, compared to net cash provided by operating activities of $4.2 million for the quarter ended March 30, 2007. During the quarter ended March 28, 2008, net cash provided by operating activities was primarily attributable to earnings net of non-cash items including foreign currency gains, depreciation and amortization expense and non-cash stock compensation. Additionally, we had increases in accounts payable due to the timing of trade payables and increases in accrued expenses. These increases were offset by lower net collections of accounts receivable and unbilled revenue of $1.6 million, which resulted in an increase of six days in Days Sales Outstanding from December 28, 2007.

During the quarter ended March 30, 2007, net cash provided by operating activities was primarily attributable to the collections of accounts receivable and unbilled revenue of $6.3 million, which resulted in a decrease in Days Sales Outstanding of 14 days from December 29, 2006. This increase was primarily offset by higher prepaid expenses and other current assets which was mostly related to prepaid insurance, a decrease in accounts payable due to the timing of trade payables, and a decrease in accrued expenses and other liabilities, primarily due to a decrease of accrued commissions, bonus and professional fees, which were mostly offset by higher salary accruals.

Net cash provided by investing activities was $2.0 million for the quarter ended March 28, 2008, compared to net cash used in investing activities of $4.7 million for the quarter ended March 30, 2007. Cash provided by investing activities in the quarter ended March 28, 2008 was primarily attributable to $2.5 million of redemptions of marketable investments, partially offset by $0.5 million purchases related to computer software and equipment.

Cash used in investing activities during the quarter ended March 30, 3007 was primarily attributable to $4.5 million net purchases of marketable investments and $0.2 million for the purchase of property and equipment.

Net cash used in financing activities was $6.6 million for the quarter ended March 28, 2008, compared to cash provided by financing activities of $24 thousand for the quarter ended March 30, 2007. Cash used in financing activities in the quarter ended March 28, 2008 was primarily attributable to the repurchase of 1,783,907 of our common stock, at an average price of $3.81 per share.

During the quarter ended March 30, 2007, cash provided by financing activities was primarily attributable to the exercise of stock options.

During the quarter ended March 28, 2008, the Board of Directors approved the repurchase of an additional $5.0 million of our common stock, thereby increasing the total approval for the share repurchase plan to $45.0 million. Under the repurchase plan, we may buy back shares from time to time either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the quarter ended March 28, 2008, we repurchased approximately 1.8 million

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shares at an average price of $3.81, for a total cost of approximately $6.8 million. As of March 28, 2008, we have repurchased approximately 11.7 million shares of our common stock at an average price of $3.49 per share, since inception, leaving $4.3 million available under our share buyback program. Subsequent to March 28, 2008, our Board of Directors approved the repurchase of an additional $5.0 million, thereby increasing the total approval for repurchase to $50.0 million.

We currently believe that available funds and cash flows generated by operations, if any, will be sufficient to fund our working capital and capital expenditure requirements for at least the next 12 months. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.

Recently Issued Accounting Standards

In September 2006, the FASB issued SFAS No. 157, Fair Value Measurements. This standard defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles, and expands disclosures about fair value measurements. This standard is effective for our fiscal year beginning December 29, 2007. In accordance with FASB Staff Position FAS No. 157 (“FSP No. 157-2”), Effective Date of FASB Statement No. 157, the FASB has deferred the implementation of the provisions of SFAS No. 157 relating to nonfinancial assets and liabilities until January 1, 2009. The adoption of SFAS No. 157 did not have a material impact on our results of operations, financial position, or liquidity.

At March 28, 2008, our financial instruments were carried at fair value in the consolidated balance sheet. The fair value of our short-term financial instruments, including cash and cash equivalents, accounts receivable, accounts payable and other liabilities, equaled the respective carrying value due to the short-term nature of these instruments. The fair value of our investment in the Portfolio was based on Portfolio information available to us, the market outlook, and the expected timing of the remaining redemptions (see Note 6 in the notes to consolidated financial statements for further detail on the Portfolio.)

At March 28, 2008, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

We invest only with high credit quality issuers and do not use derivative financial instruments in our investment portfolio. At March 28, 2008, we had $4.5 million in Bank of America’s Columbia Strategic Cash Portfolio (“Portfolio”) which was closed to redemptions and to new investors effective December 7, 2007, and which is currently under liquidation. We have recorded the Portfolio at fair market value in the accompanying consolidated balance sheets which includes an estimated realized loss of $450 thousand which was recorded in 2007. Based on the market outlook and information relating to the Portfolio there may be further declines in the fair value of the Portfolio. To the extent we determine there is a further decline in fair value, we will recognize additional losses in future periods up to the aggregate amount of our investment (see Note 6 in the consolidated financial statements for further detail). No additional impairment was recorded for the quarter ended March 28, 2008.

Exchange Rate Sensitivity

We face exposure to adverse movements in foreign currency exchange rates, as a portion of our revenues, expenses, assets and liabilities are denominated in currencies other than the U.S. Dollar, primarily the British Pound and the Euro. 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.

Evaluation of Disclosure Controls and Procedures

As of the end of the period covered by this report, we carried out an evaluation, under the supervision and with the participation of management, including our Chief Executive Officer (“CEO”) and Chief Financial Officer (“CFO”), of the effectiveness of the design and operation of our disclosure controls and procedures (“Disclosure Controls”) pursuant to Rule 13a-14(c) and Rule 15d-14(c) under the Securities Exchange Act of 1934. Based upon that evaluation, the CEO and CFO concluded that our Disclosure Controls are effective in timely alerting them to material information required to be included in our periodic SEC filings.

Limitations on the Effectiveness of Controls

Our management, including our CEO and CFO, does not expect that our Disclosure Controls and internal controls will prevent all error and all fraud. A control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are

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resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within our Company have been detected. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control.

Changes in Internal Controls

There were no changes in our internal controls over financial reporting that occurred during the period covered by this Quarterly Report on Form 10-Q that have materially affected, or are reasonably likely to materially affect, our internal controls over financial reporting.

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PART II-OTHER INFORMATION

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 financial position cash flows or results of operations.

During the quarter ended March 28, 2008, the Company repurchased 1,783,907 shares of its common stock at a cost of approximately $6.8 million, under the Company’s share repurchase program approved by the Board of Directors in 2002. All repurchases were 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 during the period covered by the table, nor was any determination made by the Company to suspend or cancel purchases under the program.

Issuer Purchases of Equity Securities

None.

See Index to Exhibits on page 20, which is incorporated herein by reference.

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

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

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INDEX TO EXHIBITS

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