HACKETT GROUP, INC. - Quarter Report: 2013 September (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended September 27, 2013

OR

oTRANSITION 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)

 

 

 

 

(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  o 

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

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

 

 

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

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

 

As of October 30, 2013, there were 30,687,903 shares of common stock outstanding.

 

 

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The Hackett Group, Inc.

 

TABLE OF CONTENTS

 

 

 

 

 

 

 

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PART I — FINANCIAL INFORMATION

ITEM 1.FINANCIAL STATEMENTS

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 COMPREHENSIVE INCOME

(in thousands)

(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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1. Basis of Presentation and General Information

Basis of Presentation

The accompanying consolidated financial statements of The Hackett Group,  Inc. (“Hackett” or the “Company”) have been prepared in accordance with accounting principles generally accepted in the United States of America (“U.S. GAAP”) and include the Company’s accounts and those of its wholly-owned subsidiaries which the Company is required to consolidate. All intercompany transactions and balances have been eliminated in consolidation.

In the opinion of management, the accompanying consolidated financial statements reflect all normal and recurring adjustments which are necessary for a fair presentation of the Company’s financial position, results of operations, and cash flows as of the dates and for the periods presented. The consolidated financial statements have been prepared pursuant to the rules and regulations of the Securities and Exchange Commission (“SEC”) regarding interim financial reporting. Accordingly, these statements do not include all the disclosures normally required by U.S. GAAP for annual financial statements and should be read in conjunction with the consolidated financial statements and notes thereto for the year ended December 28, 2012, included in the Annual Report on Form 10-K filed by the Company with the SEC. The consolidated results of operations for the quarter and nine months ended September 27, 2013, are not necessarily indicative of the results to be expected for any future period or for the full fiscal year.

Use of Estimates

The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes. Actual results could differ from those estimates.

Fair Value

The Company’s financial instruments consist of cash and cash equivalents, restricted cash, accounts receivable and unbilled revenue, accounts payable, accrued expenses and other liabilities and debt. As of September 27, 2013 and December 28, 2012, the carrying amount of each financial instrument, with the exception of debt, approximated the instrument’s respective fair value due to the short-term nature and maturity of these instruments.

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

Recently Issued Accounting Standards

In March 2013, the FASB issued guidance on a parent company’s accounting for the cumulative translation adjustment upon de-recognition of certain subsidiaries or groups of assets within a foreign entity or of an investment in a foreign entity, which amends current accounting guidance on foreign currency matters. This guidance requires that the entire amount of a cumulative translation adjustment related to an entity’s investment in a foreign entity be released when there has been a: (i) sale of a subsidiary or group of net assets within a foreign entity and the sale represents the substantially complete liquidation of the investment in the foreign entity, (ii) loss of a controlling financial interest in an investment in a foreign entity, and (iii) step acquisition for a foreign entity. This guidance will be effective for the Company beginning in the first quarter of 2014. The Company does not expect the adoption to have a material impact on its consolidated financial statements.

In July 2013, the FASB issued guidance for the financial statement presentation of an unrecognized tax benefit when a net operating loss carryforward, a similar tax loss, or a tax credit carryforward exists. This guidance will be effective for the Company beginning in the first quarter of 2014. The Company does not expect the adoption to have a material impact 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.

 

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2. Net Income per Common Share

Basic net income per common share is computed by dividing net income by the weighted average number of common shares outstanding during the period. With regard to common stock subject to vesting requirements and restricted stock units issued to the Company’s employees and non-employee members of its Board of Directors, the calculation includes only the vested portion of such stock and units.

Dilutive net income per common share is computed by dividing net income by the weighted average number of common shares outstanding, increased by the assumed conversion of other potentially dilutive securities during the period.

The following table reconciles basic and dilutive weighted average common shares:

 

 

 

Approximately 0.8 million and 3.9 million shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended September 27, 2013 and September 28, 2012, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share. This decrease is attributable to the conversion of 2.9 million performance-based stock options, granted during the quarter ended March 30, 2012, into stock appreciation rights (“SARs”), which will be settled in cash, Company stock or any combination thereof, at the Company’s discretion (see Note 6).

 

3. Accounts Receivable and Unbilled Revenue, Net

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

 

 

 

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

 

4. Credit Facility

On February 21, 2012, the Company entered into a credit agreement with Bank of America, N.A. ("Bank of America"), pursuant to which Bank of America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $30.0 million pursuant to a five-year term loan (the “Term Loan”), which was used to finance the Company's $55.0 million tender offer for its shares in March 2012  (see Note 7).  

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4. Credit Facility (continued)

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 (see Note 7). The Credit Agreement was amended and restated to:

As of September 27, 2013, the Company had $15.0 million principal amount outstanding on the Amended Term Loan and a zero balance outstanding on the Revolver. Subsequent to September 27, 2013, the Company incurred an additional $7.0 million in principal amount of indebtedness under the Amended Term Loan, for a total outstanding principal balance of $22.0 million as of October 30, 2013 (see Note 7).

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

The interest rates per annum applicable to loans under the Credit Facility will be, at the Company’s option, equal to either a base rate or a LIBOR base rate, plus an applicable margin percentage. The applicable margin percentage is based on the consolidated leverage ratio, as defined in the Credit Agreement. As of September 27, 2013, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 1.00% per annum, in the case of base rate advances.

The Term Loan requires amortization principal payments in equal quarterly installments beginning December 31, 2013 through August 27, 2018. The Company is subject to certain covenants and exceptions, including total consolidated leverage, fixed cost coverage and liquidity requirements, as defined in the Credit Agreement.

 

5. Discontinued Operations

During the quarter ended March 29, 2013, the Company exited the Oracle ERP implementation business. This transaction was not material to the Company’s consolidated financial statements.

 

6. Stock Based Compensation

During the nine months ended September 27, 2013, the Company issued 1,253,206 restricted stock units at a weighted average grant-date fair value of $4.67 per share. As of September 27, 2013, the Company had 2,983,241 restricted stock units outstanding at a weighted average grant-date fair value of $4.16 per share. As of September 27, 2013, $8.0 million of total restricted stock unit compensation expense related to unvested awards had not been recognized and is expected to be recognized over a weighted average period of 1.9 years.

As of September 27, 2013, the Company had 314,850 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $3.43 per share. As of September 27, 2013, $0.2 million of compensation expense related to common stock subject to vesting requirements had not been recognized and is expected to be recognized over a weighted average period of less than one year. 

On February 8, 2012, the Compensation Committee approved the fiscal year 2012 through 2015 equity compensation target for the Company’s 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 $0.96. 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. 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.

In March of 2013 these performance-based stock option grants were surrendered by the Company’s Chief Executive Officer and Chief Operating Officer and replaced with performance-based SARs, equal to the number of options. The terms and conditions and the specific performance targets applicable to the SARs are the same to those applicable to the replaced options, with the exception that the SARs will be settled in cash, stock or any combination thereof, at the Company’s discretion.

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6. Stock Based Compensation (continued)

Although the targets for the performance-based SARs have not been achieved as of September 27, 2013, the Company has recorded $0.1 million and $0.4 million of compensation expense for the quarter and nine months ended September 27, 2013, respectively, and $0.2 million and $0.5 million for the quarter and nine months ended September 28, 2012, respectively, related to these SARs.

 

7. 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") 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 3.1% 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 4).    

On March 21, 2012, the Company completed a tender offer to purchase 11.0 million shares of its common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses relating to the tender offer. The 11.0 million shares accepted for purchase represented approximately 27% of the Company’s issued and outstanding shares of common stock at that time.

Share Repurchase Plan

Under the Company’s share repurchase plan, the Company may buy back shares of its outstanding stock either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the quarter ended September 27, 2013, the Company did not buy back any shares under its share repurchase plan. During the nine months ended September 27, 2013, the Company repurchased approximately 124 thousand shares of its common stock at an average price of $4.80, for a total cost of approximately $594 thousand.  As of September 27, 2013, the Company had approximately $5.0 million available under its share repurchase plan authorization.

Subsequent to September 27, 2013, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the program size to $85.0 million, and leaving $10.0 million available under its share repurchase plan authorization.

 

8. Litigation

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

 

9. Geographic and Group Information

Revenue is primarily based on the country of the contracting entity and was attributed to the following geographical areas (in thousands):

 

 

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9. Geographic and Group Information (continued)

Long-lived assets are attributable to the following geographic areas (in thousands):

 

 

 

As of September 27, 2013, foreign assets included $15.5 million of goodwill related to the Archstone and REL acquisitions. As of December 28, 2012, foreign assets included $15.6 million of goodwill related to the REL and Archstone acquisitions and $0.1 million of intangible assets related to the Archstone acquisition.

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

 

 

 

 

 

10. Subsequent Events

Subsequent to September 27, 2013, the Company completed a tender offer in which it repurchased 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  (see Note 7).

Subsequent to September 27, 2013, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the program size to $85.0 million, and leaving $10.0 million available under its share repurchase plan authorization.

On November 5, 2013, the Company announced that its Board of Directors declared an annual cash dividend of $0.10 per common share payable to holders of record on December 10, 2013. The dividend will be paid on December 20, 2013.

 

 

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ITEM 2.MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q includes “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations reflected in such forward-looking statements will turn out to be correct. Factors that impact such forward-looking statements include, among others, our ability to effectively integrate acquisitions into our operations, our ability to retain existing business, our ability to attract additional business, our ability to effectively market and sell our product offerings and other services, the timing of projects and the potential for contract cancellation by our customers, changes in expectations regarding the business consulting and information technology industries, our ability to attract and retain skilled employees, possible changes in collections of accounts receivable due to the bankruptcy or financial difficulties of our customers, risks of competition, price and margin trends, foreign currency fluctuations and changes in general economic conditions, interest rates and our ability to obtain debt financing through additional borrowings under an amendment to our existing credit facility. An additional description of our risk factors is set forth in our Annual Report on Form 10-K for the year ended December 28, 2012. We undertake no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, except as required by law.

OVERVIEW

The Hackett Group, Inc. (“Hackett” or the “Company”) is a leading strategic advisory and technology consulting firm that enables companies to achieve world-class business performance. By leveraging the proprietary Hackett benchmarking database, the world’s leading repository of enterprise business process performance metrics and best practice intellectual capital, our business and technology solutions help clients optimize performance and returns on business transformation investments. Only Hackett empirically defines world-class performance in sales, general and administrative and supply chain activities with analysis gained through more than 8,500 benchmark studies over 20 years at over 3,500 of the world’s leading companies.

In the following discussion, “The Hackett Group” encompasses our Benchmarking, Business Transformation, Executive Advisory and Enterprise Performance Management ("EPM") groups. “ERP Solutions” encompasses our SAP ERP Technology group.

During the quarter ended March 29, 2013, we exited the Oracle ERP implementation business. The transaction was not material to our consolidated financial statements, however, the following information has been recast to exclude activity related to the business.

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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):

 

 

Revenue. We are a global company with operations located primarily in the United States and Western Europe. Our revenue is denominated in multiple currencies, primarily the U.S. Dollar, British Pound, Euro and Australian Dollar, and as a result is affected by currency exchange rate fluctuations. Our results for the quarters and nine months ended September 27, 2013 and September 28, 2012, were not materially impacted by foreign currency exchange rate fluctuations. 

Total Company revenue increased 4% and 2% for the quarter and nine months ended September 27, 2013, respectively, as compared to the quarter and nine months ended September 28, 2012. The following table summarizes revenue (in thousands):

 

 

 

The Hackett Group revenue increased 7%  (increase of 11% domestically, offset by a decrease of 4% internationally) and decreased 2% for the quarter and nine months ended September 27, 2013, respectively, as compared to the quarter and nine months ended September 28, 2012.  The increase in The Hackett Group's revenue quarter over quarter primarily related to the increased demand in the Business Transformation and EPM groups. The Hackett Group’s international revenue, which is primarily based on the country of the contracting entity, accounted for 18% and 20%, respectively, of total Company revenue for the quarter and nine months ended September 27, 2013 and 20% and 22% of total Company revenue for the quarter and nine months ended September 28, 2012, respectively.

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ERP Solutions revenue decreased 10% and increased 25% for the quarter and nine months ended September 27, 2013, respectively, as compared to the quarter and nine months ended September 28, 2012.  The decrease in revenue for the quarter ended September 27, 2013, as compared to the quarter ended September 28, 2012, reflected the higher than expected growth achieved in the quarter ended September 28, 2012.

During the quarters and nine months ended September 27, 2013 and September 28, 2012, no customer accounted for more than 5% of total Company revenue.

Cost of Service. Cost of service primarily consists of salaries, benefits and incentive compensation for consultants, subcontractor fees and reimbursable expenses associated with projects. Cost of service before reimbursable expenses increased 7%, or $2.3 million, and 5%, or $5.0 million, for the quarter and nine months ended September 27, 2013, respectively, as compared to the quarter and nine months ended September 28, 2012. Total cost of service before reimbursable expenses, as a percentage of revenue before reimbursements, increased to 65% for both the quarter and nine months ended September 27, 2013, as compared to 64% and 63% for the quarter and nine months ended September 28, 2012, respectively. The increase was primarily due to greater utilization of subcontractors in both our SAP and EPM Oracle groups.

As a percentage of revenue before reimbursements, The Hackett Group generated net margins of 37% in both the quarter and nine months ended September 27, 2013, respectively, which were unfavorably impacted by lower than planned performance in Europe. As a percentage of revenue before reimbursements, ERP Solutions generated net margins of 32% and 35% for the quarter and nine months ended September 27, 2013, respectively.

Selling, General and Administrative. Selling, general and administrative costs were $13.3 million and $40.5 million for the quarter and nine months ended September 27, 2013, respectively, as compared to $13.9 million and $43.2 million for the quarter and nine months September 28, 2012, respectively. Selling, general and administrative costs as a percentage of revenue before reimbursements decreased to 26% for both the quarter and nine months ended September 27, 2013, as compared to 28%  and 29% for the quarter and nine months ended September 28,  2012, respectively, primarily due to cost containment initiatives implemented in 2013.

Restructuring benefit.  As of September 28, 2012, we no longer had any commitments relating to acquisition integration activities. Therefore, during the quarter ended September 28, 2012, we reversed the existing accrued facilities restructuring liability of $0.3 million and recorded a corresponding facilities restructuring benefit on the Consolidated Statements of Operations.

Income Taxes. In the quarter and nine months ended September 27, 2013, we recorded income tax expense of $1.9 million and $5.3 million, respectively, which reflected an estimated annual tax rate of 41.6% and 41.0% for certain federal, foreign and state taxes. In the quarter and nine months ended September 28, 2012, we recorded income tax expense of $1.8 million and $2.3 million, respectively, which reflected an estimated annual tax rate of 9.6% and 6.5% for certain foreign and state taxes. The increase in the tax rates in 2013 is the result of the release of the full valuation allowance related to the U.S. federal and state net operating loss carryforwards during 2011 and 2012 and the partial release of the foreign net operating loss carryforwards in 2012. 

Liquidity and Capital Resources

As of September 27, 2013 and December 28, 2012, we had $14.9 million and $16.9 million, respectively, classified in cash and cash equivalents on the consolidated balance sheets. As of the same dates, we had $0.5 million and $0.7 million on deposit with financial institutions that primarily related to certain employee compensation agreements. These deposit accounts have been classified as restricted cash on the consolidated balance sheets.

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

 

 

 

Cash Flows from Operating Activities

Net cash provided by operating activities was $9.0 million and $11.1 million during the nine months ended September 27, 2013 and September 28, 2012, respectively. The decrease primarily related to a decrease in net income as a result of the release of tax

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valuation allowances in the first half of 2012, excluding the non-cash activity, and the timing of vendor payments and incentive award accruals.

Cash Flows from Investing Activities

Net cash used in investing activities was $1.5 million and $2.4 million during the nine months ended September 27, 2013 and September 28, 2012, respectively. The usage of cash primarily related to capital expenditures for the development of the Hackett Performance Exchange. 

Cash Flows from Financing Activities

On October 15, 2013, we completed a tender offer to purchase approximately 1.0 million shares of our 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 tender offer. On March 21, 2012, we completed a tender offer to purchase 11.0 million shares of our common stock at a purchase price of $5.00 per share, for an aggregate cost of approximately $55.0 million, excluding fees and expenses related to the tender offer.

On February 21, 2012, the Company entered into a credit agreement with Bank of America, N.A. ("Bank of America"), pursuant to which Bank of America agreed to lend the Company up to $20.0 million pursuant to a revolving line of credit (the “Revolver”) and up to $30.0 million pursuant to a five-year term loan (the “Term Loan”) which was used to finance the Company's $55.0 million tender offer for its shares in March 2012 (see Note 7 to the consolidated financial statements).

On August 27, 2013, the Company amended and restated the credit agreement (the "Credit Agreement") with Bank of America to provide for up to an additional $17.0 million of borrowing availability under the Term Loan (the "Amended Term Loan" and together with the Revolver, the "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. Additional borrowings under the Amended Term Loan were used to finance our tender offer in October 2013 (see Note 7 to the consolidated financial statements).

Net cash used in financing activities was $9.8 million and $27.3 million for the nine months ended September 27, 2013 and September 28, 2012, respectively. The usage of cash during the nine months ended September 27, 2013, was primarily attributable to $10.0 million in repayments of borrowings under the Term Loan. The usage of cash during the nine months ended September 28, 2012, was primarily attributable to the funding of the tender offer completed in March 2012, the repayment of all borrowings outstanding under the Revolver and repayments of borrowings outstanding under the Term Loan.

On November 5, 2013, we announced that our Board of Directors declared an annual cash dividend of $0.10 per common share payable to holders of record on December 10, 2013. The dividend will be paid on December 20, 2013.

We currently believe that available funds (including the cash on hand and $20.0 million in funds available for borrowing under the Revolver), and cash flows generated by operations will be sufficient to fund our working capital and capital expenditure requirements for at least the next twelve months. We may decide to raise additional funds in order to fund expansion, to develop new or further enhance products and services, to respond to competitive pressures, or to acquire complementary businesses or technologies. There is no assurance, however, that additional financing will be available when needed or desired.

Contractual Obligations

On August 27, 2013, the Company amended and restated its Credit Agreement to provide for, among other items, up to an additional $17.0 million of borrowings under the Amended Term Loan. For additional information about the Credit Agreement, please see "Liquidity and Capital Resources" above and Note 4, "Credit Facility," to our consolidated financial statements included in this Quarterly Report on Form 10-Q.

Recently Issued Accounting Standards

For a discussion of recently issued accounting standards, please see Note 1, “Basis of Presentation and General Information,” to our consolidated financial statements included in this Quarterly Report on Form 10-Q on Note 1, "Basis of Presentation and General Information," to our consolidated financial statements included in our Annual Report on Form 10-K for the year ended December 28, 2012.

Item  3.Quantitative and Qualitative Disclosures About Market Risk.

As of September 27, 2013, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

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Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the Credit Facility, which is subject to variable interest rates. The interest rates per annum applicable to loans under the Credit Facility will be, at our option, equal to either a base rate or a LIBOR rate for one-, two-, three- or nine-month interest periods chosen by us in each case, plus an applicable margin percentage. A 100 basis point increase in our interest rate under our Credit Facility would not have had a material impact on our results of operations for the quarter and nine months ended September 27, 2013. 

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. Our results for the quarter and nine months ended September 27, 2013 were not materially impacted by foreign currency exchange rate fluctuations.

Item  4.Controls and Procedures.

Evaluation of Disclosure Controls and Procedures

Under the supervision and with the participation of our management, including our Principal Executive Officer and Principal Financial Officer, we conducted an evaluation of our disclosure controls and procedures, as such term is defined under Rule 13a-15(e) promulgated under the Securities Exchange Act of 1934, as amended. Based on this evaluation, our Principal Executive Officer and Principal Financial Officer concluded that our disclosure controls and procedures were effective as of the end of the period covered by this Quarterly Report on Form 10-Q.

Changes in Internal Controls

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

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PART II — OTHER INFORMATION

Item 1.Legal Proceedings.

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

Item  1A.Risk Factors.

There have been no material changes to any of the risk factors disclosed in the Company’s most recently filed Annual Report on Form 10-K.

Item  2.Unregistered Sales of Equity Securities and Use of Proceeds.

Issuer Purchases of Equity Securities

No shares were repurchased during the quarter ended September 27, 2013, under the Company's Board of Director approved repurchase plan. As of September 27, 2013, the Company had approximately $5.0 million of remaining authorization under this program.

 

Subsequent to September 27, 2013, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the program size to $85.0 million, and leaving $10.0 million available under its share repurchase plan authorization.

On October 15, 2013, the Company completed a tender offer to purchase 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 tender offer.

 

 

 

Item  6.Exhibits.

See Index to Exhibits on page 19, which is incorporated herein by reference.

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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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