HACKETT GROUP, INC. - Quarter Report: 2014 March (Form 10-Q)

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION 

Washington, D.C. 20549

 

FORM 10-Q

 

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

For the quarterly period ended March 28, 2014 

OR

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

For the transition period from              to             

Commission File Number 0-24343

 

The Hackett Group, Inc.

(Exact name of registrant as specified in its charter)

 

 

 

 

(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  ☒    NO  ☐ 

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  ☒    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.

 

 

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

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, 2014,  there were 29,889,945 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 (LOSS) 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 27, 2013, included in the Annual Report on Form 10-K filed by the Company with the SEC. The consolidated results of operations for the quarter ended March 28, 2014, 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 March 28, 2014 and December 27, 2013, 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.

Business Combinations

The Company applies the provisions of ASC 805, Business Combinations, in the accounting for its acquisitions, which requires recognition of the assets acquired and the liabilities assumed at their acquisition date fair values, separately from goodwill. Goodwill as of the acquisition date is measured as the excess of consideration transferred and the net of the acquisition date fair values of the tangible and identifiable intangible assets acquired and liabilities assumed. While the Company uses its best estimates and assumptions to accurately value assets acquired and liabilities assumed at the acquisition date as well as contingent consideration, where applicable, its estimates are inherently uncertain and subject to refinement. As a result, during the measurement period, that may be up to 12 months from the acquisition date, the Company records adjustments to the assets acquired and liabilities assumed with a corresponding adjustment to goodwill. Upon the conclusion of the measurement period or final determination of the values of assets acquired or liabilities assumed, whichever comes first, the impact of any subsequent adjustments is included in the consolidated statements of operations.

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 (Loss) Income per Common Share

Basic net (loss) 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. During the quarter ended March 28, 2014, the Company recorded a net loss. As a result of the net loss, the Company has excluded a total of 749,197 other potentially dilutive securities from its dilutive weighted average common shares outstanding for the quarter ended March 28, 2014.

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

 

 

 

 

 

Approximately 0.4 million and 0.9 million shares of common stock equivalents were excluded from the computations of diluted net income per common share for the quarters ended March 28, 2014 and March 29, 2013, respectively, as their inclusion would have had an anti-dilutive effect on diluted net income per common share.

 

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.

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4. Accrued Expenses and Other Liabilities

 

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

 

 

 

 

 

5.  Restructuring Costs

The Company recorded restructuring costs of $3.6 million during the quarter ended March 28, 2014, for reductions in consultants and functional support personnel. These actions were taken as a result of the continued decline in demand in Europe. The Company took steps to reduce its costs to better align its overall cost structure and organization with anticipated demand for its services. 

The following table sets forth the activity in the restructuring expense accruals (in thousands): 

 

 

 

 

6. 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 Note10 for further information.  

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 10 for further information. The Credit Agreement was amended and restated to:

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).

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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 March 28, 2014, the applicable margin percentage was 1.50% per annum based on the consolidated leverage ratio, in the case of LIBOR rate advances, and 0.75% per annum, in the case of base rate advances.

The 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, including total consolidated leverage, fixed cost coverage and liquidity requirements, each as set forth in the Credit Agreement, subject to certain exceptions.

 

7. Acquisition

During the quarter ended March 28, 2014, the Company acquired the U.S., Canada and Uruguay operations of Technolab International Corporation. The purchase price for the assets acquired and liabilities assumed was $3.0 million in cash ($0.3 million held in escrow) and $1.0 million in shares of the Company's common stock, which are subject to a four-year vesting provision. The sellers will have the ability to earn an additional $8.0 million in contingent consideration in cash and stock subject to an earn-out based on actual results achieved.

Management's initial purchase price allocation resulted in $7.1 million which exceeded the estimated fair value of tangible and intangible assets and liabilities and which was therefore allocated to goodwill. The acquired intangible assets with definite lives of $4.2 million will be amortized over periods ranging from 2 years to 5 years. 

Management's preliminary determination of the fair value of the tangible and intangible assets acquired and liabilities assumed are based on estimates and assumptions that are subject to change. During the measurement period, if information becomes available which would indicate adjustments are required to the purchase price allocation, such adjustment will be included in the purchase price allocation retrospectively. The measurement period can extend as long as one year from the acquisition date.

 

8. 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.

 

9. Stock Based Compensation

During the three months ended March 28, 2014,  the Company issued 618,181 restricted stock units at a weighted average grant-date fair value of $5.89 per share. As of March 28, 2014, the Company had 2,223,584 restricted stock units outstanding at a weighted average grant-date fair value of $4.80 per share. As of March 28, 2014,  $8.2 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 approximately 2.6 years.

During the three months ended March 28, 2014, the Company issued 164,474 shares of common stock subject to vesting requirements related to the Technolab acquisition at a weighted average grant-date fair value of $6.04 per share. See Note 7 for further detail. As of March 28, 2014, the Company had 265,474 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $7.52 per share. As of March 28, 2014, $1.3 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 approximately 2.9 years. 

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 as 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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Although the targets for the performance-based SARs have not been achieved as of March 28, 2014, the Company recorded $0.1 million of compensation expense related to these SARs for both quarters ended March 28, 2014 and March 29, 2013.

 

10. 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 6 for further detail. 

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 three months ended March 28, 2014, the Company repurchased approximately 716 thousand shares of its common stock at an average price of $6.06 per share, for a total cost of approximately $4.3 million.  In addition, 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 $90.0 million. As of March 28, 2014, the Company had approximately $5.3 million available under its share repurchase plan authorization. During the quarter ended March 29, 2013, the Company did not buy back any shares under its share repurchase plan.

 

11. 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.

 

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

 

 

 

 

As of March 28, 2014, foreign assets included $16.0 million of goodwill related to the Archstone, REL and Technolab acquisitions. As of December 27, 2013, foreign assets included $15.8 million of goodwill related to the REL and Archstone acquisitions. 

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

 

 

 

 

 

 

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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 27, 2013. 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 10,000 benchmark studies over 21 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, Enterprise Performance Management ("EPM") groups and Technolab Application Maintenance and Support ("AMS"). “ERP Solutions” encompasses our SAP ERP Technology group and SAP maintenance.

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 ended March 28, 2014 and March 29, 2013, were not materially impacted by foreign currency exchange rate fluctuations. 

Total Company revenue increased slightly during the quarter ended March 28, 2014,  as compared to the quarter ended March 29, 2013. The following table summarizes revenue (in thousands):

 

 

 

 

Although The Hackett Group U.S. revenue increased 19% during the quarter ended March 28, 2014, as compared to the quarter ended March 29, 2013, this growth was offset by a decrease of international revenue of 29% during the same periods.  The increase in The Hackett Group's U.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 15% of total Company revenue for the quarter ended March 28, 2014 and 22% of total Company revenue for the quarter ended March 29, 2013, respectively.

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ERP Solutions revenue decreased 18% for the quarter ended March 28, 2014, as compared to the quarter ended March 29, 2013.  This revenue decrease reflected the higher than expected growth achieved during the quarter ended March 29, 2013. 

During the quarters ended March 28, 2014 and March 29, 2013, 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 4%, or $1.2 million, for the quarter ended March 28, 2014, as compared to the quarter ended March 29, 2013. Total cost of service before reimbursable expenses, as a percentage of revenue before reimbursements, increased to 67% for the quarter ended March 28, 2014, as compared to 66%  for the quarter ended March 29, 2013. The increase was primarily due to increased headcount attributed to the Technolab acquisition.

As a percentage of revenue before reimbursements, The Hackett Group generated net margins of 33% in the quarter ended March 28, 2014, 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% for the quarter ended March 28, 2014.

Selling, General and Administrative. Selling, general and administrative costs were $14.2 million for the quarter ended March 28, 2014,  as compared to $13.3 million for the quarter ended March 29, 2013. Selling, general and administrative costs as a percentage of revenue before reimbursements increased to 29% for the quarter ended March 28, 2014, as compared to 27% for the quarter ended March 29, 2013. The increase in selling, general and administrative costs was primarily due to an increase in depreciation related to the Hackett Performance Exchange and amortization related to the intangible assets acquired in the Technolab acquisition.

Restructuring Costs. During the quarter ended March 28, 2014, we recorded restructuring costs of $3.6 million, for reductions in consultants and functional support personnel. These actions were taken as a result of our continued decline in Europe demand.  We effected these changes to reduce our costs to better align our overall cost structure and organization with anticipated demand for our services.

Income Taxes. In the quarter ended March 28, 2014, we recorded income tax expense of $0.2 million, which reflected an estimated annual tax rate of 13% for certain federal, foreign and state taxes. In the quarter ended March 29, 2013, we recorded income tax expense of $1.4 million, which reflected an estimated annual tax rate of 40.1% for certain federal, foreign and state taxes. The decrease in the estimated annual tax rate is due to the net loss incurred during the quarter ended March 28, 2014, primarily as a result of the restructuring costs, as discussed above. 

Liquidity and Capital Resources

As of March 28, 2014 and December 27, 2013, we had $12.7 million and $18.2 million, respectively, classified in cash and cash equivalents on the consolidated balance sheets. As of the same dates, we had $0.7 million and $0.3 million on deposit with financial institutions that primarily related to certain employee compensation agreements and funds held in escrow related to the Technolab acquisition. 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 used in operating activities was $8.0 million and $0.5 million during the three months ended March 28, 2014 and March 29, 2013, respectively. The increased use of cash primarily related to increased accounts receivable and unbilled balances, and the timing of vendor and incentive award payments. 

Cash Flows from Investing Activities

Net cash used in investing activities was $2.9 million and $0.7 million during the three months ended March 28, 2014 and March 29, 2013, respectively. Excluding the noncash impact of the assets and liabilities acquired in the Technolab acquisition, the

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usage of cash during the quarter ended March 28, 2014, was primarily related to the cash consideration paid for the Technolab acquisition, partially offset by cash acquired in the acquisition. In addition, cash was utilized during both periods on 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 6 to the consolidated financial statements for further information.  

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 of $7.0 million under the Amended Term Loan were used to finance our tender offer in October 2013. See Note 6 to the consolidated financial statements for further information. As of March 28, 2014, the Company had $24.2 million principal amount outstanding under the Amended Term Loan and $4.5 million outstanding under the Revolver.

Net cash provided by financing activities was $5.4 million during the quarter ended March 28, 2014. This increase in cash was primarily due to $9.5 million of borrowings under our Credit Facility and proceeds from the sale of the Company stock. This increase in cash was offset by the repurchase of $4.3 million of Company stock. Net cash used by financing activities during the quarter ended March 29, 2013, primarily related to the repayment of borrowings outstanding under the Credit Facility of $4.5 million, partially offset by the proceeds from the sale of Company stock. 

We currently believe that available funds (including the cash on hand and $15.5 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.

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 our Annual Report on Form 10-K for the year ended December 27, 2013. 

Item  3.Quantitative and Qualitative Disclosures About Market Risk.

As of March 28, 2014, our exposure to market risk related primarily to changes in interest rates and foreign currency exchange rate risks.

Interest Rate Risk

Our exposure to market risk for changes in interest rates relates primarily to the Credit Facility, which is subject to variable interest rates. The interest rates per annum applicable to loans under the Credit Facility will be, at our option, equal to either a 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 ended March 28, 2014. 

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 ended March 28, 2014 were not materially impacted by foreign currency exchange rate fluctuations.

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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

During the three months ended March 28, 2014, the Company repurchased approximately 716 thousand shares of its common stock at an average price of $6.06 per share, for a total cost of approximately $4.3 million, under the Company's Board of Director approved repurchase plan. During the quarter, the Company's Board of Directors approved the repurchase of an additional $5.0 million of the Company's common stock, thereby increasing the aggregate program size to $90.0 million. As of March 28, 2014, the Company had approximately $5.3 million of remaining authorization under this program. 

 

 

 

 

 

Item  6.Exhibits.

See Index to Exhibits on page 20, 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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