The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

6. 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.

7. Stock Based Compensation

During the quarter and six months ended AprilJuly 1, 2011, the Company issued 1,774,03851,000 and 1,825,038 restricted stock units, respectively, at a weighted average grant-date fair value of $3.62.$4.19 and $3.64, respectively. As of AprilJuly 1, 2011, the Company had 3,067,8703,080,972 restricted stock units outstanding at a weighted average grant-date fair value of $3.33.$3.35. As of AprilJuly 1, 2011, there was $7.4$6.6 million of total restricted stock unit compensation expense related to nonvested awards not yet recognized, which is expected to be recognized over a weighted average period of 2.542.32 years.

As of AprilJuly 1, 2011, the Company had 841,904810,237 shares of common stock subject to vesting requirements outstanding at a weighted average grant-date fair value of $3.40.$3.38. As of AprilJuly 1, 2011, there was $1.4$1.2 million of total stock compensation expense related to these shares for the nonvested awards not yet recognized. This stock compensation expense is expected to be recognized over a weighted average period of 2.672.53 years.

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

8. Shareholders’ Equity

Treasury Stock

Under the repurchase plan, the Company may buy back shares of its outstanding stock from time to time either on the open market or through privately negotiated transactions subject to market conditions and trading restrictions. During the quarter ended AprilJuly 1, 2011, the Company repurchased 673830 thousand shares of its common stock at an average price of $3.58,$4.38 for a total cost of $2.4$3.6 million. During the six months ended July 1, 2011, the Company repurchased 1.5 million shares of its common stock at an average price of $4.02, for a total cost of $6.0 million. As of AprilJuly 1, 2011, the Company had $2.1$3.5 million available under its buyback program. Subsequent to April 1, 2011, the Board of Directors approved the repurchase of an additional $5.0 million of the Company’s common stock, thereby increasing the total program to $75.0 million.

9. 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.

The Hackett Group, Inc.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

(unaudited)

10. Geographic and Group Information

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

Long-lived assets are attributed to the following geographical areas (in thousands):

As of AprilJuly 1, 2011, foreign assets included $15.6 million of goodwill and $0.2 million of intangible assets related to acquisitions. As of December 31, 2010, foreign assets included $15.0 million of goodwill and $0.2 million of intangible assets related to acquisitions.

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

Item 2.

Management’s Discussion and Analysis of Financial Condition and Results of Operations

CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS

This report and the information incorporated by reference in it include “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. We intend the forward-looking statements to be covered by the safe harbor provisions for forward-looking statements in these sections. All statements regarding our expected financial position and operating results, our business strategy, our financing plans and forecasted demographic and economic trends relating to our industry are forward-looking statements. These statements can sometimes be identified by our use of forward-looking words such as “may,” “will,” “anticipate,” “estimate,” “expect,” or “intend” and similar expressions. These statements involve known and unknown risks, uncertainties and other factors that may cause our actual results, performance or achievements to be materially different from the results, performance or achievements expressed or implied by the forward-looking statements. We cannot promise you that our expectations in such forward-looking statements will turn out to be correct. Factors that 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 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 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 31, 2010. 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”) 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, formed on April 23, 1997, is a strategic advisory firm and a world leader in best practice research, benchmarking, business transformation and working capital management services that empirically defines and enables 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 5,000 benchmark studies over 18 years at over 2,800 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.

In the following discussion, “Hackett” represents our total company,company. “The Hackett Group” encompasses our Benchmarking, Business Transformation and Executive Advisory groups and “Hackett Technologyincludes EPM Technologies. “ERP Solutions” encompasses our ERP technology groups, includingwhich include SAP Oracle and Oracle EPM.Oracle. The acquisition of Archstone Consulting in late 2009 brought a strong EPM Transformation group to Hackett. This allowed us to combine the acquired transformation skills with our existing technology EPM group, which has been one of The Hackett Group’s growth drivers. The transformation and technology groups both adopted The Hackett Group brand in 2010, and in 2011 moved to a combined incentive plan. We have decided to recast the revenue of the EPM technology group, which was previously reflected under Technology Solutions, into The Hackett Group service line and recast all reported numbers, to best reflect this integration of brand and go-to-market focus in our reporting.

Results of Operations

The following table sets forth, for the periods indicated, our results of operations and the percentage relationship to total revenue of such results (in thousands):

		Quarter Ended																Six Months Ended
		July 1, 2011								July 2, 2010								July 1, 2011								July 2, 2010
Revenue:
Revenue before reimbursements		$	52,382				100.0	%		$	47,967				100.0	%		$	99,339				100.0	%		$	89,817				100.0	%
Reimbursements			6,427								5,718								12,332								10,596
Total revenue			58,809								53,685								111,671								100,413
Costs and expenses:
Cost of service:
Personnel costs before reimbursable expenses			32,815				62.6	%			29,307				61.1	%			63,075				63.5	%			56,056				62.4	%
Reimbursable expenses			6,427								5,718								12,332								10,596
Total cost of service			39,242								35,025								75,407								66,652
Selling, general and administrative costs			15,064				28.8	%			14,908				31.1	%			28,275				28.5	%			28,150				31.3	%
Total costs and operating expenses			54,306								49,933								103,682								94,802
Income from operations			4,503				8.6	%			3,752				7.8	%			7,989				8.0	%			5,611				6.3	%
Other income:
Non-cash acquisition earn-out shares re-measurement gain			—								784								—								1,727
Interest income			12				0.0	%			4				0.0	%			13				0.0	%			10				0.0	%
Income before income taxes			4,515				8.6	%			4,540				9.5	%			8,002				8.1	%			7,348				8.2	%
Income tax expense			112				0.2	%			117				0.2	%			272				0.3	%			227				0.3	%
Net income		$	4,403				8.4	%		$	4,423				9.3	%		$	7,730				7.8	%		$	7,121				7.9	%

Quarter Ended AprilJuly 1, 2011 versus Quarter Ended AprilJuly 2, 2010

Revenue. We are a global company with operations primarily in the United States, Western Europe and Western Europe.Australia. Our revenue is denominated in multiple currencies, mostly the U.S. Dollar, British Pound and Euro, and as a result is affected by currency exchange rate fluctuations. Exchange rate fluctuations had andid not have a material impact on our revenue comparisons between the quarters and six months ended AprilJuly 1, 2011 and AprilJuly 2, 2010.

Total Hackett revenue increased 13%10% and 11% for the quarter and six months ended AprilJuly 1, 2011, respectively, as compared to the quarter and six months ended AprilJuly 2, 2010. The following table summarizes revenue (in thousands):

The Hackett Group revenue decreasedincreased by 1%4% and 5% for the quarter and six months ended AprilJuly 1, 2011, respectively, as compared to the quarter and six months ended AprilJuly 2, 2010, primarily due to a slower ramp-up in the beginning of 2011, as compared to 2010. The Hackett Group’s international revenue, which is primarily based on the country of the contracting entity, accounted for 30%27% and 26% of The Hackett Group’s total revenue infor the first quarter ofand six months ended July 1, 2011, respectively, as compared to 27%25% and 23% in the first quarter of 2010.and six months ended July 2, 2010, respectively.

Hackett TechnologyERP Solutions revenue increased 65%41% and 44% for the quarter and six months ended AprilJuly 1, 2011, respectively, as compared to the quarter and six months ended AprilJuly 2, 2010, primarily due to higher Oracle-related revenue as a result of improved market demand.demand for ERP technology related services.

During the quarter and six months ended July 1, 2011, no customer accounted for more than 3%, of our total revenue. During the quarter ended April 1, 2011, one customerJuly 2, 2010, two customers accounted for 4%6% and 7% of our total revenue, and during the quartersix months ended AprilJuly 2, 2010, two customers accounted for between 5% and 6% of our total revenue.

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 13%12%, or $3.5 million, and 13%, or $7.0 million, for the quarter and six months ended AprilJuly 1, 2011, respectively, as compared to the quarter ended AprilJuly 2, 2010, primarily due to the increased headcount to align resources with market demand.

Total cost of service before reimbursable expenses, as a percentage of revenue before reimbursements wasincreased to 63% and 64% for both the quartersquarter and six months ended AprilJuly 1, 2011, respectively, from 61% and April62% for the quarter and six months ended July 2, 2010.2010, respectively, primarily due to increased headcount.

The Hackett Group generated gross margin as a percentage of revenue before reimbursements of 41%,40% and 39% for the quarter and six months ended July 1, 2011, respectively, as compared to Hackett TechnologyERP Solutions, which generated gross margin as a percentage of revenue before reimbursements of 30%.36% and 35%, respectively.

Selling, General and Administrative. Selling, general and administrative costs were $13.2$15.1 million and $28.3 million for both the quartersquarter and six months ended AprilJuly 1, 2011, respectively, and April$14.9 million and $28.2 million for the quarter and six months ended July 2, 2010.2010, respectively. Selling, general and administrative costs as a percentage of revenue before reimbursements were 28%29% for both the quarter and six months ended AprilJuly 1, 2011, as compared to 32%31% for both the quarter and six months ended AprilJuly 2, 2010, primarily due to selling, general and administrative leverage on increased revenue.

Non-Cash Acquisition Earn-out Shares Re-measurement Gain. In accordance with ASC 805, fluctuationsFluctuations in the share price of our common stock and the reduction of earn-out shares resulted in non-cash gains in the interim reporting periods until the final determination of the earn-out shares related to the Archstone acquisition was made in the second quarter of 2010. DuringAs a result, during the quarter and six months ended AprilJuly 2, 2010, we recorded a non-cash re-measurement gain of $943 thousand$0.8 million and $1.7 million, respectively, in the consolidated statement of operations as a result of our share price fluctuations.operations.

Income Taxes.We recorded income tax expense of $160$112 thousand and $272 thousand for the quarter and six months ended AprilJuly 1, 2011, respectively, which reflected an estimated annual tax rate of 4.6%2.5% and 3.4%, respectively, for certain foreign and state taxes. For the quarter and six months ended AprilJuly 2, 2010, we recorded income taxes of $110$117 thousand and $227 thousand, respectively, which reflected estimated annual tax rates of 3.9%2.6% and 3.1%, respectively, for certain federal and state taxes.

Liquidity and Capital Resources

As of AprilJuly 1, 2011 and December 31, 2010, we had $16.4$17.9 million and $25.3 million, respectively, classified in cash and cash equivalents in the accompanying consolidated balance sheets. During these same periods, we had $1.6 million on deposit with financial institutions that served as collateral for letters of credit for operating leases and for amounts related to employee 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):

Net cash used inprovided by operating activities was $5.2$1.6 million for the quartersix months ended AprilJuly 1, 2011, as compared to $6.0 million for the six months ended July 2, 2010. During the six months ended July 1, 2011, net cash provided by operating activities of $0.8 million for the quarter ended April 2, 2010. During the quarter ended April 1, 2011, net cash used in operating activities was primarily attributable to net income, excluding non-cash activity, offset by the payout of 2010 incentive compensation awards and an increase in accounts receivable and unbilled revenue as a result of increased revenue.

During the quartersix months ended AprilJuly 2, 2010, net cash provided by operating activities was primarily attributable to an increase in accounts payable due to the timing of vendor payments and earnings net ofincome, excluding non-cash items. This increase was primarily offset by an increase in accounts receivable and unbilled revenue, as a result of increased revenueactivity, and a 14 day decrease in accrued expenses and other liabilities, primarily due todays sales outstanding from the timingend of the payroll cycle, usage of the restructuring reserves, and 2009 year end incentive compensation awards.previous fiscal year.

Net cash used in investing activities was $1.3$3.3 million for the quartersix months ended AprilJuly 1, 2011, as compared to $0.6$1.6 million for the quartersix months ended AprilJuly 2, 2010. The use ofDuring the six months ended July 1, 2011, cash was attributableused in investing activities primarily related to capital expenditures for product development, as well as the global roll out of new laptops and other capital expenditures. During the six months ended July 2, 2010, cash used in investing mostly related to capital expenditures and an increase in cash on deposit with a financial institution as collateral for a letter of credit related to an operating lease.

Net cash used in financing activities was $2.4$5.7 million for the quartersix months ended AprilJuly 1, 2011, as compared to $83 thousand$1.9 million for the quartersix months ended AprilJuly 2, 2010. Cash used in financing activities for the quartersix months ended AprilJuly 1, 2011 was mostly attributable to the repurchase of 6731.5 million shares of our common stock at an average price of $4.02 per share, for a total cost of $6.0 million. Net cash used in financing activities for the six months ended July 2, 2010 was mostly attributable to the repurchase of 715 thousand shares of our common stock at an average price of $3.58$3.00 per share, for a total cost of $2.4$2.1 million. Net cash used in financing activities for the quarter ended April 2, 2010 was attributable to the repurchase of 33 thousand shares of our common stock at an average price of $2.51 per share, for a total cost of $83 thousand.

Under our 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. As of AprilJuly 1, 2011, we had $2.1$3.5 million available under the buyback program. Subsequent to April 1, 2011, our Board of Directors approved the repurchase of an additional $5.0 million of our common stock.

We currently believe that available funds 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 discussion of recently issued accounting standards, please see “Item 1, Financial Statements” in Part I of this document.

At AprilJuly 1, 2011, 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 we do not use derivative financial instruments in our investments.

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 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.

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.

PART II — OTHER INFORMATION

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.

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.

During the quarter ended AprilJuly 1, 2011, the Company repurchased 673830 thousand shares of its common stock at a cost of $2.4$3.6 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

See Index to Exhibits on page 18,16, which is incorporated herein by reference.

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

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.

INDEX TO EXHIBITS

1816