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2015 Annual Report
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Charles River Associates
Charles River Associates® is a global consulting firm specializing in litigation, regulatory,
financial, and management consulting. CRA advises clients on economic and financial
matters pertaining to litigation and regulatory proceedings, and guides corporations
through critical business strategy and performance-related issues. Since 1965, clients
have engaged CRA for its unique combination of functional expertise and industry
knowledge, and for its objective solutions to complex problems. Headquartered in
Boston, CRA has offices throughout the world. Charles River Associates is a registered
trade name of CRA International, Inc.
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To Our Shareholders:
Fiscal 2015 marked a special time for CRA as the firm celebrated its 50th anniversary. In 1965, our founders
envisioned a company that would bring the developing technology of academia, especially in the then-burgeoning
area of quantitative methods in economics, to the real world. This vision continues to resonate strongly today as we
apply university-quality quantitative tools and microeconomic analysis to practical problems. We saw solid demand
for our portfolio of services in fiscal 2015 and look forward to building on these successes in the years to come as
we continue to stay true to our founders’ vision.
Operating results for fiscal 2015
Revenue growth: After realizing nearly 6% average annual growth during fiscal 2012 through fiscal 2014, fiscal
2015 non-GAAP revenue of $299.8 million was flat relative to fiscal 2014.1 Although we expected to deliver results
consistent with historical trends, after adjusting for currency headwinds (an additional $6.3 million to fiscal 2015) and
the extra week reflected in fiscal 2014 results (a reduction of $5.7 million to fiscal 2014), non-GAAP revenue growth
in fiscal 2015 was roughly 3.5%. While lower than recent performance, we continued to grow in an otherwise stagnant
market for legal services and positioned the business to return to historical levels of performance. Most notably, our
largest and most prominent practice, Antitrust & Competition Economics, achieved another year of record revenue
in fiscal 2015.
Headcount growth and consultant productivity: Coming out of the recession, we elected to hold headcount steady
in order to drive productivity improvements. After delivering sustained utilization in excess of 75% over several quarters,
in late 2014 we announced our intention to expand headcount. By the end of fiscal 2015, our recruiting efforts yielded
a 13% headcount increase relative to year-end fiscal 2014, with the majority of the new consultants joining during the
second half of the year. Integrating such a large number of new colleagues presented some challenges, with second
half utilization dipping to 71% relative to first half utilization of 77%. However, we are encouraged as utilization has
rebounded in the first quarter of fiscal 2016 to 75%.
Cash generation: Despite slower revenue growth and investments in headcount expansion, CRA extended its history
of strong cash flow generation in fiscal 2015. We concluded the year with a cash position of $38.1 million, as we
delivered a non-GAAP Adjusted EBITDA margin of 15.6% and cash flow from operating activities of $20.4 million,
or 6.7% of fiscal 2015 GAAP revenue. After adjusting for the issuance of forgivable loans that are more appropriately
considered investment activities rather than operating activities, our cash flow from operations increases to 11.7% of
fiscal 2015 GAAP revenue. This result is consistent with our cash flow generation over the past half dozen years and
our aim to deliver adjusted cash flow from operations greater than 11% of revenue.
Capital allocation
We strive to be good stewards of the firm’s financial resources. Given the strength of our business and its ability to
generate strong cash flows, we believe that we can both invest in the business for growth and return capital to our
shareholders. When returning capital to shareholders, we intend to continue pursuing share repurchases as long as
we believe a meaningful gap exists between the firm’s intrinsic value and the observed market price of our shares. In
fiscal 2015, we repurchased approximately 477,000 shares of common stock for $12.8 million. Since the beginning of
1 Our non-GAAP revenue, as well as further information regarding the non-GAAP financial metrics presented in this letter, including how we
calculate Adjusted EBITDA, adjusted cash flow from operations and year-over-year comparisons on a constant currency basis and fixed
number of weeks basis, are presented on the pages following this letter.
45996nar.qxp_2015-AR-insert 5/17/16 11:14 AM Page 3
fiscal 2013, we have repurchased approximately 1.6 million shares for a total of approximately $40.5 million. During
this period, CRA has reduced its share count by 1.2 million to approximately 8.9 million shares outstanding as of the
end of fiscal 2015. In early 2016, we launched a modified “Dutch Auction” tender offer to repurchase up to $30.0
million in value of shares of our common stock, of which 1,164 shares were tendered. CRA remains committed to
returning capital to its shareholders. Following the expiration of the tender offer, CRA’s Board of Directors authorized
an expansion to our existing share repurchase program of an additional $20.0 million of outstanding shares of
common stock, bringing the total amount then available under our share repurchase program to $28.1 million.
In addition to the deployment of capital for share repurchases, fiscal 2015 saw the beginning of a significant transition
in our real estate portfolio; a transition that will continue in fiscal 2016. The office moves over the last twelve months
were necessary as individual leases expired. With each location, we strived to create a more efficient and cost-effective
workplace. We completed the buildout of our Boston office and relocated in July 2015. In December 2015, we
completed the buildout of our Washington, DC office. In New York City, construction commenced during late 2015,
and we moved in February 2016. These real estate investments totaled $15.4 million, partially offset by $4.8 million
of tenant improvement allowances, for fiscal 2015.
Outlook
Our mission is to be the firm of choice for our clients’ most important litigation, regulatory, and strategic challenges,
while providing a fulfilling and exciting home for our colleagues. Recruiting successes and growth in demand for our
services in a challenging marketplace validate our strategy in support of that mission. Over the next several years and
consistent with past performance, we intend to continue targeting the following metrics:
• Average annual revenue growth in the mid-single digits driven primarily from organic pursuits
• Utilization in the mid-70s
• Adjusted EBITDA margin of 16% - 17%
• Adjusted cash flow from operations as a percentage of revenue greater than our historical average of 11%
We aim to achieve these performance goals from the services currently offered by CRA. Our portfolio continues to
see solid demand, driving project inventory in fiscal 2015 to the strongest level I have seen during my tenure as CEO.
We welcomed nearly 100 new consultants during the second half of 2015, which positions CRA for growth in the
quarters ahead. This hiring was an important step as we work to capitalize on demand for our services, concentrating
our staffing investments in areas where we have a strong market presence and where we see good opportunities for
growth. These areas of focus include antitrust and competition, forensic and cyber investigations, labor and
employment, life sciences and financial services.
I am proud of our accomplishments in fiscal 2015. I want to thank the entire CRA team for its hard work and
dedication in achieving our goals. I would also like to thank you, our shareholders, for your continued support.
I look forward to what the coming years will bring to CRA as we continue to pursue the vision articulated by our
founders more than 50 years ago.
Sincerely,
Paul Maleh
President and Chief Executive Officer
May 16, 2016
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Charles River Associates
Revenue*
$350
$300
$250
)
n
o
$273
$302
$300
i
l
l
i
m
$
(
$200
$150
$100
2013
2014**
2015***
*Presented on a non-GAAP basis
**FY 2014 reflects 53 weeks of operating results
***On a constant currency basis relative to FY 2014, FY 2015 revenue would have
been $306 million
Adjusted EBITDA*
)
n
o
i
l
l
i
m
$
(
$60
$50
$40
$30
$20
$49.9
16.5%
$46.8
15.6%
$42.1
15.4%
2013
2014**
2015***
Adjusted EBITDA ($’s)
Adjusted EBITDA (%)
25%
20%
15%
10%
)
e
u
n
e
v
e
r
f
o
t
n
e
c
r
e
p
(
*Presented on a non-GAAP basis
**FY 2014 reflects 53 weeks of operating results
***On a constant currency basis relative to FY 2014, FY 2015 Adjusted EBITDA
would have been $48.2 million or 15.8% of revenue
Consultant Staffing Levels
Utilization
600
500
400
300
200
100
0
442
100
227
115
2013
511
122
267
122
2015
100%
90%
80%
70%
60%
50%
451
105
242
104
2014
Officers
Other Senior Staff
Junior Staff
Adjusted Cash Flow from Operations
%
0
8
%
8
7
%
8
7
%
8
7
%
5
7
%
5
7
%
8
7
%
5
7
%
3
7
%
8
6
%
7
6
%
7
6
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
Q1 Q2 Q3 Q4
2013
2014
2015
Cash flow from operating activities
Add: forgivable loans issuances*
Adjusted cash flow from operations*
Total revenue
Total assets
Total shareholders’ equity
Percentage of revenue*
Return on assets*
Return on shareholders’ equity*
*Presented on a non-GAAP basis
$18.4
$38.8
$57.2
$278.4
$320.1
$224.6
20.5%
17.9%
25.5%
$30.2
$10.9
$41.1
$306.4
$313.5
$214.7
13.4%
13.1%
19.1%
$20.4
$15.0
$35.4
$303.6
$313.7
$211.1
11.7%
11.3%
16.8%
$23.0
$21.6
$44.6
$296.1
$315.8
$216.8
15.1%
14.1%
20.6%
45996nar.qxp_2015-AR-insert 5/17/16 11:14 AM Page 5
Charles River Associates
Notes
CRA believes that fluctuations in foreign currency exchange rates can significantly affect its financial results
and provides a constant currency presentation to supplement disclosures regarding its results of operations
and performance. CRA calculates constant currency amounts relative to a prior period, which also constitutes
non-GAAP financial information, by converting its current period local currency financial results using the prior
period exchange rates.
When normalizing a 53-week year to a 52-week equivalent, CRA divides the results for the 53-week year by 53 to
determine the average weekly performance, which is then multiplied by 52 to normalize and arrive at the 52-week
equivalent. Results for fiscal 2013 and fiscal 2015 reflect 52 weeks of operations, whereas fiscal 2014 had 53 weeks
of operations.
Beginning with income from operations, in calculating “Adjusted EBITDA,” CRA has excluded the following non-cash
expenses: depreciation and amortization, share-based compensation expenses, and amortization of forgivable loans.
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(cid:2) ANNUAL REPORT PURSUANT TO SECTION 13 or 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Form 10-K
For the fiscal year ended January 2, 2016
Commission file number: 000-24049
CRA International, Inc.
(Exact name of registrant as specified in its charter)
Massachusetts
(State or other jurisdiction of incorporation or organization)
04-2372210
(I.R.S. Employer Identification No.)
200 Clarendon Street, Boston, MA
(Address of principal executive offices)
02116-5092
(Zip code)
617-425-3000
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Name of Each Exchange on Which Registered
Common Stock, no par value
Nasdaq Global Select Market
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.
Yes (cid:2) No (cid:3)
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Exchange Act. Yes (cid:2) No (cid:3)
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 requirements for the past 90 days. Yes (cid:3) No (cid:2)
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Website, if any,
every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding
12 months (or for such shorter period that the registrant was required to submit and post such files). Yes (cid:3) No (cid:2)
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this Form 10-K. (cid:3)
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a
smaller reporting company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer’’ and ‘‘smaller reporting company’’
in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer (cid:2)
Smaller reporting company (cid:2)
Accelerated filer (cid:3)
Non-accelerated filer (cid:2)
(Do not check if a
smaller reporting
company)
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes (cid:2)
No (cid:3)
The aggregate market value of the stock held by non-affiliates of the registrant as of July 4, 2015, the last business day of
the registrant’s most recently completed second fiscal quarter, based on the closing sale price of $27.62 as quoted on the
NASDAQ Global Select Market as of the last trading day before that date, was approximately $239.7 million. Outstanding
shares of common stock beneficially owned by executive officers and directors of the registrant and certain related entities have
been excluded from this computation because these persons may be deemed to be affiliates. The fact that these persons have
been deemed affiliates for purposes of this computation should not be considered a conclusive determination for any other
purpose.
As of February 26, 2016, CRA had outstanding 8,927,972 shares of common stock.
DOCUMENTS INCORPORATED BY REFERENCE
The information required for Part III of this annual report is incorporated by reference from the registrant’s definitive
proxy statement for the 2016 annual meeting of its shareholders to be filed with the Securities and Exchange Commission within
120 days after the end of the registrant’s fiscal year ended January 2, 2016.
CRA INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 2016
TABLE OF CONTENTS
Page
PART I
ITEM 1
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
ITEM 1A RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ITEM 1B UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 2
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 3
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ITEM 4 MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 6
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK . . 42
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . 43
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . 43
ITEM 9A CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43
ITEM 9B OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . 48
ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . 48
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . 48
PART IV
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . 49
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 50
1
Item 1—Business
Forward-Looking Statements
PART I
Except for historical facts, the statements in this annual report are forward-looking statements.
Forward-looking statements are merely our current predictions of future events. These statements are
inherently uncertain, and actual events could differ materially from our predictions. Important factors
that could cause actual events to vary from our predictions include those discussed in this annual report
under the heading ‘‘Risk Factors.’’ We assume no obligation to update our forward-looking statements
to reflect new information or developments. We urge readers to review carefully the risk factors
described in this annual report and in the other documents that we file with the Securities and
Exchange Commission, or SEC. You can read these documents at www.sec.gov.
Additional Available Information
Our principal internet address is www.crai.com. Our website provides a link to a third-party
website through which our annual, quarterly, and current reports, and amendments to those reports,
are available free of charge. We believe these reports are made available as soon as reasonably
practicable after we electronically file them with, or furnish them to, the SEC. We do not maintain or
provide any information directly to the third-party website, and we do not check its accuracy.
Our website also includes information about our corporate governance practices. The Investor
Relations page of our website provides a link to a web page where you can obtain a copy of our code
of business conduct and ethics applicable to our principal executive officer, principal financial officer,
and principal accounting officer. We intend to make required disclosures of amendments to our code of
business conduct and ethics, or waivers of a provision of our code of business conduct and ethics, on
the Corporate Governance Documents page linked from the Investor Relations page of our website.
Fiscal Year
Our fiscal years periodically contain 53 weeks rather than 52 weeks. Fiscal 2015 was a 52-week
year, fiscal 2014 was a 53-week year and fiscal 2013 was a 52-week year.
Introduction
We are a leading global consulting firm specializing in providing economic, financial and
management consulting services. We advise clients on economic and financial matters pertaining to
litigation and regulatory proceedings, and guide corporations through critical business strategy and
performance-related issues. Since 1965, we have been engaged by clients for our unique combination of
functional expertise and industry knowledge, and for our objective solutions to complex problems. We
combine economic and financial analysis with expertise in litigation and regulatory support, business
strategy and planning, market and demand forecasting, and policy analysis. We are often retained in
high-stakes matters, such as multibillion-dollar mergers and acquisitions, new product introductions,
major strategy and capital investment decisions, and complex litigation, the outcomes of which often
have significant consequences for the parties involved. These matters often require independent analysis
and, as a result, the parties involved must rely on outside experts. Our analytical strength enables us to
reach objective, factual conclusions that help clients make important business and policy decisions and
resolve critical disputes. Clients turn to us because we can provide highly credentialed and experienced
economic and finance experts to address critical, tough assignments, with high-stakes outcomes.
We offer consulting services in two broad areas: litigation, regulatory, and financial consulting and
management consulting. These two areas represented approximately 99% of our consolidated revenues
for fiscal 2015. The remaining 1% came from our majority-owned NeuCo subsidiary. We provide our
consulting services primarily through our highly credentialed and experienced staff of employee
consultants. As of January 2, 2016 we employed 511 consultants, which consisted of 389 senior staff and
2
122 junior staff. Approximately three fourths of our senior staff has a doctorate or other advanced
degree. Our employee consultants have backgrounds in a wide range of disciplines, including
economics, business, corporate finance, materials sciences, accounting, and engineering. We are
extremely selective in our hiring of consultants, recruiting from leading universities, industry, and
government. Many of our employee consultants are nationally or internationally recognized as experts
in their respective fields and have published scholarly articles, lectured extensively, and have been
quoted in the press. They combine outstanding intellectual acumen with practical experience and
in-depth understanding of industries and markets. To enhance the expertise we provide to our clients,
we maintain close working relationships with a select group of renowned academic and industry
non-employee experts.
Our business is diversified across multiple dimensions, including service offerings and vertical
industry coverage, as well as areas of functional expertise, client base, and geography. We believe this
diversification reduces our dependence on any particular market, industry, or geographic area.
We provide consulting services to corporate clients and attorneys in a wide range of litigation and
regulatory proceedings, providing high-quality research and analysis, expert testimony, and
comprehensive support in litigation and regulatory proceedings in all areas of finance, accounting,
economics, insurance, and forensic accounting and investigations. We also use our expertise in
economics, finance, and business to offer law firms, businesses, and government agencies services
related to class certification, damages analysis, expert reports and testimony, regulatory analysis,
strategy development, valuation of tangible and intangible assets, risk management, and transaction
support. In our management consulting services, we use our expertise in economics, finance, and
business analysis to offer our clients such services as strategy development, performance improvement,
corporate strategy and portfolio analysis, estimation of market demand, new product pricing strategies,
valuation of intellectual property and other assets, assessment of competitors’ actions, and analysis of
new sources of supply. Our analytical expertise in advanced economic and financial methods is
complemented by our in-depth expertise in specific industries, including agriculture; banking and capital
markets; chemicals; communications and media; consumer products; energy; entertainment; financial
services; health care; insurance; life sciences; manufacturing; metals, mining, and materials; oil and gas;
real estate; retail; sports; telecommunications; transportation; and technology.
We have completed thousands of engagements for clients around the world, including domestic
and foreign companies; Federal, state, and local domestic government agencies; governments of foreign
countries; public and private utilities; and national and international trade associations. We also work
with many of the world’s leading law firms. We experience a high level of repeat business.
We deliver our services through an international network of coordinated offices. Headquartered in
Boston, Massachusetts, we have offices throughout North America and Europe.
Industry Overview
Businesses are operating in an increasingly complex economic, legal, and regulatory environment.
Our changing world economy has created immense challenges and opportunities for businesses.
Companies across industry sectors are seeking new strategies appropriate for the current economic
environment, as well as greater operational efficiencies. To accomplish these objectives, they must
constantly gather, analyze, and use information wisely to assure that business decisions are
well-informed. In addition, as markets have become global, companies have the opportunity to expand
their presence throughout the world, which can expose them to increased competition and the
uncertainties of foreign operations. Further, companies are increasingly relying on technological and
business innovations to improve efficiency, thus increasing the importance of strategically analyzing
their businesses and developing and protecting new technology. The increasing complexity and changing
nature of the business environment are also forcing governments to modify their regulatory strategies.
These constant changes in the regulatory environment and the pro-regulatory stance in the U.S. have
led to frequent litigation and interaction with government agencies as companies attempt to interpret
and react to the implications of this changing environment. Furthermore, as the general business and
3
regulatory environment becomes more complex, corporate litigation has also become more complicated,
protracted, expensive, and important to the parties involved.
As a result, companies are increasingly relying on sophisticated economic and financial analysis to
solve complex problems and improve decision-making. Economic and financial models provide the tools
necessary to analyze a variety of issues confronting businesses, such as interpretation of sales data,
effects of price changes, valuation of assets, assessment of competitors’ activities, evaluation of new
products, and analysis of supply limitations. Governments are also relying, to an increasing extent, on
economic and finance theory to measure the effects of anticompetitive activity, evaluate mergers and
acquisitions, change regulations, implement auctions to allocate resources, and establish transfer pricing
rules. Finally, litigants and law firms are using economic and finance theory to help determine liability
and to calculate damages in complex and high-stakes litigation. As the need for complex economic and
financial analysis becomes more widespread, companies and governments are turning to outside
consulting firms, such as ours, for access to the independent, specialized expertise, experience, and
prestige that are not available to them internally. In addition, companies’ strategic, organizational, and
operational problems have gotten more acute as a result of the economic environment, and companies
are relying on management consultants for help in analyzing, addressing, and solving strategic business
problems and performance-related issues involving market supply and demand dynamics, supply chain
and sourcing, pricing, capital allocation, technology management, portfolio positioning, risk
management, merger integration, and improving shareholder value.
Competitive Strengths
Since 1965, we have been committed to providing sophisticated consulting services to our clients.
We believe that the following factors have been critical to our success.
Strong Reputation for High-Quality Consulting; High Level of Repeat Business. Since 1965, we have
been a leader in providing sophisticated economic analysis and original, authoritative advice to clients
involved in complex litigation and regulatory proceedings, and we also provide management consulting
services to companies facing strategic, organizational, and operational challenges. As a result, we
believe we have established a strong reputation among leading law firms and business clients as a
preferred source of expertise in economics, finance, business, and management consulting, as evidenced
by our high level of repeat business. In addition, we believe our significant name recognition, which we
developed as a result of our work on many high-profile litigation and regulatory engagements, has
enhanced the development of our management consulting practice.
Highly Educated, Experienced, and Versatile Consulting Staff. We believe our most important asset
is our base of employee consultants, particularly our senior employee consultants. As of January 2,
2016 we employed 511 consultants, which consisted of 389 senior staff and 122 junior staff.
Approximately three-fourths of our senior staff has a doctorate or other advanced degree. Many of
these senior employee consultants are nationally or internationally recognized as experts in their
respective fields. In addition to their expertise in a particular field, most of our employee consultants
are able to apply their skills across numerous practice areas. This flexibility in staffing engagements is
critical to our ability to apply our resources as needed to meet the demands of our clients. As a result,
we seek to hire consultants who not only have strong analytical skills, but who are also creative,
intellectually curious, and driven to develop expertise in new practice areas and industries.
International Presence. We deliver our services through an international network of coordinated
offices. Headquartered in Boston, Massachusetts, we have offices throughout North America and
Europe. Many of our clients are multinational firms with issues that cross international boundaries, and
we believe our international presence provides us with an advantage to address complex issues that
span countries and continents. Our international presence also gives us access to many of the leading
experts around the world on a variety of issues, allowing us to expand our knowledge base and areas of
functional expertise.
4
Diversified Business. Our business is diversified across multiple dimensions, including service
offerings, vertical industry coverage, areas of functional expertise, client base, and geography. By
maintaining expertise in multiple industries, we are able to offer clients creative and pragmatic advice
tailored to their specific markets. By offering clients litigation, regulatory, financial, and management
consulting services, we are able to satisfy an array of client needs, ranging from expert testimony for
complex lawsuits to designing global business strategies. This broad range of expertise enables us to
take an interdisciplinary approach to certain engagements, combining economists and experts in one
area with specialists in other disciplines. We believe this diversification reduces our dependence on any
particular market, industry, or geographic area. Furthermore, our litigation, regulatory, and financial
consulting businesses are driven primarily by regulatory changes and high-stakes legal proceedings. Our
diversity also enhances our expertise and the range of issues that we can address on behalf of clients.
Integrated Business. We manage our business on an integrated basis through our international
network of offices and areas of functional expertise. Many of our practice areas are represented in
several of our offices and are managed across geographic borders. We view these cross-border practices
as integral to our success and key to our management approach. Our practices share not only staff but
also consulting approaches and marketing strategies. When we acquire companies, our practice is to
rapidly integrate systems, procedures, and people into our business platform. In addition to sharing our
intellectual property assets globally, we encourage geographic collaboration among our practices by
including a consultant’s overall contribution to our practices as a factor in determining the consultant’s
annual bonus.
Diversified Client Base. We have completed thousands of engagements for clients in a broad range
of industries around the world. Our clients are major firms, and national and international law firms
representing such clients, across a multitude of industries that include agriculture; banking and capital
markets; chemicals; communications and media; consumer products; energy; entertainment; financial
services; health care; insurance; life sciences; manufacturing; metals, mining, and materials; oil and gas;
real estate; retail; sports; telecommunications; transportation; and technology.
Established Corporate Culture. Our success results in part from our established corporate culture.
We believe we attract consultants because of our approximately 50-year history, our strong reputation,
the credentials, experience, and reputations of our employee consultants, the opportunity to work on an
array of matters with a broad group of renowned non-employee experts, and our collegial atmosphere
where teamwork and collaboration are emphasized and valued by many clients.
Access to Leading Academic and Industry Experts. To enhance the expertise we provide to our
clients and the depth and breadth of our insights, we maintain close working relationships with a select
group of non-employee experts. Depending on client needs, we use non-employee experts for their
specialized expertise, assistance in conceptual problem-solving, and expert witness testimony. We work
regularly with renowned professors at such institutions as Cornell University, Georgetown University,
The Graduate Institute of International and Development Studies, Harvard University, the
Massachusetts Institute of Technology, Northwestern University, Texas A&M University, the University
of California at Berkeley, the University of California at Los Angeles, the University of Chicago,
University of Michigan College of Literature, Science and the Arts, the University of Toronto, Yale
University, and other leading universities. These experts also generate business for us and provide us
access to other leading academic and industry experts. By establishing affiliations with these prestigious
experts, we further enhance our reputation as a leading source of sophisticated economic and financial
analysis.
Services
We offer consulting services in two broad areas: litigation, regulatory, and financial consulting and
management consulting. Together, these two service areas comprised approximately 99% of our
consolidated revenues for fiscal 2015, and approximately 1% of our consolidated revenues came from
our NeuCo subsidiary.
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Litigation, Regulatory, and Financial Consulting
In our litigation, regulatory, and financial consulting practices, we typically work closely with law
firms on behalf of one or more companies involved in litigation or regulatory proceedings in such areas
as antitrust, damages, and labor and employment. Many of the lawsuits and regulatory proceedings in
which we are involved are critical assignments with high-stakes outcomes, such as obtaining regulatory
approval of a pending merger or analyzing possible damages awards in a class action case. The ability
to formulate and effectively communicate powerful economic and financial arguments to courts and
regulatory agencies is often critical to a successful outcome in litigation and regulatory proceedings.
Our consultants combine uncommon analytical rigor with practical experience and in-depth
understanding of industries and markets. Our analytical strength enables us to reach objective, factual
conclusions that help our clients make important business and policy decisions and resolve critical
disputes. Our consultants work with law firms, corporate counsel, and regulatory agencies to assist in
developing the theory of the case and in preparing the testimony of expert witnesses from among our
employees and from among our non-employee experts and others in academia. In addition, our
consultants provide general litigation support, including reviewing legal briefs and assisting in the
appeals process.
The following is a summary of the areas of functional expertise that we offer in litigation,
regulatory, and financial consulting engagements. We provide services, such as economic expertise,
analyses, and expert testimony, in these areas:
Areas of Functional Expertise
Description of Area of Service
Antitrust & Competition . . Antitrust litigation, including economic analysis of the competitive effects
of alleged collusion and cartels, monopolization, abuse of dominance,
monopsony, and vertical restrictions.
Damages & Valuation . . . . Disputes involving lost profits, breach of contract, purchase price,
valuation, business interruption, product liability, and fraud, among other
damages claims. Calculating damages, providing expert testimony, and
critiquing opposing experts’ damages analyses in matters involving disputes
in antitrust; intellectual property; securities and other financial market
issues; insolvency; property values; contract; employment discrimination;
product liability; environmental contamination; and purchase price.
Supporting clients with broader corporate valuation services, providing
pre-trial evaluations of damages claims and methodologies, and evaluating
proposed settlements in class action and other cases.
Financial Accounting &
Valuation . . . . . . . . . . . Commercial and shareholder disputes; corporate finance damages advisory;
corporate investigations; due diligence; financial accounting; valuation and
litigation support and expert testimony, including both liability and
damages.
Financial Economics . . . . . Matters pertaining to financial markets, including regulatory analyses and
litigation support for financial institutions in areas of fair lending
compliance, credit risk, credit scoring, consumer and mortgage lending,
housing markets, international mortgage markets, and securitization.
Analyses of valuations and estimates of damages associated with breaches
of contract, national laws, and international treaties and the effects of
market rules, processes, and contracts on prices and competition.
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Areas of Functional Expertise
Forensic & Cyber
Description of Area of Service
Investigations . . . . . . . . Forensic accounting and analysis of complex accounting issues; fraud,
corruption, bribery and embezzlement investigations; white collar defense;
cybercrime, data breach and theft of trade secrets investigations; computer
and other digital forensic analyses; actionable business intelligence and
reputational due diligence; and other independent professional services
that help clients preserve their reputation and support their commitment
to integrity.
Insurance Economics . . . . Matters pertaining to advising insurers, regulators, and legislators in
management, insurance products, and litigation and regulation.
Intellectual Property . . . . . Matters pertaining to all types of intellectual property assets including
valuation, litigation, transaction and strategic advisory services, patents,
trade secrets, copyrights, and trademarks as well as economic damages in
intellectual property litigation, valuations of intellectual property assets for
strategic and regulatory purposes, and transactional advisory services for
licensing and other intellectual property-rich transactions.
International Arbitration . . International arbitration cases brought under bilateral investment treaties
and arbitration clauses in contracts between firms. Assessing causation and
quantifying damages using sophisticated modeling and analytical
techniques and presenting findings to arbitration authorities.
Labor & Employment . . . . All facets of employment litigation including equal employment
opportunity claims under Title VII, the Age Discrimination in
Employment Act, the Equal Pay Act, and the Americans with Disabilities
Act. Providing expert witness and litigation support services, conducting
proactive analyses of employment and contracting practices, monitoring
consent decrees and settlement agreements, designing information systems
to track relevant employment data, and analyzing liability and assessing
damages under the Fair Labor Standards Act, California overtime laws,
and state-specific wage and hour laws.
Mergers & Acquisitions . . . Assisting clients in obtaining domestic and foreign regulatory approvals in
proceedings before government agencies, such as the U.S. Federal Trade
Commission, the U.S. Department of Justice, the Merger Task Force at the
European Commission, and the Canadian Competition Bureau. Analyses
include simulating the effects of mergers on prices, estimating demand
elasticities, designing and administering customer and consumer surveys,
and studying possible acquisition-related synergies.
Regulatory Economics and
Compliance . . . . . . . . . . Regulatory proceedings and assisting clients in understanding and
mitigating regulatory risks and exposures, preparing policy studies that
help develop the basis for sound regulatory policy, drafting regulatory
filings, and advising on regulations pertaining to environmental protection,
employment, and health and safety.
Securities and Financial
Markets . . . . . . . . . . . . Application of financial economics and accounting to complex litigation
and business problems in such areas as securities litigation; securities
markets and financial institutions; valuation and damages; and other
financial litigation.
7
Areas of Functional Expertise
Description of Area of Service
Transfer Pricing . . . . . . . . All phases of the tax cycle, including planning, documentation, and tax
valuation. Also includes audit defense and support in advanced pricing
agreements, alternative dispute resolution, and litigation in proceedings
involving the Internal Revenue Service, the Tax Division of the U.S.
Department of Justice, state and municipal tax authorities, and foreign tax
authorities.
Management Consulting
Our management consulting practices offer a unique mix of industry and functional expertise to
help companies address and solve their strategic, organizational, and operational business problems. We
advise clients in a broad range of industries on how to succeed in uncertain, rapidly-changing
environments by generating growth, creating value, and enhancing shareholder wealth.
Additionally, we challenge clients to develop fresh approaches by sharing industry insights, focusing
on facts, and questioning tradition. We support clients in implementation by setting priorities, focusing
resources, and aligning operations, and we get results by helping clients make distinctive, substantial
improvements in their organizations’ performance.
The following is a summary of the areas of functional expertise that we offer in management
consulting.
Areas of Functional Expertise
Auctions & Competitive
Description of Area of Service
Bidding . . . . . . . . . . . . . Providing auction and market design, implementation, and monitoring
services, as well as bidding support services, for businesses, industry
organizations, and governments in various industries around the world,
including commodities, energy and utilities, telecommunications,
transportation, natural resources, and other industries.
Corporate & Business
Strategy . . . . . . . . . . . . Advising on business strategy, corporate revitalizations, and organizational
effectiveness by bringing new ways of thinking to companies and new ways
of working to develop better strategies over time and identifying the
highest-value opportunities that address critical challenges and transform
business. Advising chief executive officers and executive management
teams on corporate and business unit strategy, market analysis, portfolio
management, pricing strategy, and product positioning. Areas of expertise
include strategy, execution, organic growth, growth through acquisition,
productivity, risk management, leadership and organization, and managing
for value.
Enterprise Risk
Management . . . . . . . . . Advising large financial institutions and corporations in areas of
governance and strategy, process analytics, and technology related to risk
management.
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Areas of Functional Expertise
Environmental and Energy
Description of Area of Service
Strategy . . . . . . . . . . . . Advising companies on the following: corporate strategy to address risks
and uncertainties surrounding environmental policy developments; business
models that adapt to future environmental policy; investment decision-
making processes that account for environmental policy uncertainty;
environmental strategic compliance options with regulations/legislation;
emissions trading planning surrounding cap-and-trade policies;
identification of business opportunities that could relate to environmental
trends; and the economic and business issues surrounding clean and
renewable energy, enterprise and asset management, global gas and
liquefied natural gas services, and regulation and litigation.
Intellectual Property &
Technology Management Advising top management, investors, and boards on technology strategy
and planning, research and development management, commercialization,
technology market evaluation, intellectual property management, and
portfolio and resource management.
Organization &
Performance
Improvement
. . . . . . . . Advising corporate clients in areas of revenue growth drivers; operating
margin drivers; asset efficiency drivers; key enablers; and performance
management and metrics.
Transaction Advisory
Services . . . . . . . . . . . . Advising business leaders, including buyers and sellers, in the areas of due
diligence, mergers and acquisitions, private equity, and valuation.
Industry Expertise
We believe our ability to combine expertise in advanced economic and financial methods with
in-depth knowledge of particular industries is one of our key competitive strengths. By maintaining
expertise in certain industries, we provide clients practical advice tailored to their specific markets. This
industry expertise, which we developed over decades of providing sophisticated consulting services to a
diverse group of clients in many industries, differentiates us from many of our competitors. We believe
that we have developed a strong reputation and substantial name recognition within specific industries,
which has led to repeat business and new engagements from clients in those markets. While we provide
services to clients in a wide variety of industries, we have particular expertise in the following
industries:
(cid:129) Agriculture
(cid:129) Banking & Capital Markets
(cid:129) Chemicals
(cid:129) Communications & Media
(cid:129) Consumer Products
(cid:129) Energy
(cid:129) Entertainment
(cid:129) Financial Services
(cid:129) Health Care
(cid:129) Insurance
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(cid:129) Life Sciences
(cid:129) Manufacturing
(cid:129) Metals, Mining, & Materials
(cid:129) Oil & Gas
(cid:129) Real Estate
(cid:129) Retail
(cid:129) Sports
(cid:129) Telecommunications
(cid:129) Transportation
(cid:129) Technology
Clients
We have completed thousands of engagements for clients around the world, including domestic
and foreign corporations; Federal, state, and local domestic government agencies; governments of
foreign countries; public and private utilities; accounting firms; and national and international trade
associations. Frequently, we work with major law firms who approach us on behalf of their clients.
While we have particular expertise in a number of industries, we provide services to a diverse group of
clients in a broad range of industries. Our policy is to keep the identities of our clients confidential
unless our work for the client is already publicly disclosed. Our clients come from a broad range of
industries, with no single client accounting for more than 5% of our revenues in any of fiscal 2015,
fiscal 2014 or fiscal 2013.
We derived approximately 14%, 15%, and 13% of consolidated revenues from fixed-price contracts
in fiscal 2015, fiscal 2014, and fiscal 2013, respectively. These contracts are more common in our
management consulting area, and would likely grow in number with expansion of that area. Revenues
outside of the U.S. accounted for approximately 20%, 22%, and 22% of our total revenues in fiscal
2015, fiscal 2014, and fiscal 2013, respectively. See note 12 of our Notes to Consolidated Financial
Statements for a breakdown of our revenue and long-lived assets by country.
Software Subsidiary
NeuCo, Inc. develops and markets a family of neural network software tools and complementary
application consulting services that are currently focused on electric utilities. Although NeuCo had its
origins in one of our consulting engagements, it is primarily a software company that operates
independently from our consulting business. NeuCo’s products and services are designed to help
utilities optimize the use of their power plants by improving heat rate, reducing emissions, overcoming
operating constraints, and increasing output capability.
Our ownership interest in NeuCo was 55.89% for each of fiscal 2015, fiscal 2014 and fiscal 2013.
NeuCo’s financial results have been consolidated with ours and the portion of NeuCo’s results allocable
to its other owners is shown as ‘‘noncontrolling interest.’’
NeuCo’s revenues, which are comprised of software sales and maintenance service revenue,
included in our consolidated statements of operations for fiscal 2015, fiscal 2014, and fiscal 2013 totaled
approximately $3.8 million, $4.8 million, and $5.1 million, respectively. NeuCo’s net loss included in our
consolidated statements of operations for fiscal 2015, fiscal 2014 and fiscal 2013 was approximately
$3.0 million, $0.5 million and $0.3 million, respectively. NeuCo’s net loss, net of amounts allocable to
its other owners, included in our consolidated statements of operations for fiscal 2015, fiscal 2014 and
fiscal 2013 was approximately $1.3 million, $0.2 million and $0.2 million, respectively.
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Human Capital
As of January 2, 2016 we employed 511 consultants, consisting of 389 senior staff and 122 junior
staff. Approximately three-fourths of our senior staff has a doctorate or other advanced degree in
addition to substantial management, technical, or industry expertise. We believe our financial results
and reputation are directly related to the number and quality of our employee consultants.
We derive most of our revenues directly from the services provided by our employee consultants.
Our employee consultants have backgrounds in many disciplines, including economics, business,
corporate finance, accounting, materials sciences, life sciences, and engineering. We are highly selective
in our hiring of consultants, recruiting primarily from a select group of leading universities and degree
programs, industry, and government. We believe consultants choose to work for us because of our
strong reputation; the credentials, experience, and reputations of our consultants; the opportunity to
work on a diverse range of matters and with renowned non-employee experts; and our collegial
atmosphere where teamwork and collaboration are emphasized and valued by many clients. We use a
decentralized, team hiring approach. Our training and career development program for our employee
consultants focuses on three areas: mentoring, seminars, and scheduled courses. This program is
designed to complement on-the-job experience and an employee’s pursuit of his or her own career
development. New employee consultants participate in a structured program in which they are
partnered with an assigned mentor. Through our ongoing seminar program, outside speakers make
presentations and conduct discussions with our employee consultants on various topics. In addition,
employee consultants are expected to discuss significant projects and cases, present academic research
papers or business articles, and outline new analytical techniques or marketing opportunities
periodically at in-house seminars. We also provide scheduled courses designed to improve an
employee’s professional skills, such as written and oral presentation, marketing techniques, and business
development. We also encourage our employee consultants to pursue their academic interests by
writing articles for economic, business, and other journals.
Many of our vice presidents have signed non-solicitation agreements, which generally prohibit the
employee from soliciting our clients or soliciting and/or hiring our employees for one year or longer
following termination of the person’s employment with us. In addition, many of the stock options we
have issued between 2005 and 2008 contain a provision that they may only be exercised upon the
execution of a non-competition agreement. We seek to align each vice president’s interest with our
overall interests, and many of our strongest contributors have an equity interest in us.
We maintain a discretionary bonus program through which we grant performance-based bonuses to
our officers and other employees. In fiscal 2007, our shareholders approved a performance-based cash
incentive plan designed to preserve the deductibility of the compensation paid to our executive officers.
In 2012, our Board of Directors amended this plan to extend its effective date until the annual meeting
of our shareholders held in 2017. In addition, during fiscal 2009, we implemented a long-term incentive
program for certain key employees. Under this program, selected participants receive a mixture of stock
options, time-vesting restricted stock units, and performance-vesting restricted stock units. The program
is designed to reward key employees and provide participants the opportunity to share in the long-term
growth of our business. The Compensation Committee of our Board of Directors is responsible for
approving equity compensation grants, approving the total bonuses to be distributed, establishing
performance-based goals under these programs and plans each year, and determining the performance-
based compensation earned each year by our executive officers under our cash incentive plan, with
respect to which they can apply negative discretion. Our chief executive officer, in his discretion and in
consultation with the Compensation Committee of our Board of Directors, approves the bonuses to be
granted to our other employees, based on recommendations of the various leaders supervising the
employees’ work.
In addition, we work closely with a select group of non-employee experts from leading universities
and industry. These experts supplement the work of our employee consultants and generate business
for us. We believe these experts choose to work with us because of the interesting and challenging
nature of our work, the opportunity to work with our quality-oriented consultants, and the financially
11
rewarding nature of the work. Several non-employee experts, generally comprising the more active of
those with whom we work, have entered into restrictive covenant contracts with us of varying lengths,
which, in some cases, include non-competition agreements.
Most of our revenues depend on the number of hours worked by our employee consultants. As a
result, we experience certain seasonal effects that impact our revenue, such as holiday seasons and the
summer vacation season.
Marketing and Business Development
We rely to a significant extent on the efforts of our employee consultants, particularly our vice
presidents and principals, to market our services. We encourage our employee consultants to generate
new business from both existing and new clients, and we reward our employee consultants with
increased compensation and promotions for obtaining new business. In pursuing new business, our
consultants emphasize our institutional reputation, experience, and client service, while also promoting
the expertise of the particular employees who will work on the matter. Many of our consultants have
published articles in industry, business, economic, legal, or scientific journals, and have made speeches
and presentations at industry conferences and seminars, which serve as a means of attracting new
business and enhancing their reputations. On occasion, employee consultants work with one or more
non-employee experts to market our services. In addition, we rely upon business development
professionals to ensure that the value of our litigation consulting service offerings is fully realized in the
marketplace. They are focused on deepening and broadening client relationships with law firms and
general counsels, ensuring that both existing and potential clients have access to our broad array of
services, as well as helping to bring the best talent to any given assignment.
We supplement the personal marketing efforts of our employee consultants with firm-wide
initiatives. We rely primarily on our reputation and client referrals for new business and undertake
traditional marketing activities. We regularly organize seminars for existing and potential clients
featuring panel members that include our employee consultants, non-employee experts, and leading
government officials. We have an extensive set of brochures organized around our service areas, which
describe our experience and capabilities. We also provide information about our services on our
corporate website. We distribute publications to existing and potential clients highlighting emerging
trends and noteworthy engagements. Because existing clients are an important source of repeat business
and referrals, we communicate regularly with our existing clients to keep them informed of
developments that affect their markets and industries.
We derive the majority of new business from new engagements from existing clients. We have
worked with leading law firms across the globe and believe we have developed a reputation among law
firms as a preferred source of sophisticated economic advice for litigation and regulatory work. For our
management consulting services, we also rely on referrals from existing clients, and supplement
referrals with a significant amount of direct marketing to new clients through conferences, seminars,
publications, presentations, and direct solicitations.
It is important to us that we conduct business ethically and in accordance with industry standards
and our own rigorous professional standards. We carefully consider the pursuit of each specific market,
client, and engagement in light of these standards.
Competition
The market for economic and management consulting services is intensely competitive, highly
fragmented, and subject to rapid change. In general, there are few barriers to entry into our markets,
and we expect to face additional competition from new entrants into the economic and management
consulting industries. In the litigation, regulatory, and financial consulting markets, we compete
primarily with other economic consulting firms and individual academics. We believe the principal
competitive factors in this market are reputation, analytical ability, industry expertise, size, and service.
In the management consulting market, we compete primarily with other business and management
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consulting firms, specialized or industry-specific consulting firms, the consulting practices of large
accounting firms, and the internal professional resources of existing and potential clients. We believe
the principal competitive factors in this market are reputation, industry expertise, analytical ability,
service, and price.
Item 1A—Risk Factors
Our operations are subject to a number of risks. You should carefully read and consider the
following risk factors, together with all other information in this report, in evaluating our business. If
any of these risks, or any risks not presently known to us or that we currently believe are not
significant, develops into an actual event, then our business, financial condition, and results of
operations could be adversely affected. If that happens, the market price of our common stock could
decline, and you may lose all or part of your investment.
We depend upon key employees to generate revenue
Our business consists primarily of the delivery of professional services, and, accordingly, our
success depends heavily on the efforts, abilities, business generation capabilities, and project execution
capabilities of our employee consultants. In particular, our employee consultants’ personal relationships
with our clients are a critical element in obtaining and maintaining client engagements. If we lose the
services of any employee consultant or group of employee consultants, or if our employee consultants
fail to generate business or otherwise fail to perform effectively, that loss or failure could adversely
affect our revenues and results of operations. We do not have non-competition agreements with a
majority of our employee consultants, and they can terminate their relationships with us at will and
without notice. The non-competition and non-solicitation agreements that we have with some of our
employee consultants offer us only limited protection and may not be enforceable in every jurisdiction.
In the event that an employee leaves, some clients may decide that they prefer to continue working
with the employee rather than with us. In the event an employee departs and acts in a way that we
believe violates the employee’s non-competition or non-solicitation agreement, we will consider any
legal remedies we may have against such person on a case-by-case basis. We may decide that preserving
cooperation and a professional relationship with the former employee or clients that worked with the
employee, or other concerns, outweigh the benefits of any possible legal recovery.
Our business could suffer if we are unable to hire and retain additional qualified consultants as employees
Our business continually requires us to hire highly qualified, highly educated consultants as
employees. Our failure to recruit and retain a significant number of qualified employee consultants
could limit our ability to accept or complete engagements and adversely affect our revenues and results
of operations. Relatively few potential employees meet our hiring criteria, and we face significant
competition for these employees from our direct competitors, academic institutions, government
agencies, research firms, investment banking firms, and other enterprises. Many of these competing
employers are able to offer potential employees greater compensation and benefits or more attractive
lifestyle choices, career paths, or geographic locations than we can. Competition for these employee
consultants has increased our labor costs, and a continuation of this trend could adversely affect our
margins and results of operations.
Maintaining our professional reputation is crucial to our future success
Our ability to secure new engagements and hire qualified consultants as employees depends heavily
on our overall reputation as well as the individual reputations of our employee consultants and
principal non-employee experts. Because we obtain a majority of our new engagements from existing
clients, any client that is dissatisfied with our performance on a single matter could seriously impair our
ability to secure new engagements. Given the frequently high-profile nature of the matters on which we
work, including work before and on behalf of government agencies, any factor that diminishes our
reputation or the reputations of any of our employee consultants or non-employee experts could make
13
it substantially more difficult for us to compete successfully for both new engagements and qualified
consultants.
We depend on our non-employee experts
We depend on our relationships with our non-employee experts. We believe that these experts are
highly regarded in their fields and that each offers a combination of knowledge, experience, and
expertise that would be very difficult to replace. We also believe that we have been able to secure some
engagements and attract some consultants in part because we can offer the services of these experts.
Most of these experts can limit their relationships with us at any time for any reason. These reasons
could include affiliations with universities with policies that prohibit accepting specified engagements,
termination of exclusive relationships, the pursuit of other interests, and retirement.
In many cases we seek to include restrictive covenant agreements in our agreements with our
non-employee experts, which could include non-competition agreements, non-solicitation agreements
and non-hire agreements. The limitation or termination of any of their relationships with us, or
competition from any of them after these agreements expire, could harm our reputation, reduce our
business opportunities and adversely affect our revenues and results of operations. These restrictive
covenant agreements that we may have with some of our non-employee experts offer us only limited
protection and may not be enforceable in every jurisdiction. In the event that non-employee experts
leave, clients working with these non-employee experts may decide that they prefer to continue working
with them rather than with us. In the event a non-employee expert departs and acts in a way that we
believe violates the expert’s restrictive covenant agreements, we will consider any legal and equitable
remedies we may have against such person on a case-by-case basis. We may decide that preserving
cooperation and a professional relationship with the former non-employee expert or clients that worked
with the non-employee expert, or other concerns, outweigh the benefits of any possible legal action or
recovery.
To meet our long-term growth targets, we need to establish ongoing relationships with additional
non-employee experts who have reputations as leading experts in their fields. We may be unable to
establish relationships with any additional non-employee experts. In addition, any relationship that we
do establish may not help us meet our objectives or generate the revenues or earnings that we
anticipate.
Changes in global economic, business and political conditions could have a material adverse impact on our
revenues, results of operations, and financial condition
Overall global economic, business and political conditions, as well as conditions specific to the
industries we or our clients serve, can affect our clients’ businesses and financial condition, their
demand or ability to pay for our services, and the market for our services. These conditions, all of
which are outside of our control, include merger and acquisition activity levels, the availability, cost and
terms of credit, the state of the United States and global financial markets, the levels of litigation and
regulatory and administrative investigations and proceedings, and general economic and business
conditions. In addition, many of our clients are in highly regulated industries, and regulatory and
legislative changes affecting these industries could impact the market for our service offerings, render
our current service offerings obsolete, or increase the competition among providers of these services.
Although we are not able to predict the positive or negative effects that general changes in global
economic, business and political conditions will have on our individual practice areas or our business as
a whole, any specific changes in these conditions could have a material adverse impact on our revenues,
results of operations and financial condition.
Our results of operations and consequently our business may be adversely affected if we are not able to
maintain our current bill rates, compensation costs and/or utilization rate
Our revenues and profitability are largely based on the bill rates charged to our clients,
compensation costs and the utilization of our consultants. We calculate utilization by dividing the total
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hours worked by our employee consultants on engagements during the measurement period by the total
number of hours that our employee consultants were available to work during that period. If we are
not able to maintain adequate bill rates for our services, maintain compensation costs or obtain
appropriate utilization rates from our consultants, our results of operations may be adversely impacted.
Bill rates, compensation costs and consultant utilization rates are affected by a number of factors,
including:
(cid:129) Our clients’ perceptions of our ability to add value through our services;
(cid:129) The market demand for our services;
(cid:129) Our competitors’ pricing of services and compensation levels;
(cid:129) The market rate for consultant compensation;
(cid:129) Our ability to redeploy consultants from completed client engagements to new client
engagements; and
(cid:129) Our ability to predict future demand for our services and maintain the appropriate staffing levels
without significantly underutilizing consultants.
Our revenues, operating results and cash flows are likely to fluctuate
We experience fluctuations in our revenues, operating results and cash flows and expect that they
will continue to occur in the future due to factors that are either within or outside of our control,
including, but not limited to, the timing and duration of our client engagements, utilization of our
employee consultants, the types of engagements we are working on at different times, the geographic
locations of our clients or where the services are rendered, the length of billing and collection cycles,
hiring, business and capital expenditures, share repurchases, debt repayments, and other general
economic factors. We may also experience future fluctuations in our cash flows from operations
because of increases in employee compensation, including changes to our incentive compensation
structure and the timing of incentive payments, which we generally pay during the first quarter of each
year, or hiring or retention payments or bonuses which are paid throughout the year. Also, the timing
of future acquisitions and other investments and the cost of integrating them may cause fluctuations in
our operating results and related cash flows.
Our failure to execute our business strategy or manage future growth successfully could adversely affect our
revenues and results of operations
Any failure on our part to execute our business strategy or manage future growth successfully
could adversely affect our revenues and results of operations. In the future, we could open offices in
new geographic areas, including foreign locations, and expand our employee base as a result of internal
growth and acquisitions. Opening and managing new offices often requires extensive management
supervision and increases our overall selling, general, and administrative expenses. Expansion creates
new and increased management, consulting, and training responsibilities for our employee consultants.
Expansion also increases the demands on our internal systems, procedures, and controls, and on our
managerial, administrative, financial, marketing, and other resources. We depend heavily upon the
managerial, operational, and administrative skills of our executive officers to manage our expansion and
business strategy. New responsibilities and demands may adversely affect the overall quality of our
work.
Competition from other litigation, regulatory, financial, and management consulting firms could hurt our
business
The market for litigation, regulatory, financial, and management consulting services is intensely
competitive, highly fragmented, and subject to rapid change. We may be unable to compete successfully
with our existing competitors or with any new competitors. In general, there are few barriers to entry
into our markets, and we expect to face additional competition from new entrants into the economic
15
and management consulting industries. In the litigation, regulatory, and financial consulting markets, we
compete primarily with other economic and financial consulting firms and individual academics. In the
management consulting market, we compete primarily with other business and management consulting
firms, specialized or industry-specific consulting firms, the consulting practices of large accounting firms,
and the internal professional resources of existing and potential clients. Many of our competitors have
national or international reputations as well as significantly greater personnel, financial, managerial,
technical, and marketing resources than we do, which could enhance their ability to respond more
quickly to technological changes, finance acquisitions, and fund internal growth. Some of our
competitors also have a significantly broader geographic presence and significantly more resources than
we do.
Clients can terminate engagements with us at any time
Many of our engagements depend upon disputes, proceedings, or transactions that involve our
clients. Our clients may decide at any time to seek to resolve the dispute or proceeding, abandon the
transaction, or file for bankruptcy. Our engagements can therefore terminate suddenly and without
advance notice to us. If an engagement is terminated unexpectedly, our employee consultants working
on the engagement could be underutilized until we assign them to other projects. In addition, because
much of our work is project-based rather than recurring in nature, our consultants’ utilization depends
on our ability to secure additional engagements on a continual basis. Accordingly, the termination or
significant reduction in the scope of a single large engagement could reduce our utilization and have an
immediate adverse impact on our revenues and results of operations.
Information or technology systems failures, or a compromise of our or our client’s confidential or proprietary
information, could have a material adverse effect on our reputation, business and results of operations
We rely upon information and technology infrastructure and systems to operate, manage and run
our business and to provide services to our clients. This includes infrastructure and systems for
receiving, storing, hosting, analyzing, transmitting and securing our and our clients’ sensitive,
confidential or proprietary information, including, but not limited to, health and other personally-
identifiable information and commercial, financial and consumer data. Our ability to secure and
maintain the confidentiality of this information is critical to our reputation and the success of our
businesses. We may be affected by or subject to events that are out of our control, including, but not
limited to, viruses, malicious software, worms, failures in our or our third party hosting sites’
information and technology systems, disruptions in the Internet or electricity grids, natural disasters,
terrorism and malicious attacks, and unauthorized intrusions by unknown third parties. Any of these
events could disrupt our or our client’s business operations or cause us or our clients to incur
unanticipated losses and reputational damage, which could have a material adverse effect on our
business and results of operations.
In addition, our or our clients’ sensitive, confidential or proprietary information could be
compromised, whether intentionally or unintentionally, by our employees, outside consultants, vendors,
or rogue third-party ‘‘hackers’’ or enterprises. A breach or compromise of the security of our
information technology systems or infrastructure, or our processes for securing sensitive, confidential or
proprietary information, could result in the loss or misuse of this information. Any such loss or misuse
could result in our suffering claims, fines, damages, losses or reputational damage, any of which could
have a material adverse effect on our business and results of operations.
Potential conflicts of interests may preclude us from accepting some engagements
We provide our services primarily in connection with significant or complex transactions, disputes,
or other matters that are usually adversarial or that involve sensitive client information. Our
engagement by a client may preclude us from accepting engagements with the client’s competitors or
adversaries because of conflicts between their business interests or positions on disputed issues or other
reasons. Accordingly, the nature of our business limits the number of both potential clients and
16
potential engagements. Moreover, in many industries in which we provide consulting services, such as in
the telecommunications industry, there has been a continuing trend toward business consolidations and
strategic alliances. These consolidations and alliances reduce the number of potential clients for our
services and increase the chances that we will be unable to continue some of our ongoing engagements
or accept new engagements as a result of conflicts of interests.
We derive revenue from a limited number of large engagements
We derive a portion of our revenues from a limited number of large engagements. If we do not
obtain a significant number of new large engagements each year, our business, financial condition, and
results of operations could suffer. In general, the volume of work we perform for any particular client
varies from year to year, and due to the specific engagement nature of our practice, a major client in
one year may not hire us in the following year.
Our international operations create risks
Our international operations carry financial and business risks, including:
(cid:129) currency fluctuations that could adversely affect our financial position and operating results;
(cid:129) unexpected changes in trading policies, regulatory requirements, tariffs, and other barriers;
(cid:129) restrictions on the repatriation of earnings;
(cid:129) potentially adverse tax consequences, such as trapped foreign losses or changes in statutory tax
rates;
(cid:129) the impact of differences in the governmental, legal and regulatory environment in foreign
jurisdictions, as well as U.S. laws and regulations related to our foreign operations;
(cid:129) less stable political and economic environments; and
(cid:129) civil disturbances or other catastrophic events that reduce business activity.
If our international revenues increase relative to our total revenues, these factors could have a
more pronounced effect on our operating results.
Our entry into new lines of business could adversely affect our results of operations
If we attempt to develop new practice areas or lines of business outside our core litigation,
regulatory, financial, and management consulting services, those efforts could harm our results of
operations. Our efforts in new practice areas or new lines of business involve inherent risks, including
risks associated with inexperience and competition from mature participants in the markets we enter.
Our inexperience in these new practice areas or lines of business may result in costly decisions that
could harm our business.
Fluctuations in our quarterly revenues and results of operations could depress the market price of our
common stock
We may experience significant fluctuations in our revenues and results of operations from one
quarter to the next. If our revenues or net income in a quarter fall or falls below the expectations of
securities analysts or investors, the market price of our common stock could fall significantly. Our
results of operations in any quarter can fluctuate for many reasons, including:
(cid:129) our ability to implement rate increases or maintain rates;
(cid:129) the number, scope, and timing of ongoing client engagements;
(cid:129) the extent to which we can reassign our employee consultants efficiently from one engagement
to the next;
17
(cid:129) the extent to which our employee consultants or clients take holiday, vacation, and sick time,
including traditional seasonality related to summer vacation and holiday schedules;
(cid:129) employee hiring;
(cid:129) the extent of revenue realization or cost overruns;
(cid:129) fluctuations in the results and continuity of the operations of our software subsidiary, NeuCo;
(cid:129) fluctuations in our provision for income taxes due to changes in income arising in various tax
jurisdictions, valuation allowances, non-deductible expenses, and changes in estimates of our
uncertain tax positions;
(cid:129) fluctuations in interest rates;
(cid:129) currency fluctuations that could adversely affect our financial position and operating results; and
(cid:129) collectability of receivables and unbilled work in process.
Because we generate most of our revenues from consulting services that we provide on an hourly
fee basis, our revenues in any period are directly related to the number of our employee consultants,
their billing rates, and the number of billable hours they work in that period. We have a limited ability
to increase any of these factors in the short term. Accordingly, if we underutilize our consultants during
one part of a fiscal period, we may be unable to compensate by augmenting revenues during another
part of that period. In addition, we are occasionally unable to utilize fully any additional consultants
that we hire, particularly in the quarter in which we hire them. Moreover, a significant majority of our
operating expenses, primarily office rent and salaries, are fixed in the short term. As a result, any
failure of our revenues to meet our projections in any quarter could have a disproportionate adverse
effect on our net income. For these reasons, we believe our historical results of operations are not
necessarily indicative of our future performance.
Our engagements may result in professional liability and we may be subject to other litigation, claims or
assessments
Our services typically involve difficult analytical assignments and carry risks of professional and
other liability. Many of our engagements involve matters that could have a severe impact on a client’s
business, and cause the client to lose significant amounts of money, or prevent the client from pursuing
desirable business opportunities. Accordingly, if a client is dissatisfied with our performance, the client
could threaten or bring litigation in order to recover damages or to contest its obligation to pay our
fees. Litigation alleging that we performed negligently, disclosed client confidential information, or
otherwise breached our obligations to the client could expose us to significant liabilities to our clients
and other third parties and tarnish our reputation.
Despite our efforts to prevent litigation, from time to time we are party to various lawsuits, claims,
or assessments in the ordinary course of business. Disputes may arise, for example, from business
acquisitions, employment issues, regulatory actions, and other business transactions. The costs and
outcome of any lawsuits or claims could have a material adverse effect on us.
Acquisitions may disrupt our operations or adversely affect our results
We regularly evaluate opportunities to acquire other businesses. The expenses we incur evaluating
and pursuing acquisitions could adversely affect our results of operations. If we acquire a business, we
may be unable to manage it profitably or successfully integrate its operations with our own. Moreover,
we may be unable to realize the financial, operational, and other benefits we anticipate from these
acquisitions or any other acquisition. Many potential acquisition targets do not meet our criteria, and,
for those that do, we face significant competition for these acquisitions from our direct competitors,
private equity funds, and other enterprises. Competition for future acquisition opportunities in our
markets could increase the price we pay for businesses we acquire and could reduce the number of
18
potential acquisition targets. Further, acquisitions may involve a number of special financial and
business risks, such as:
(cid:129) diversion of our management’s time, attention, and resources;
(cid:129) decreased utilization during the integration process;
(cid:129) loss of key acquired personnel;
(cid:129) increased costs to improve or coordinate managerial, operational, financial, and administrative
systems including compliance with the Sarbanes-Oxley Act of 2002;
(cid:129) dilutive issuances of equity securities, including convertible debt securities;
(cid:129) the assumption of legal liabilities;
(cid:129) amortization of acquired intangible assets;
(cid:129) potential write-offs related to the impairment of goodwill, including if our enterprise value
declines below certain levels;
(cid:129) difficulties in integrating diverse corporate cultures; and
(cid:129) additional conflicts of interests.
Our clients may be unable or unwilling to pay us for our services
Our clients include some companies that may from time to time encounter financial difficulties,
particularly during a downward trend in the economy, or may dispute the services we provide. If a
client’s financial difficulties become severe or a dispute arises, the client may be unwilling or unable to
pay our invoices in the ordinary course of business, which could adversely affect collections of both our
accounts receivable and unbilled services. On occasion, some of our clients have entered bankruptcy,
which has prevented us from collecting amounts owed to us. The bankruptcy of a client with a
substantial accounts receivable could have a material adverse effect on our financial condition and
results of operations. Historically, a small number of clients who have paid sizable invoices have later
declared bankruptcy, and a court determination that we were not properly entitled to any of those
payments may require repayment of some or all of them, which could adversely affect our financial
condition and results of operations.
Additionally, from time to time, we may derive a significant amount of revenue from government
agencies in the United States. Because we may derive a significant percentage of our revenue from
contracts with the Federal government, changes in Federal government budgetary priorities could
directly affect our financial performance. This could result in the cancellation of contracts and/or the
incurrence of substantial costs without reimbursement under our contracts with the U.S. government,
which could have a negative effect on our business, financial condition, results of operations and cash
flows.
The market price of our common stock may be volatile
The market price of our common stock has fluctuated widely and may continue to do so. Many
factors could cause the market price of our common stock to rise and fall. Some of these factors are:
(cid:129) variations in our quarterly results of operations;
(cid:129) the hiring or departure of key personnel or non-employee experts;
(cid:129) changes in our professional reputation;
(cid:129) the introduction of new services by us or our competitors;
(cid:129) acquisitions or strategic alliances involving us or our competitors;
(cid:129) changes in accounting principles or methods;
19
(cid:129) changes in estimates of our performance or recommendations by securities analysts;
(cid:129) future sales of shares of common stock in the public market; and
(cid:129) market conditions in the industry and the economy as a whole.
In addition, the stock market often experiences significant price and volume fluctuations. These
fluctuations are often unrelated to the operating performance of particular companies. These broad
market fluctuations may adversely affect the market price of our common stock. When the market
price of a company’s stock drops significantly, shareholders often institute securities class action
litigation against that company. Any litigation against us could cause us to incur substantial costs, divert
the time and attention of our management and other resources, or otherwise harm our business.
Our performance could be affected if employees and non-employee experts default on loans
We utilize forgivable loans and term loans with some of our employees and non-employee experts,
other than our executive officers, as a way to attract and retain them. A portion of these loans is
collateralized. Defaults under these loans could have a material adverse effect on our consolidated
statements of operations, financial condition and liquidity.
Fluctuations in the types of service contracts we enter into may adversely impact revenue and results of
operations
We derive a portion of our revenues from fixed-price contracts. These contracts are more common
in our management consulting area, and would likely grow in number with expansion of that area.
Fluctuations in the mix between time-and-material contracts, fixed-price contracts and arrangements
with fees tied to performance-based criteria may result in fluctuations of revenue and results of
operations. In addition, if we fail to estimate accurately the resources required for a fixed-price project
or fail to satisfy our contractual obligations in a manner consistent with the project budget, we might
generate a smaller profit or incur a loss on the project. On occasion, we have had to commit
unanticipated additional resources to complete projects, and we may have to take similar action in the
future, which could adversely affect our revenues and results of operations.
Our stock repurchase programs could affect the market price of our common stock and increase its volatility
Our Board of Directors has from time to time authorized repurchase programs of our outstanding
common stock. Under these stock repurchase programs, we are authorized to repurchase, from
time-to-time, shares of our outstanding common stock on the open market or in privately negotiated
transactions. The timing and amount of stock repurchases is determined based upon our evaluation of
market conditions and other factors. Any stock repurchase program may be suspended, modified or
discontinued at any time, and we have no obligation to repurchase any amount of our common stock
under any program. Repurchases pursuant to our stock repurchase programs could affect the market
price of our common stock and increase its volatility. Any termination of one of our stock repurchase
programs could cause a decrease in the market price of our common stock price, and the existence of a
stock repurchase program could cause our stock price to be higher than it would be in the absence of
such a program and could potentially reduce the market liquidity of our common stock. There can be
no assurance that any stock repurchases under these programs will enhance stockholder value because
the market price of our common stock may decline below the levels at which those repurchases were
made. Although our stock repurchase programs are intended to enhance long-term stockholder value,
short-term fluctuations in the market price of our common stock could reduce the programs’
effectiveness.
We may need to take material write-offs for the impairment of goodwill and other intangible assets, including
if our market capitalization declines
As further described in our Notes to Consolidated Financial Statements, goodwill and intangible
assets with indefinite lives are monitored annually for impairment, or more frequently, if events or
20
circumstances exist that would more likely than not reduce the fair value of a reporting unit below its
carrying amount. In performing the first step of the goodwill impairment testing and measurement
process, we compare the estimated fair value of each of our reporting units to its net book value to
identify potential impairment. We estimate the fair value of our consulting business utilizing our market
capitalization, plus an appropriate control premium less the estimated fair value of NeuCo. Market
capitalization is determined by multiplying the shares outstanding on the test date by the market price
of our common stock on that date. We determine the control premium utilizing a discounted cash flow
model that takes into consideration our forecasted results as well as appropriate industry, market and
other pertinent factors, including indications of such premiums from data on recent acquisition
transactions. The fair value of NeuCo is determined using an income approach which measures the
value of the enterprise based on an expected stream of earnings over time. If the estimated fair value
of a reporting unit is less than its net book value, the second step is performed to determine if goodwill
is impaired. If through the impairment evaluation process a reporting unit determines that goodwill has
been impaired, an impairment charge would be recorded in our consolidated income statement.
A goodwill impairment charge in any period would have the effect of decreasing our earnings in
such period. If we are required to take a substantial impairment charge, our reported operating results
would be materially adversely affected in such period, though such a charge would have no impact on
cash flows or working capital.
Our debt obligations may adversely impact our financial performance
We rely on our cash and cash equivalents, cash flows from operations and borrowings under our
credit agreement to fund our short-term and anticipated long-term operating activities. We have a
revolving line of credit with our bank for $125.0 million. The amounts available under this line of credit
are constrained by various financial covenants and reduced by certain letters of credit outstanding. Our
loan agreement with the bank will mature on April 24, 2018. At January 2, 2016, we had no borrowings
outstanding under the credit agreement and approximately $122.5 million available for future
borrowings, after consideration of outstanding letters of credit. The degree to which we are leveraged
could adversely affect our ability to obtain further financing for working capital, acquisitions or other
purposes and could make us more vulnerable to industry downturns and competitive pressures. Our
ability to secure short-term and long-term debt or equity financing in the future will depend on several
factors, including our future profitability, the levels of our debt and equity, restrictions under our
existing revolving line of credit, and the overall credit and equity market environments.
We could incur substantial costs protecting our proprietary rights from infringement or defending against a
claim of infringement
As a professional services organization, we rely on non-competition and non-solicitation
agreements with many of our employees and non-employee experts to protect our proprietary rights.
These agreements, however, may offer us only limited protection and may not be enforceable in every
jurisdiction. In addition, we may incur substantial costs trying to enforce these agreements.
Our services may involve the development of custom business processes or solutions for specific
clients. In some cases, the clients retain ownership or impose restrictions on our ability to use the
business processes or solutions developed from these projects. Issues relating to the ownership of
business processes or solutions can be complicated, and disputes could arise that affect our ability to
resell or reuse business processes or solutions we develop for clients.
In recent years, there has been significant litigation in the U.S. involving patents and other
intellectual property rights. We could incur substantial costs in prosecuting or defending any intellectual
property litigation, which could adversely affect our operating results and financial condition.
Despite our efforts to protect our proprietary rights, unauthorized parties may attempt to obtain
and use information that we regard as proprietary. Litigation may be necessary in the future to enforce
our proprietary rights, to protect our trade secrets, to determine the validity and scope of the
21
proprietary rights of others or to defend against claims of infringement or invalidity. Any such resulting
litigation could result in substantial costs and diversion of resources and could adversely affect our
business, operating results and financial condition. Any failure by us to protect our proprietary rights,
or any court determination that we have either infringed or lost ownership of proprietary rights could
adversely affect our business, operating results and financial condition.
Insurance and claims expenses could significantly reduce our profitability
We are exposed to claims related to group health insurance. We self-insure a portion of the risk
associated with these claims. If the number or severity of claims increases, or we are required to accrue
or pay additional amounts because the claims prove to be more severe than our original assessment,
our operating results would be adversely affected. Our future insurance and claims expense might
exceed historical levels, which could reduce our earnings. We expect to periodically assess our
self-insurance strategy. We are required to periodically evaluate and adjust our claims reserves to
reflect our experience. However, ultimate results may differ from our estimates, which could result in
losses over our reserved amounts. We maintain individual and aggregate medical plan stop loss
insurance with licensed insurance carriers to limit our ultimate risk exposure for any one case and for
our total liability.
Many businesses are experiencing the impact of increased medical costs as well as greater
variability in ongoing costs. As a result, our insurance and claims expense could increase, or we could
raise our self-insured retention when our policies are renewed. If these expenses increase or we
experience a claim for which coverage is not provided, results of our operations and financial condition
could be materially and adversely affected.
Our charter and by-laws, and Massachusetts law may deter takeovers
Our amended and restated articles of organization and amended and restated by-laws and
Massachusetts law contain provisions that could have anti-takeover effects and that could discourage,
delay, or prevent a change in control or an acquisition that our shareholders may find attractive. These
provisions may also discourage proxy contests and make it more difficult for our shareholders to take
some corporate actions, including the election of directors. These provisions could limit the price that
investors might be willing to pay for shares of our common stock.
Item 1B—Unresolved Staff Comments
Not applicable.
Item 2—Properties
In the aggregate, as of January 2, 2016, we leased approximately 279,306 square feet of office
space in locations around the world. Additionally, NeuCo leases approximately 8,450 square feet of
office space.
All of our offices are electronically linked and have access to our core consulting tools. We believe
our existing facilities are adequate to meet our current requirements and that suitable space will be
available as needed. See note 15 to our Notes to Consolidated Financial Statements for details on
material leases.
Item 3—Legal Proceedings
None.
Item 4—Mine Safety Disclosures
Not applicable.
22
PART II
Item 5—Market for Registrant’s Common Equity, Related Shareholder Matters and Issuer Purchases of
Equity Securities
Market Information. We first offered our common stock to the public on April 23, 1998. Our
common stock is traded on the NASDAQ Global Select Market under the symbol CRAI. The following
table provides the high and low sales prices of our common stock as reported on the NASDAQ Global
Select Market for the periods indicated.
Fiscal Year Ended January 2, 2016
January 4, 2015 to April 4, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 5, 2015 to July 4, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 5, 2015 to October 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 4, 2015 to January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year Ended January 3, 2015
December 29, 2013 to March 29, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
March 30, 2014 to June 28, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
June 29, 2014 to September 27, 2014 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
September 28, 2014 to January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
High
Low
$32.47
$32.23
$28.06
$24.70
$28.11
$25.89
$21.02
$17.77
High
Low
$23.84
$23.80
$28.49
$32.50
$17.63
$19.10
$22.62
$24.64
Shareholders. We had approximately 111 holders of record of our common stock as of January 29,
2016. This number does not include shareholders for whom shares were held in a ‘‘nominee’’ or
‘‘street’’ name.
Dividends. We have not paid any cash dividends in the past and we do not anticipate paying any
cash dividends in the foreseeable future. In addition, the terms of our bank line of credit place
restrictions on our ability to pay cash dividends on our common stock.
Repurchases of Equity Securities. The following table provides information about our repurchases
of shares of our common stock during the fourth quarter ended January 2, 2016. During that period,
we did not act in concert with any affiliate or any other person to acquire any of our common stock
and, accordingly, we do not believe that purchases by any such affiliate or other person (if any) are
reportable in the following table. For purposes of this table, we have divided the quarter into three
periods of four, four and five weeks to coincide with our reporting periods during the fourth quarter of
fiscal 2015.
Issuer Purchases of Equity Securities
(d)
Maximum Number
(or Approximate
Dollar Value) of
(c)
Total Number of Shares Shares that May Yet
(a)
Total Number
of Shares
Purchased as Part of
Publicly Announced
Purchased(1)(2) Paid per Share(1)(2) Plans or Programs(2)
(b)
Average Price
Be Purchased
Under the Plans
or Programs(2)
Period
October 4, 2015 to October 31,
2015 . . . . . . . . . . . . . . . . . . . .
—
—
—
$10,103,349
November 1, 2015 to
November 28, 2015 . . . . . . . . .
113,035
$22.47
88,492
$ 8,104,684
November 29, 2015 to January 2,
2016 . . . . . . . . . . . . . . . . . . . .
—
—
—
$ 8,104,684
(1) During the four weeks ended November 28, 2015, we accepted 24,543 shares of our common stock as a
tax withholding from certain of our employees, in connection with the vesting of restricted shares that
23
occurred during the period, pursuant to the terms of our 2006 equity incentive plan, at the average
price per share of $22.06.
(2) On August 10, 2012, February 13, 2014, and October 23, 2014, we announced that our Board of
Directors approved share repurchase programs of up to $5.0 million, $15.0 million, and $30.0 million,
respectively, of our common stock. We may repurchase shares under any of these programs in open
market purchases (including through any Rule 10b5-1 plan adopted by us) or in privately negotiated
transactions in accordance with applicable insider trading and other securities laws and regulations. We
expect to continue to repurchase shares under these programs.
Shareholder Return Performance Graph. The graph below compares the cumulative 5-year total
return of holders of our common stock with the cumulative total returns of the NASDAQ Composite
index, and a customized peer group of three companies and four companies, respectively, listed in
notes 1 and 2 below.
(1.) The three companies included in our first customized peer group, referred to below as the
‘‘Old Peer Group,’’ are: FTI Consulting, Inc., Huron Consulting Group Inc. and Navigant
Consulting, Inc.
(2.) The four companies included in our second customized peer group, referred to below as the
‘‘New Peer Group,’’ are: FTI Consulting, Inc., Huron Consulting Group Inc., Exponent Inc.
(which was added this year) and Navigant Consulting, Inc.
The graph tracks the performance of a $100 investment in our common stock, in each peer group,
and in a market index (with the reinvestment of all dividends) from January 1, 2011 to January 2, 2016.
We paid no cash or stock dividends during the period shown. The performance of the market index
and the peer group indices is shown on a total return (dividends reinvested) basis.
24
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CRA International, Inc., the NASDAQ Composite Index,
Old Peer Group and New Peer Group
12/31/11
12/29/12
12/28/13
1/3/15
1/2/16
$250
$200
$150
$100
$50
$0
1/1/11
CRA International, Inc.
NASDAQ Composite
Old Peer Group
1MAR201615271212
New Peer Group
*
$100 invested on 1/1/11 in stock or 12/31/10 index, including reinvestment of dividends. Index calculated
on month-end basis.
1/1/11
12/31/11
12/29/12
12/28/13
1/3/15
1/2/16
CRA International, Inc.
. . . . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . . . .
Old Peer Group . . . . . . . . . . . . . . . . . . . . . . . .
New Peer Group . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
100.00
84.39
100.53
122.32
122.34
79.97
116.92
100.37
107.16
88.09
166.19
157.93
166.38
129.14
188.78
148.25
159.83
79.33
199.95
137.35
159.06
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
25
Item 6—Selected Financial Data
The following selected consolidated financial data for each of the fiscal years in the five-year
period ended January 2, 2016, has been derived from our audited consolidated financial statements.
January 2, January 3, December 28, December 29, December 31,
2016
2015
(52 weeks) (53 weeks)
2013
(52 weeks)
2012
(52 weeks)
2011
(52 weeks)
Consolidated Statements of Operations Data(1):
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $303,559 $306,371
206,813
Costs of services . . . . . . . . . . . . . . . . . . . . . . . .
207,650
$278,432
189,262
$270,390
182,381
$305,228
199,383
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . .
Depreciation and amortization . . . . . . . . . . . . . .
Goodwill impairment(4) . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . .
NeuCo gain on extinguishment of debt . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . .
Income (loss) before (provision) benefit for
income taxes and equity method investment
loss, net of tax . . . . . . . . . . . . . . . . . . . . . . . .
(Provision) benefit for income taxes . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
95,909
72,439
6,552
4,524
12,394
45
(583)
606
(647)
99,558
69,074
6,443
—
24,041
163
(594)
—
(295)
89,170
64,242
6,411
—
18,517
155
(574)
—
(180)
88,009
67,235
7,190
71,394
(57,810)
264
(300)
—
(177)
105,845
71,752
5,029
—
29,064
332
(908)
—
(405)
11,815
(5,490)
23,315
(9,908)
6,325
13,407
17,918
(6,683)
11,235
(58,023)
5,180
(52,843)
28,083
(11,138)
16,945
interest, net of tax . . . . . . . . . . . . . . . . . . . . .
1,332
231
135
(147)
(94)
Net income (loss) attributable to CRA
International, Inc.: . . . . . . . . . . . . . . . . . . . . . $
7,657 $ 13,638
$ 11,370
$ (52,990)
$ 16,851
Net income (loss) per share attributable to CRA
International, Inc.(2):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.84 $
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $
0.83 $
1.40
1.38
$
$
1.13
1.12
$
$
(5.21)
(5.21)
$
$
1.60
1.57
Weighted average number of shares
outstanding(2):
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,010
9,195
9,747
9,897
10,084
10,173
10,167
10,167
10,555
10,739
January 2, January 3, December 28, December 29, December 31,
2016
2015
2013
2012
2011
Consolidated Balance Sheet Data(1):
Working capital(3)
Total assets(3) . . . . . . . . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . $ 54,336 $ 56,256
313,472
981
214,704
313,717
—
211,068
$ 57,197
320,137
1,007
224,637
$ 87,657
290,861
1,007
212,234
$ 86,753
364,523
1,631
268,407
(1) On January 31, 2013, we announced that an approximate 40-person litigation consulting team had
joined us, effective February 1, 2013. Under the terms of the transaction, we acquired certain intangible
assets, accounts receivable, and certain client projects currently underway. This acquisition was
accounted for under the purchase accounting method, and the results of operations for this acquisition
have been included in the accompanying statements of operations from the date of acquisition.
26
(2) Basic net income (loss) per share represents net income (loss) divided by the weighted average shares of
common stock outstanding during the period. Diluted net income per share represents net income
divided by the weighted average shares of common stock and common stock equivalents outstanding
during the period, if applicable. Weighted average shares used in diluted net income per share include
common stock equivalents arising from stock options, unvested restricted stock, time-vesting unvested
restricted stock units, and shares underlying our debentures using the treasury stock method. All
common stock equivalents were excluded in fiscal 2012
(3) During the fourth quarter of fiscal year 2015, we retrospectively adopted ASU-2015-17, Balance Sheet
Classification of Deferred Taxes, which required a reclassification of current deferred tax assets and
liabilities to non-current. As a result, the current assets and current liabilities amounts have been
adjusted for fiscal years 2014, 2013, 2012, and 2011 to conform prior period classifications to the new
guidance.
(4) See note 4 to our Notes to Consolidated Financial Statements.
Item 7—Management’s Discussion and Analysis of Financial Condition and Results of Operations
Overview
We are a leading worldwide economic, financial, and management consulting firm that applies
advanced analytic techniques and in-depth industry knowledge to complex engagements for a broad
range of clients.
We derive revenues principally from professional services rendered by our employee consultants. In
most instances, we charge clients on a time-and-materials basis and recognize revenues in the period
when we provide our services. We charge consultants’ time at hourly rates, which vary from consultant
to consultant depending on a consultant’s position, experience, expertise, and other factors. We derive a
portion of our revenues from fixed-price engagements. Revenues from fixed-price engagements are
recognized using a proportional performance method based on the ratio of costs incurred, substantially
all of which are labor-related, to the total estimated project costs. We generate substantially all of our
professional services fees from the work of our own employee consultants and a portion from the work
of our non-employee experts. Factors that affect our professional services revenues include the number
and scope of client engagements, the number of consultants we employ, the consultants’ billing rates,
and the number of hours our consultants work. Revenues also include reimbursements, which include
reimbursements for travel and other out-of-pocket expenses, outside consultants, and other
reimbursable expenses.
Our costs of services include the salaries, bonuses, share-based compensation expense, and benefits
of our employee consultants. Our bonus program awards discretionary bonuses based on our revenues
and profitability and individual performance. Costs of services also include out-of-pocket and other
expenses, and the salaries of support staff whose time is billed directly to clients, such as librarians,
editors, and programmers, as well as the amounts billed to us by our non-employee experts for services
rendered while completing a project. Selling, general, and administrative expenses include salaries,
bonuses, share-based compensation expense, and benefits of our administrative and support staff, fees
to non-employee experts for generating new business, office rent, marketing, and other costs.
Utilization and Seasonality
We derive the majority of our revenues from the number of hours worked by our employee
consultants. Our utilization of those employee consultants is one key indicator that we use to measure
our operating performance. We calculate utilization by dividing the total hours worked by our employee
consultants on engagements during the measurement period by the total number of hours that our
employee consultants were available to work during that period. Utilization was 74%, 76%, and 73%
for fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
We experience certain seasonal effects that impact our revenue. Concurrent vacations or holidays
taken by a large number of consultants can adversely impact our revenue. For example, we usually
27
experience fewer billable hours in our fiscal third quarter, as that is the summer vacation season for
most of our offices, and in our fiscal fourth quarter, as that is the quarter that typically includes the
December holiday season.
International Operations
Revenues outside of the U.S. accounted for approximately 20%, 22%, and 22% of our total
revenues in fiscal 2015, fiscal 2014, and fiscal 2013, respectively. Revenue by country is detailed in
note 12 to our Notes to Consolidated Financial Statements.
Noncontrolling Interest
Our ownership interest in NeuCo is 55.89%. NeuCo’s financial results have been consolidated with
ours and the portion of NeuCo’s results allocable to its other owners is shown as ‘‘noncontrolling
interest.’’ NeuCo’s revenues, which are comprised of software sales and maintenance service revenue
included in our consolidated statements of operations for fiscal 2015, fiscal 2014, and fiscal 2013 totaled
approximately $3.8 million, $4.8 million, and $5.1 million, respectively. NeuCo’s net loss included in our
consolidated statements of operations for fiscal 2015, fiscal 2014 and fiscal 2013 was approximately
$3.0 million, $0.5 million and $0.3 million, respectively. NeuCo’s net loss, net of amounts allocable to
its other owners, included in our consolidated statements of operations for fiscal 2015, fiscal 2014 and
fiscal 2013 was approximately $1.3 million, $0.2 million and $0.2 million, respectively.
In accordance with ASC Topic 350, ‘‘Intangibles—Goodwill and Other,’’ goodwill and intangible
assets with indefinite lives are monitored annually for impairment, or more frequently, as necessary, if
events or circumstances exist that would more likely than not reduce the fair value of the reporting unit
below its carrying amount. During the fourth quarter of 2015 it was determined that NeuCo’s net book
value exceeded the fair value of its equity. Therefore, it was required to perform a step two goodwill
impairment test, which resulted in an impairment charge of $4.5 million.
Critical Accounting Policies
The discussion and analysis of our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with U.S. GAAP. The
preparation of these financial statements requires us to make significant estimates and judgments that
affect the reported amounts of assets, liabilities, revenues, and expenses, as well as related disclosure of
contingent assets and liabilities. Estimates in these consolidated financial statements include, but are
not limited to, accounts and unbilled receivable allowances, revenue recognition on fixed price
contracts, depreciation of property and equipment, share-based compensation, valuation of acquired
intangible assets, impairment of long-lived assets and goodwill, accrued and deferred income taxes,
valuation allowances on deferred tax assets, accrued compensation, accrued exit costs, and other
accrued expenses. These items are monitored and analyzed by management for changes in facts and
circumstances, and material changes in these estimates could occur in the future. Changes in estimates
are recorded in the period in which they become known. We base our estimates on historical
experience and various other assumptions that we believe to be reasonable under the circumstances.
Actual results may differ from our estimates if our assumptions based on past experience or our other
assumptions do not turn out to be substantially accurate.
A summary of the accounting policies that we believe are most critical to understanding and
evaluating our financial results is set forth below. This summary should be read in conjunction with our
consolidated financial statements and the related notes included in Item 8 of this annual report on
Form 10-K.
Revenue Recognition and Accounts Receivable Allowances. We derive substantially all of our
revenues from the performance of professional services. The contracts that we enter into and operate
under specify whether the engagement will be billed on a time-and-materials or a fixed-price basis.
28
These engagements generally last three to six months, although some of our engagements can be much
longer in duration. Each contract must be approved by one of our vice presidents.
We recognize substantially all of our revenues under written service contracts when the fee is fixed
or determinable, as the services are provided, and only in those situations where collection from the
client is reasonably assured. In certain cases we provide services to our clients without sufficient
contractual documentation, or fees are tied to performance-based criteria, which require us to defer
revenue in accordance with U.S. GAAP. In these cases, these amounts are fully reserved until all
criteria for recognizing revenue are met.
Our revenues include projects secured by our non-employee experts as well as projects secured by
our employees. We recognize all project revenue on a gross basis based on the consideration of the
criteria set forth in Accounting Standards Codification (‘‘ASC’’) Topic 605-45, Principal Agent
Considerations.
Most of our revenue is derived from time-and-materials service contracts. Revenues from
time-and-materials service contracts are recognized as the services are provided based upon hours
worked and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked.
Revenues from a majority of our fixed-price engagements are recognized on a proportional
performance method based on the ratio of costs incurred, substantially all of which are labor-related, to
the total estimated project costs. In general, project costs are classified in costs of services and are
based on the direct salary of the consultants on the engagement plus all direct expenses incurred to
complete the engagement, including any amounts billed to us by our non-employee experts. The
proportional performance method is used for fixed-price contracts because reasonably dependable
estimates of the revenues and costs applicable to various stages of a contract can be made, based on
historical experience and the terms set forth in the contract, and are indicative of the level of benefit
provided to our clients. Fixed-price contracts generally convert to time-and-materials contracts in the
event the contract terminates. Our management maintains contact with project managers to discuss the
status of the projects and, for fixed-price engagements, management is updated on the budgeted costs
and resources required to complete the project. These budgets are then used to calculate proportional
performance ratios and to estimate the anticipated income or loss on the project. Occasionally, we have
been required to commit unanticipated additional resources to complete projects, which has resulted in
lower than anticipated income or losses on those contracts. We may experience similar situations in the
future. Provisions for estimated losses on contracts are made during the period in which such losses
become probable and can be reasonably estimated. To date, such losses have not been significant.
Revenues also include reimbursements, which include reimbursement for travel and other
out-of-pocket expenses, outside consultants, and other reimbursable expenses. Our average days sales
outstanding (DSOs) are calculated by dividing the sum of our accounts receivable and unbilled services
balance, net of deferred revenue, at the end of the period by average daily revenues. Average daily
revenues are calculated by dividing period revenues by the number of days in the period. Our project
managers and finance personnel monitor payments from our clients and assess any collection issues. We
maintain accounts receivable allowances for estimated losses resulting from disputed amounts or the
inability of our clients to make required payments. We base our estimates on our historical collection
experience, current trends, and credit policy. In determining these estimates, we examine historical
write-offs of our receivables and review client accounts to identify any specific customer collection
issues. If the financial condition of our customers were to deteriorate or disputes were to arise
regarding the services provided, resulting in an impairment of their ability or intent to make payment,
additional allowances may be required. A failure to estimate accurately the accounts receivable
allowances and ensure that payments are received on a timely basis could have a material adverse
effect on our business, financial condition, and results of operations.
Share-Based Compensation Expense. Share-based compensation cost is estimated at the grant date
based on the fair value of the award and is recognized as expense over the requisite service period of
the award. We use the Black-Scholes option-pricing model to estimate the fair value of stock options.
29
Option valuation models require the input of assumptions, including the expected life of the share-
based awards, the expected stock price volatility, the risk-free interest rate, the expected forfeiture
rates, and the expected dividend yield. The expected volatility and expected life are based on our
historical experience. The risk-free interest rate is based on U.S. Treasury interest rates with
corresponding terms consistent with the expected life of the share-based award. Expected dividend yield
is not considered in the option pricing formula because we have not paid dividends in the past and we
do not anticipate paying any dividends in the foreseeable future. We will update these assumptions if
changes are warranted. The forfeiture rate is based upon historical experience. We believe that our
historical experience is an appropriate indicator of future forfeitures.
Valuation of Goodwill and Other Intangible Assets. We account for our acquisitions under the
purchase method of accounting. Goodwill represents the purchase price of acquired businesses in
excess of the fair market value of net assets acquired. Intangible assets that are separate from goodwill
and have determinable useful lives are valued separately. These intangible assets typically consist of
non-competition agreements, customer relationships, customer lists, developed technology, and
trademarks, which are generally amortized on a straight-line basis over their estimated remaining useful
lives of four to ten years.
In accordance with ASC Topic 350, ‘‘Intangibles—Goodwill and Other’’ (‘‘ASC Topic 350’’),
goodwill and intangible assets with indefinite lives are not subject to amortization, but are monitored
annually as of October 15th for impairment, or more frequently, as necessary, if events or
circumstances exist that would more likely than not reduce the fair value of the reporting unit below its
carrying amount. For our goodwill impairment analysis, we operate under two reporting units, which
are consulting services and NeuCo.
Under ASC Topic 350, in performing the first step of the goodwill impairment testing and
measurement process, we compare the estimated value of each of our reporting units to its net book
value to identify potential impairment. We estimate the fair value of our consulting business utilizing
our market capitalization, plus an appropriate control premium, less the estimated fair value of NeuCo.
Market capitalization is determined by multiplying our shares outstanding on the test date by the
market price of our common stock on that date. We determine the control premium utilizing a
discounted cash flow model that takes into consideration our forecasted results as well as appropriate
industry, market and other pertinent factors, including indications of such premiums from data on
recent acquisition transactions. The fair value of NeuCo is determined using an income approach which
measures the value of the enterprise based on an expected stream of earnings over time. If the
estimated fair value of a reporting unit is less than its net book value, the second step is performed to
determine if goodwill is impaired. If through the impairment evaluation process a reporting unit
determines that goodwill has been impaired, an impairment charge would be recorded in our
consolidated income statement.
NeuCo incurred an impairment loss during the fourth quarter of fiscal 2015. CRA’s consulting
services did not incur an impairment loss related to goodwill during fiscal 2015, fiscal 2014 or fiscal
2013. The estimated fair value of CRA’s consulting services was greater than its carrying value as of
October 15th of each respective year.
The re-measurement of a reporting unit’s fair value and that of its underlying assets and liabilities
is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed
using specific information from the reporting units. The fair value adjustment to goodwill, which
resulted in NeuCo’s impairment charge, was computed as the difference between NeuCo’s fair value
and the fair value of its underlying assets and liabilities. The unobservable inputs used to determine the
fair value of the underlying assets and liabilities are based on our specific information such as estimates
of revenue and cost growth rates, profit margins, discount rates, and cost estimated. See note 4,
‘‘Goodwill and Intangible Assets,’’ for further details.
30
We assess the impairment of amortizable intangible assets whenever events or changes in
circumstances indicate that the carrying value may not be recoverable. Factors we consider important
that could trigger an impairment review include the following:
(cid:129) a significant underperformance relative to expected historical or projected future operating
results;
(cid:129) a significant change in the manner of our use of the acquired asset or the strategy for our
overall business; and
(cid:129) a significant negative industry or economic trend.
If we were to determine that an impairment evaluation is required, we would review the expected
future undiscounted cash flows to be generated by the assets. If we determine that the carrying value of
intangible assets may not be recoverable, we measure any impairment based on a projected discounted
cash flow method using a discount rate determined by our management to be commensurate with the
risk inherent in our current business model.
Accounting for Income Taxes. We record income taxes using the asset and liability method.
Deferred tax assets and liabilities are recognized based upon anticipated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective income tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date.
Our financial statements contain certain deferred tax assets and liabilities that result from
temporary differences between book and tax accounting, as well as net operating loss carryforwards.
ASC Topic 740, ‘‘Income Taxes’’ (‘‘ASC Topic 740’’), requires the establishment of a valuation allowance
to reflect the likelihood of realization of deferred tax assets. Significant management judgment is
required in determining our provision for income taxes, our deferred tax assets and liabilities, and any
valuation allowance recorded against our net deferred tax assets. We evaluate the weight of all available
evidence to determine whether it is more likely than not that some portion or all of the deferred
income tax assets will not be realized. The decision to record a valuation allowance requires varying
degrees of judgment based upon the nature of the item giving rise to the deferred tax asset. As a result
of operating losses incurred in certain of our foreign subsidiaries, and uncertainty as to the extent and
timing of profitability in future periods, we have recorded valuation allowances on our tax loss
carryforwards. In certain of these jurisdictions, the tax loss carryforwards do not expire. However, a
deferred tax asset is not realizable even if it can be carried forward indefinitely. Furthermore, an
indefinite-lived intangible giving rise to a deferred tax liability may not be used as a source of future
taxable income that changes the need for a valuation allowance. If the realization of deferred tax assets
is considered more likely than not, the corresponding release of the valuation allowance would increase
net income in the period such determination was made. The amount of the deferred tax asset
considered realizable is based on significant estimates, including forecasts of future income, and it is
possible that changes in these estimates in the near term could materially affect our financial condition
and results of operations.
Our effective tax rate may vary from period to period based on changes in estimated taxable
income or loss, changes to the valuation allowance, changes to federal, state, or foreign tax laws, future
expansion into areas with varying country, state, and local income tax rates, deductibility of certain
costs, uncertain tax positions, and expenses by jurisdiction, and as a result of acquisitions or
dispositions.
The calculation of our tax liabilities involves dealing with uncertainties in the application of
complex tax regulations in several different tax jurisdictions. We are periodically reviewed by domestic
and foreign tax authorities regarding the amount of taxes due. These reviews include questions
31
regarding the timing and amount of deductions and the allocation of income among various tax
jurisdictions. We account for uncertainties in income tax positions in accordance with ASC Topic 740.
The number of years with open tax audits varies depending on the tax jurisdiction. Our major taxing
jurisdiction is the United States where we are no longer subject to U.S. federal examinations by the
Internal Revenue Service for years before fiscal 2012. Within the significant states where we are subject
to income tax, we are no longer subject to examinations by state taxing authorities before fiscal 2011.
Our United Kingdom subsidiary’s corporate tax returns are no longer subject to examination by Her
Majesty’s Revenue and Customs for fiscal years before fiscal 2011. During this fiscal year, 2015, we
have concluded the examinations in France for fiscal 2011 and fiscal 2012, and we have effectively
settled the examination in Germany for fiscal 2008 through 2011. We believe our reserves for uncertain
tax positions are adequate.
Recent Accounting Standards
Leases (Topic 842)
In February 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting
Standards Update (‘‘ASU’’) No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’). ASU 2016-02 establishes
a comprehensive new lease accounting model. The new standard clarifies the definition of a lease,
requires a dual approach to lease classification similar to current lease classifications, and causes lessees
to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for
leases with a lease term of more than twelve months. The new standard is effective for interim and
annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard
requires a modified retrospective transition for capital or operating leases existing at or entered into
after the beginning of the earliest comparative period presented in the financial statements, but it does
not require transition accounting for leases that expire prior to the date of initial application. We have
not yet determined the effects, if any, that the adoption of ASU 2016-02 may have on our financial
position, results of operations, cash flows, or disclosures.
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
In November 2015, the Financial Accounting Standards Board (‘‘FASB’’) updated Accounting
Standards Codification (‘‘ASC’’) Topic 740, Income Taxes to simplify the presentation of deferred taxes.
ASU 2015-17, Balance Sheet Classification of Deferred Taxes, amends ASC Topic 740 by requiring the
classification of all deferred tax liabilities and assets as noncurrent in a classified statement of financial
position. The amendments in this ASU have no effect on entities not presenting a classified statement
of financial position. The standard is effective for annual and interim periods beginning after
December 15, 2016, for public business entities. Earlier application is permitted for all entities as of the
beginning of an interim or annual reporting period. An entity may apply the amendments either
prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. All
entities would disclose the nature of and reason for the change in accounting principle in both the
interim and annual period first adopted. For prospective application, an entity would note that prior
periods were not retrospectively adjusted; for retrospective application, an entity would disclose
quantitative information about the effects of the accounting change on prior periods. We early adopted
ASU 2015-17, which resulted in the reclassification of $20.5M from current deferred income taxes to
32
noncurrent deferred income taxes on our Consolidated Balance Sheets as of January 3, 2015. Adoption
of ASU 2015-17 had no impact on our results of operations.
January 3, 2015
As Filed
Reclass
As Adjusted
Current deferred income tax assets . . . . . . . . . . . . . . . . . .
Long-term deferred income tax assets . . . . . . . . . . . . . . . .
Current deferred income tax liabilities . . . . . . . . . . . . . . . .
Long-term deferred income tax liabilities . . . . . . . . . . . . . .
$ 20,638
174
(121)
(3,027)
(in thousands)
$(20,638)
19,098
121
1,419
$
—
19,272
—
(1,608)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,664
$
— $ 17,664
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
165,167
(20,638)
144,529
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
315,012
(1,540)
313,472
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,394
(121)
88,273
Total shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . .
214,704
— 214,704
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805):
Simplifying the Accounting for Measurement-Period Adjustments (‘‘ASU 2015-16’’). With the issuance
of ASU 2015-16, the current guidance under FASB ASC 805 eliminates the requirement that an
acquirer retrospectively adjust provisional amounts recognized in a business combination during the
measurement period. The measurement period is one year from the date of the acquisition. The
amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts
that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. For public business entities, the amendments in this update are effective for
fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. We
believe that the adoption of ASU 2015-16 will not have a material impact on our financial position,
results of operations, cash flows, or disclosures.
Revenue from Contracts with Customers
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date (‘‘ASU 2015-14’’). ASU 2015-14 defers by one year the
effective date of ASU No. 2014-09, Revenue from Contracts with Customers (‘‘ASU 2014-09’’). The
deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017. Early adoption is permitted for interim and annual periods
beginning after December 15, 2016. The main provision of ASU 2014-09 is to recognize revenue when
control of the goods or services transfers to the customer, as opposed to the existing guidance of
recognizing revenue when the risks and rewards transfer to the customer. We have not yet determined
the effects, if any, that the adoption of ASU 2014-09 may have on our financial position, results of
operations, cash flows, or disclosures.
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs (‘‘ASU 2015-03’’). ASU 2015-03 requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03
is effective for the first interim period for fiscal years beginning after December 15, 2015. We believe
that the adoption of ASU 2015-03 will not have a material impact on our financial position, results of
operations, cash flows, or disclosures.
33
Reporting of Going-Concern Uncertainties
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern (‘‘ASU 2014-15’’). ASU 2014-15 is intended to define management’s responsibility to evaluate
whether there is substantial doubt about an organization’s ability to continue as a going concern and
provides guidance to an organization’s management, with principles and definitions that are intended to
reduce diversity in the timing and content of disclosures in the financial statement footnotes. ASU
2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and
interim periods thereafter. Early application is permitted. We believe that the adoption of ASU 2014-15
will not have a material impact on our financial position, results of operations, cash flows, or
disclosures.
Accounting for Share-Based Payments
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the
Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
(a consensus of the FASB Emerging Issues Task Force) (‘‘ASU 2014-12’’). ASU 2014-12 clarifies that
entities should treat performance targets that can be met after the requisite service period of a
share-based payment award as performance conditions that affect vesting. Therefore, an entity would
not record compensation expense (measured as of the grant date without taking into account the effect
of the performance target) related to an award for which transfer to the employee is contingent on the
entity’s satisfaction of a performance target until it becomes probable that the performance target will
be met. There are no new disclosures required under ASU 2014-12. ASU 2014-12 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2015. We believe that the
adoption of ASU 2014-12 will not have a material impact on our financial position, results of
operations, cash flows, or disclosures.
Results of Operations
The following table provides operating information as a percentage of revenues for the periods
indicated:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . .
NeuCo goodwill impairment
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NeuCo gain on extinguishment of debt . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest, net of tax .
Fiscal Year Ended
January 2,
2016
(52 weeks)
January 3,
2015
(53 weeks)
December 28,
2013
(52 weeks)
(audited)
100.0% 100.0%
68.4
67.5
(audited)
100.0%
68.0
31.6
23.9
2.2
1.5
4.0
0.0
(0.2)
0.2
(0.1)
3.9
(1.8)
2.1
0.4
32.5
22.5
2.1
—
7.9
0.1
(0.2)
—
(0.1)
7.7
(3.2)
4.5
0.0
32.0
23.1
2.3
—
6.6
0.1
(0.2)
—
(0.1)
6.4
(2.3)
4.1
0.0
Net income attributable to CRA International, Inc.
. . . . .
2.5%
4.5%
4.1%
34
Fiscal 2015 Compared to Fiscal 2014
Our fiscal year end is the Saturday nearest December 31 of each year. Our fiscal years periodically
contain 53 weeks rather than 52 weeks. Fiscal 2015 was a 52-week year and fiscal 2014 was a 53-week
year.
Revenues. Revenues decreased by $2.8 million, or 1.0%, to $303.6 million for fiscal 2015 from
$306.4 million for fiscal 2014. Our revenue decrease was due primarily to the one week decrease in the
number of weeks included in the fiscal 2015 reporting period as compared to fiscal 2014, as well as a
decrease in utilization from 76% for fiscal 2014 to 74% for fiscal 2015. The decrease in utilization
during the year was principally driven by the increase in headcount and their associated integration
during the second half of the year. Revenues in fiscal 2015 as compared to fiscal 2014 also reflected a
$3.1 million decrease in client reimbursable expenses. In addition, NeuCo revenue decreased
$1.0 million in fiscal 2015 as compared to fiscal 2014.
Overall, revenues outside of the U.S. represented approximately 20% and 22% of total revenues
for fiscal 2015 and fiscal 2014, respectively. Revenues derived from fixed-price engagements decreased
to 14% of total revenues for fiscal 2015 as compared with 15% for fiscal 2014. These percentages of
revenue derived from fixed-price engagements depend largely on the proportion of our revenues
derived from our management consulting business, as the management consulting business typically has
a higher concentration of fixed-price service engagements.
Costs of Services. Costs of services increased by $0.9 million, or 0.4%, to $207.7 million for fiscal
2015 from $206.8 million for fiscal 2014. As a percentage of revenues, costs of services increased to
68.4% for fiscal 2015 from 67.5% for fiscal 2014 due to the increase in expenses resulting from the
headcount increases in fiscal 2015 as compared with fiscal 2014 and the reduction in revenue in fiscal
2015 as compared to fiscal 2014 and the reduction in revenue in fiscal 2015 as compared to fiscal 2014,
partially offset by a $3.1 million decrease in client reimbursable expenses in fiscal 2015 as compared
with fiscal 2014.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased by $3.3 million, or 4.8%, to $72.4 million for fiscal 2015 from $69.1 million for fiscal 2014.
The primary contributor to this increase was the additional temporary rent expense as we occupied our
legacy office spaces at the same time as building out our new spaces. The temporary additional rent
expense in Boston began in February 2015 and concluded in the third quarter of fiscal 2015. In New
York City, the temporary additional rent expense began in August 2015 and we expect it to end in
fiscal 2016. Other increases in selling, general and administrative expenses related to increases in
certain operating expenses (including recruiting fees, marketing expenses, professional services and
travel expenses).
As a percentage of revenues, selling, general and administrative expenses increased to 23.9% for
fiscal 2015 from 22.5% for fiscal 2014 due primarily to the decrease in revenues in fiscal 2015
compared to fiscal 2014, while selling, general, and administrative expenses in fiscal 2015 increased as
compared to fiscal 2014 increased by approximately $3.3.million. Commissions to non-employee experts
represented 3.4% of revenue in fiscal 2015 and 3.0% of revenue in fiscal 2014.
NeuCo Goodwill Impairment.
In accordance with ASC Topic 350, ‘‘Intangibles—Goodwill and
Other,’’ goodwill and intangible assets with indefinite lives are monitored annually for impairment, or
more frequently, as necessary, if events or circumstances exist that would more likely than not reduce
the fair value of the reporting unit below its carrying amount. During the fourth quarter of 2015 it was
determined that NeuCo’s net book value exceeded the fair value of its equity. Therefore, NeuCo was
required to perform a step two goodwill impairment test, which resulted in an impairment charge of
$4.5 million.
NeuCo Gain on Extinguishment of Debt. On January 8, 2015, NeuCo entered into an agreement
to settle a note payable of approximately $981,000 in exchange for aggregate payments of $375,000.
35
NeuCo recorded a gain on the extinguishment of this debt in the first quarter of fiscal 2015 of
approximately $606,000. Under the settlement order, scheduled payments were made as follows:
$150,000 on January 8, 2015 and $150,000 on February 28, 2015. The final payment of $75,000, due on
February 29, 2016, was repaid on February 16, 2016. See note 17 to our Notes to Consolidated
Financial Statements, ‘‘Subsequent Event,’’ regarding this NeuCo debt. In case of default, the original
amount would have become due with credit given for amounts previously paid.
Other Expense, Net. Other expense, net increased by $352,000 to $647,000 for fiscal 2015 from
$295,000 for fiscal 2014. Other expense, net consists primarily of foreign currency exchange transaction
gains and losses. We continue to manage our foreign currency exchange exposure through frequent
settling of intercompany account balances and by self-hedging movements in exchange rates between
the value of the dollar and foreign currencies including the Euro, the British Pound, and the Canadian
Dollar. Additionally, our multi-currency credit facility allows us to mitigate such foreign exchange
exposures.
Provision for Income Taxes. For fiscal 2015, our income tax provision was $5.5 million and the
effective tax rate was 46.5% as compared to a provision of $9.9 million and an effective tax rate of
42.5% for fiscal 2014. The effective tax rate for fiscal 2015 was higher than the prior year rate primarily
due to the impact of NeuCo’s goodwill impairment. Absent this impairment, the effective tax rate for
fiscal 2015 would have been 43.2%. This tax rate of 43.2% was higher than the prior year’s rate
primarily due to an increase in tax reserves. Additionally, there were increases in permanent items that
were offset by the benefit realized for the use of net operating loss carryforwards that previously had a
valuation allowance. State taxes were consistent with last year when taking into account both the effects
of law changes on the current year as well as the benefit of revaluing our deferred tax assets. The
effective tax rate in fiscal 2015 was higher than our combined Federal and state statutory tax rate also
due to the NeuCo goodwill impairment and an increase in tax reserves and permanent items, offset by
the benefit realized for the use of net operating loss carryforwards that previously had a valuation
allowance. The effective tax rate in fiscal 2014 was higher than our combined Federal and state
statutory tax rate primarily due to a non-cash tax expense recorded in the second quarter of fiscal 2014
to correct an immaterial error in our previously issued consolidated financial statements, offset slightly
by other prior period adjustments recorded in the fourth quarter. The effective tax rate also included a
benefit for the release of a valuation allowance as a result of recording a deferred tax liability
associated with acquisition-related intangibles and the utilization of certain historical net operating
losses that previously had a valuation allowance which were realized due to the profitability of the
acquired business.
Net (Income) Loss Attributable to Noncontrolling Interest, Net of Tax. Our ownership interest in
NeuCo was 55.89% at the end of fiscal 2015 and fiscal 2014. As a result, NeuCo’s financial results are
consolidated with ours and allocations of the noncontrolling interest’s share of NeuCo’s net income
result in deductions to our net income, while allocations of the noncontrolling interest’s share of
NeuCo’s net loss result in additions to our net income. NeuCo’s results of operations allocable to its
other owners was a net loss of $1.3 million for fiscal 2015 and net loss of $0.2 million for fiscal 2014.
Net Income Attributable to CRA International, Inc. Net income attributable to CRA
International, Inc. decreased by $5.9 million to net income of $7.7 million for fiscal 2015 from net
income of $13.6 million for fiscal 2014. The diluted net income per share was $0.83 per share for fiscal
2015, compared to diluted net income per share of $1.38 for fiscal 2014. Diluted weighted average
shares outstanding decreased by approximately 702,000 shares to approximately 9,195,000 shares for
fiscal 2015 from approximately 9,897,000 shares for fiscal 2014. The decrease in diluted weighted
average shares outstanding was primarily due to repurchases of common stock, offset in part by an
increase as a result of shares of restricted stock and time-vesting restricted stock units that have vested
or that have been issued, and stock options that have been exercised, since January 3, 2015.
36
Fiscal 2014 Compared to Fiscal 2013
Our fiscal year end is the Saturday nearest December 31 of each year. Our fiscal years periodically
contain 53 weeks rather than 52 weeks. Fiscal 2014 was a 53-week year and fiscal 2013 was a 52-week
year.
Revenues. Revenues increased by $27.9 million, or 10.0%, to $306.4 million for fiscal 2014 from
$278.4 million for fiscal 2013. Our revenue increase was due primarily to the momentum from the
strong performance in the latter part of fiscal 2013 that continued into fiscal 2014, compared to a slow
start in the first half of fiscal 2013. Revenue increased in our litigation, regulatory, and financial
consulting business and our management consulting business, principally through organic expansion.
Our utilization increased to 76% for fiscal 2014 from 73% for fiscal 2013. Revenues in fiscal 2014
reflected a decrease in client reimbursable expenses, which are pass-through expenses that carry little to
no margin, in fiscal 2014 as compared to fiscal 2013.
Overall, revenues outside of the U.S. represented approximately 22% of total revenues for each of
fiscal 2014 and fiscal 2013. Revenues derived from fixed-price engagements increased to 15% of total
revenues for fiscal 2014 compared with 13% for fiscal 2013. These percentages of revenue derived from
fixed-price engagements depend largely on the proportion of our revenues derived from our
management consulting business, as the management consulting business typically has a higher
concentration of fixed-price service contracts.
Costs of Services. Costs of services increased by $17.6 million, or 9.3%, to $206.8 million for fiscal
2014 from $189.3 million for fiscal 2013. The increase in costs of services was due primarily to an
increase in compensation expense for our employee consultants, specifically in incentive compensation
which increases when our profitability increases, and the inclusion of fifty-three weeks of results in
fiscal 2014 as compared with fifty-two weeks of results in fiscal 2013. These increases were partially
offset by the decrease of $0.6 million in client reimbursable expenses. As a percentage of revenues,
costs of services decreased to 67.5% for fiscal 2014 from 68.0% for fiscal 2013 due primarily to the
increase in revenues outpacing the increases in costs of services in fiscal 2014 as compared with fiscal
2013.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased by $4.8 million, or 7.5%, to $69.1 million for fiscal 2014 from $64.2 million for fiscal 2013.
The primary contributors to this increase were increases in compensation expense, professional fees,
rent and office operating expenses, and commissions to our nonemployee experts for fiscal 2014 as
compared to fiscal 2013 and the inclusion of fifty-three weeks of results in fiscal 2014 as compared with
fifty-two weeks of results in fiscal 2013.
As a percentage of revenues, selling, general and administrative expenses decreased to 22.5% for
fiscal 2014 from 23.1% for fiscal 2013 due primarily to the increase in revenues outpacing the increase
in selling, general, and administrative expenses in fiscal 2014 as compared with fiscal 2013.
Commissions to non-employee experts represented 3.0% of revenue in fiscal 2014 and 3.1% of revenue
in fiscal 2013.
Other Expense, Net. Other expense, net increased by $115,000 to $295,000 for fiscal 2014 from
$180,000 for fiscal 2013. Other expense, net consists primarily of foreign currency exchange transaction
gains and losses. The multi-currency credit facility we entered into on April 24, 2013 helps us minimize
such foreign exchange exposures. We continue to manage our foreign currency exchange exposure
through frequent settling of intercompany account balances and by self-hedging movements in exchange
rates between the value of the dollar and foreign currencies including the Euro and the British Pound.
Provision for Income Taxes. For fiscal 2014, our income tax provision was $9.9 million and the
effective tax rate was 42.5% compared to a provision of $6.7 million and an effective tax rate of 37.3%
for fiscal 2013. The effective tax rate in fiscal 2014 was higher than our combined Federal and state
statutory tax rate primarily due to a non-cash tax expense recorded in the second quarter of fiscal 2014
37
to correct an immaterial error in our previously issued consolidated financial statements offset slightly
by other prior period adjustments recorded in the fourth quarter. The effective tax rate also included a
benefit for the release of a valuation allowance as a result of recording a deferred tax liability
associated with acquisition-related intangibles and the utilization of certain historical net operating
losses that previously had a valuation allowance which were realized due to the profitability of the
acquired business. The effective tax rate for fiscal 2013 was lower than our combined Federal and state
statutory tax rate primarily due to the favorable settlement of a tax matter in the first quarter of fiscal
2013, partially offset by a discrete tax adjustment recorded in the second quarter of fiscal 2013 and the
effect of losses in foreign jurisdictions that provided no tax benefit.
Net (Income) Loss Attributable to Noncontrolling Interest, Net of Tax. Our ownership interest in
NeuCo was 55.89% at the end of fiscal 2014 and fiscal 2013. As a result, NeuCo’s financial results are
consolidated with ours and allocations of the noncontrolling interest’s share of NeuCo’s net income
result in deductions to our net income, while allocations of the noncontrolling interest’s share of
NeuCo’s net loss result in additions to our net income. NeuCo’s results of operations allocable to its
other owners was a net loss of $231,000 for fiscal 2014 and net loss of $135,000 for fiscal 2013.
Net Income Attributable to CRA International, Inc. Net income attributable to CRA
International, Inc. increased by $2.3 million to net income of $13.6 million for fiscal 2014 from net
income of $11.4 million for fiscal 2013. The diluted net income per share was $1.38 per share for fiscal
2014, compared to diluted net income per share of $1.12 for fiscal 2013. Diluted weighted average
shares outstanding decreased by approximately 276,000 shares to approximately 9,897,000 shares for
fiscal 2014 from approximately 10,173,000 shares for fiscal 2013. The decrease in weighted average
shares outstanding was primarily due to repurchases of common stock, offset in part by an increase as a
result of shares of restricted stock and time-vesting restricted stock units that have vested or that have
been issued, and stock options that have been exercised since December 28, 2013.
Liquidity and Capital Resources
We believe that current cash, cash equivalents, cash generated from operations, and amounts
available under our bank line of credit will be sufficient to meet our anticipated working capital and
capital expenditure requirements for at least the next 12 months.
General.
In fiscal 2015, cash and cash equivalents decreased by $10.1 million. We completed the
period with cash and cash equivalents of $38.1 million and working capital (defined as current assets
less current liabilities) of $54.3 million. The principal drivers of the reduction in cash were the payment
of the majority of our fiscal 2014 performance bonuses in the first quarter of fiscal 2015, the increase in
days sales outstanding from 99 days at the end of fiscal 2014 to 105 days at the end of fiscal 2015, and
the repurchase and retirement of 477,292 shares of our common stock for an aggregate price of $12.8
million during fiscal 2015.
Of the total cash and cash equivalents of $38.1 million at January 2, 2016, $23.5 million was in the
U.S. We have sufficient sources of cash in the U.S. to fund U.S. cash requirements without the need to
repatriate any funds.
Sources and Uses of Cash. During fiscal 2015, net cash provided by operations was $20.4 million.
Cash provided by operations included net income of $6.3 million, non-cash charges for depreciation
and amortization expense of $6.5 million, share-based compensation expense of $5.8 million, NeuCo’s
goodwill impairment of $4.5 million and increased deferred rent of $6.8 million, partially offset by a
deferred income tax benefit of $1.7 million and NeuCo’s gain on extinguishment of debt of
$0.6 million. The primary factor in cash used in operations was the $3.4 million increase in accounts
receivable, net of the accounts receivable allowances line item of the cash flow statement. Other uses of
cash included movements in the following cash flow statement line items: a $2.1 million increase in
prepaid expenses and other current assets, and other assets, and a $0.5 million decrease in accounts
payable, accrued expenses and other liabilities.
38
During fiscal 2015, net cash used in investing activities was $16.5 million, which included
$18.0 million for capital expenditures primarily related to our new lease build-outs, partially offset by
$1.6 million of collections on notes receivable.
Net cash used in financing activities during fiscal 2015 was $13.0 million, primarily for repurchases
and retirements of our common stock of $12.8 million and the redemption of $0.7 million in vested
employee restricted shares for tax withholdings, partially offset by $0.6 million received upon the
exercise of stock options.
Indebtedness
We are party to a credit agreement that provides us with a $125.0 million revolving credit facility
and a $15 million sublimit for the issuance of letters of credit. We may use the proceeds of the
revolving credit facility to provide working capital and for other general corporate purposes. Generally,
we may repay any borrowings under the revolving credit facility at any time, but must repay all
borrowings no later than April 24, 2018. There were no amounts outstanding under this revolving line
of credit as of January 2, 2016.
The amount available under this revolving line of credit is reduced by certain letters of credit
outstanding, which amounted to $2.5 million as of January 2, 2016.
Borrowings under the revolving credit facility bear interest at a rate per annum of either (i) the
adjusted base rate, as defined in the credit agreement, plus an applicable margin, which varies between
0.50% and 1.50% depending on our total leverage ratio as determined under the credit agreement, or
(ii) the adjusted eurocurrency rate, as defined in the credit agreement, plus an applicable margin, which
varies between 1.50% and 2.50% depending on our total leverage ratio. We are required to pay a fee
on the unused portion of the revolving credit facility at a rate per annum that varies between 0.25%
and 0.375% depending on our total leverage ratio. Borrowings under the credit facility are secured by
100% of the stock of certain of our U.S. subsidiaries and 65% of the stock of certain of our foreign
subsidiaries, which represent approximately $6.0 million in net assets as of January 2, 2016.
Under the credit agreement, we must comply with various financial and non-financial covenants.
Compliance with these financial covenants is tested on a fiscal quarterly basis. Any indebtedness
outstanding under the credit facility may become immediately due and payable upon the occurrence of
stated events of default, including our failure to pay principal, interest or fees or a violation of any
financial covenant. The financial covenants require us to maintain an adjusted consolidated EBITDA to
consolidated interest expense ratio of more than 2.5:1.0 and to comply with a consolidated debt to
adjusted consolidated EBITDA ratio of not more than 3.0:1.0. The non-financial covenant restrictions
of the senior credit agreement include, but are not limited to, our ability to incur additional
indebtedness, engage in acquisitions or dispositions, and enter into business combinations.
Forgivable Loans and Term Loans
In order to attract and retain highly skilled professionals, we may issue forgivable loans or term
loans to employees and non-employee experts. A portion of these loans is collateralized. The forgivable
loans have terms that are generally between three and eight years. The principal amount of forgivable
loans and accrued interest is forgiven by us over the term of the loans, so long as the employee or
non-employee expert continues employment or affiliation with us and complies with certain contractual
requirements. The expense associated with the forgiveness of the principal amount of the loans is
recorded as compensation expense over the service period, which is consistent with the term of the
loans. Cash disbursements related to new forgivable loan issuances amounted to $15.0 million and
$10.9 million in fiscal 2015 and fiscal 2014, respectively.
Compensation Arrangements
We have entered into compensation arrangements for the payment of incentive performance
awards to certain of our non-employee experts and employees if specific performance targets are met.
39
The amounts of the awards to be paid under these compensation arrangements could fluctuate
depending on future performance through the respective measurement periods. Changes in the
estimated award are expensed prospectively over the remaining service period. We believe that we will
have sufficient funds to satisfy any obligations related to the incentive performance awards. We expect
to fund these payments, if any, from existing cash resources, cash generated from operations, or
financing transactions.
Business Acquisition
As part of our business, we regularly evaluate opportunities to acquire other consulting firms,
practices or groups or other businesses. In recent years, we have typically paid for acquisitions with
cash, or a combination of cash and our common stock, and we may continue to do so in the future. To
pay for an acquisition, we may use cash on hand, cash generated from our operations, borrowings
under our revolving credit facility, or we may pursue other forms of financing. Our ability to secure
short-term and long-term debt or equity financing in the future, including our ability to refinance our
current senior loan agreement, will depend on several factors, including our future profitability, the
levels of our debt and equity, restrictions under our existing revolving line of credit with our bank, and
the overall credit and equity market environments.
Share Repurchases
On August 10, 2012, February 13, 2014, and October 23, 2014, our Board of Directors authorized
the repurchase of up to $5.0 million, $15.0 million, and $30.0 million, respectively, of our common
stock. We may repurchase shares under any of these programs in open market purchases (including
through any Rule 10b5-1 plan adopted by us) or in privately negotiated transactions in accordance with
applicable insider trading and other securities laws and regulations. During fiscal 2015 and 2014, we
repurchased and retired 477,292 shares and 971,515 shares, respectively, under these programs at an
average price per share of $26.82 and $26.27, respectively. At January 2, 2016, approximately
$8.1 million is available for future repurchases under these programs.
We will finance these programs with available cash, cash from future operations and funds from
our existing revolving credit facility. We expect to continue to repurchase shares under these programs.
Tender Offer
On February 22, 2016, we announced the commencement of a modified ‘‘Dutch auction’’ self-
tender offer to purchase for cash up to $30 million in value of shares of our common stock at a price
within (and including) the range of $18.00 to $19.75 per share. The tender offer will expire on Monday,
March 21, 2016, unless extended by us. We intend to finance the tender offer with cash on hand and by
borrowing under our existing revolving credit facility.
Impact of Inflation
To date, inflation has not had a material impact on our financial results. There can be no
assurance, however, that inflation will not adversely affect our financial results in the future.
Future Capital and Liquidity Needs
We anticipate that our future capital and liquidity needs will principally consist of funds required
for:
(cid:129) operating and general corporate expenses relating to the operation of our business, including the
compensation of our employees under various annual bonus or long-term incentive
compensation programs;
(cid:129) the hiring of individuals to replenish and expand our employee base;
40
(cid:129) capital expenditures, primarily for information technology equipment, office furniture and
leasehold improvements;
(cid:129) debt service and repayments, including interest payments on borrowings from our revolving
credit facility;
(cid:129) share repurchases;
(cid:129) potential acquisitions of businesses that would allow us to diversify or expand our service
offerings;
(cid:129) contingent obligations related to our acquisitions; and
(cid:129) other known future contractual obligations.
The hiring of individuals to replenish and expand our employee base is an essential part of our
business operations and has historically been funded principally from operations. Many of the other
above activities are discretionary in nature. For example, capital expenditures can be deferred,
acquisitions can be forgone, and share repurchase programs can be suspended. As such, our operating
model provides flexibility with respect to the deployment of cash flow from operations. Given this
flexibility, we believe that our cash flows from operations, supplemented by cash on hand and
borrowings under our bank credit facility (as necessary), will provide adequate cash to fund our
long-term cash needs from normal operations for at least the next twelve months.
Our conclusion that we will be able to fund our cash requirements by using existing capital
resources and cash generated from operations does not take into account the impact of any future
acquisition transactions or any unexpected significant changes in the number of employees or other
expenditures that are currently not contemplated. The anticipated cash needs of our business could
change significantly if we pursue and complete additional business acquisitions, if our business plans
change, if economic conditions change from those currently prevailing or from those now anticipated,
or if other unexpected circumstances arise that have a material effect on the cash flow or profitability
of our business. Any of these events or circumstances, including any new business opportunities, could
involve significant additional funding needs in excess of the identified currently available sources and
could require us to raise additional debt or equity funding to meet those needs on terms that may be
less favorable compared to our current sources of capital. Our ability to raise additional capital, if
necessary, is subject to a variety of factors that we cannot predict with certainty, including:
(cid:129) our future profitability;
(cid:129) the quality of our accounts receivable;
(cid:129) our relative levels of debt and equity; and
(cid:129) the volatility and overall condition of the capital markets; and the market prices of our
securities.
41
Contractual Obligations
The following table presents information about our known contractual obligations as of January 2,
2016. It does not reflect contractual obligations that may have arisen or may arise after that date.
Except for historical facts, the information in this section is forward-looking information.
Payments due by period
Contractual Obligations
Total
Fiscal 2016
Fiscal 2017-2018
Fiscal 2019-2020
After Fiscal 2020
Operating lease obligations . . . . .
Other liabilities(1) . . . . . . . . . . .
Net unrecognized tax benefit
$74,476
75
$8,906
75
$16,269
—
obligation under topic 740(2) . .
915
64
230
Total . . . . . . . . . . . . . . . . . . . . .
$75,466
$9,045
$16,499
$13,345
—
621
$13,966
$35,956
—
—
$35,956
(in thousands)
(1) On January 8, 2015, NeuCo entered into an agreement to settle a note payable of approximately
$981,000 in exchange for aggregate payments of $375,000. NeuCo recorded a gain on the
extinguishment of this debt in the first quarter of fiscal 2015 of approximately $606,000. Under the
settlement order, the scheduled payments were made as follows: $150,000 on January 8, 2015 and
$150,000 on February 28, 2015. The final payment of $75,000, due on February 29, 2016, was
repaid on February 16, 2016. See note 17 to our Notes to Consolidated Financial Statements,
‘‘Subsequent Events,’’ regarding this NeuCo debt. In case of default, the original amount would
become due with credit given for amounts previously paid.
(2) This amount relates to tax and interest on tax audit liabilities.
We are party to standby letters of credit with our bank in support of the minimum future lease
payments under leases for permanent office space and bonds required per the terms of certain project
proposals and contracts amounting to $2.5 million as of January 2, 2016.
Factors Affecting Future Performance
Item 1A of this annual report sets forth risks and uncertainties that could cause actual results to
differ materially from the results contemplated by the forward-looking statements contained in this
annual report. If any of these risks, or any risks not presently known to us or that we currently believe
are not significant, develops into an actual event, then our business, financial condition, and results of
operations could be adversely affected.
Item 7A—Quantitative and Qualitative Disclosure About Market Risk
Foreign Exchange Risk
The majority of our operations are based in the U.S. and, accordingly, the majority of our
transactions are denominated in U.S. Dollars. However, we have foreign-based operations where
transactions are denominated in foreign currencies and are subject to market risk with respect to
fluctuations in the relative value of foreign currencies. Our primary foreign currency exposures relate to
our short-term intercompany balances with our foreign subsidiaries and accounts receivable and cash
valued in the United Kingdom in U.S. Dollars or Euros. Our primary foreign subsidiaries have
functional currencies denominated in the British Pound and Euro, and foreign denominated assets and
liabilities are remeasured each reporting period with any exchange gains and losses recorded in our
consolidated statements of operations. We continue to manage our foreign currency exchange exposure
through frequent settling of intercompany account balances and by self-hedging movements in exchange
rates between the value of the U.S. Dollar and foreign currencies and the Euro and the British Pound.
Holding all other variables constant, fluctuations in foreign exchange rates may affect reported
revenues and expenses, based on our currency exposures at January 2, 2016. A hypothetical 10%
movement in foreign exchange rates on January 2, 2016 would have affected our income before
42
provision for income taxes for the fourth quarter of fiscal 2015 by approximately $0.1 million. However,
actual gains and losses in the future could differ materially from this analysis based on the timing and
amount of both foreign currency exchange rate movements and our actual exposure.
From time to time, we may use derivative instruments to manage the risk of exchange rate
fluctuations. However, at January 2, 2016, we had no outstanding derivative instruments. We do not use
derivative instruments for trading or speculative purposes.
Translation of Financial Results
Our foreign subsidiaries operate in a currency other than the U.S. Dollar; therefore, increases or
decreases in the value of the U.S. Dollar against other major currencies will affect our operating results
and the value of our balance sheet items denominated in foreign currencies. Our most significant
exposures to translation risk relate to functional currency assets and liabilities that are denominated in
the British Pound, the Euro, and the Canadian Dollar. The changes in the net investments of foreign
subsidiaries whose currencies are denominated in currencies other than the U.S. Dollar for the fiscal
years ended January 2, 2016, January 3, 2015 and December 28, 2013 were losses of $2.5 million and
$3.3 million and a gain of $1.0 million, respectively. These translation losses are reflected in ‘‘Other
comprehensive income’’ in our consolidated statements of comprehensive income.
Interest Rate Risk
We maintain an investment portfolio consisting mainly of commercial paper, with maturities of
three months or less when purchased, and money market funds, which may be withdrawn upon request.
These held-to-maturity securities are subject to interest rate risk. However, a hypothetical change in the
interest rates of 10% would not have a material impact to the fair values of these securities at
January 2, 2016 primarily due to their short maturity.
Item 8—Financial Statements and Supplementary Data
We have included our consolidated financial statements in this annual report on pages FS-4 -
FS-29. We have provided an index to our consolidated financial statements on page FS-1.
Item 9—Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
None.
Item 9A—Controls and Procedures
(a) Evaluation of Disclosure Controls and Procedures
Under the supervision and with the participation of our management, including our President and
Chief Executive Officer and our Chief Financial Officer, we evaluated the effectiveness of our
disclosure controls and procedures as of the end of the period covered by this report. This is done in
order to ensure that information we are required to disclose in the reports that are filed or submitted
under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized and
reported within the time periods specified in the SEC’s rules and forms. Based upon that evaluation,
our President and Chief Executive Officer and our Chief Financial Officer concluded that our
disclosure controls and procedures were not effective as of January 2, 2016, because of a material
weakness, described below in Management’s Report on Internal Control over Financial Reporting.
Notwithstanding the material weakness discussed below, management has concluded that the
consolidated financial statements included in this annual report on form 10-K present fairly, in all
material aspects, our financial position, results of operations and cash flows for the periods presented
in conformity with accounting principles generally accepted in the United States.
43
(b) Evaluation of Changes in Internal Control over Financial Reporting
During the year ended January 2, 2016, we implemented internal control procedures to address a
previously identified material weakness related to accounting and reporting for non-routine
compensation arrangements. After completing our testing of the design and operating effectiveness of
our control enhancements, we concluded that we have remediated the previously identified material
weakness as of January 2, 2016.
Except for the remediation noted above and a material weakness in internal control over financial
reporting related to the accounting and reporting for non-controlling interests in our NeuCo subsidiary
together with other deficiencies within the financial statement close process discussed below, we have
determined that, during the fourth quarter of fiscal 2015, there were no changes in our internal control
over financial reporting that have affected, or are reasonably likely to affect, materially our internal
control over financial reporting.
(c) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting. Under the supervision and with the participation of our management, including our
President and Chief Executive Officer and our Chief Financial Officer, we assessed the effectiveness of
our internal control over financial reporting as of the end of the period covered by this report based on
the framework in ‘‘Internal Control—Integrated Framework (2013)’’ issued by the Committee of
Sponsoring Organizations of the Treadway Commission.
Based on that assessment, our President and Chief Executive Officer and our Chief Financial
Officer concluded that our internal control over financial reporting was not effective to provide
reasonable assurance regarding the reliability of our financial reporting and the preparation of our
financial statements for external purposes in accordance with U.S. generally accepted accounting
principles as of January 2, 2016 because of a material weakness in internal control described in the
following paragraph.
A material weakness is a deficiency, or combination of deficiencies, in internal control over
financial reporting such that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or detected on a timely basis.
Our controls were not sufficiently complete and comprehensive to ensure that our accounting for
noncontrolling interests in our NeuCo subsidiary were complete and accurate. Specifically, there was
inadequate and ineffective analysis and review of the allocation of NeuCo’s net income (loss) to
noncontrolling interest subsequent to the recording of NeuCo’s goodwill impairment. Other deficiencies
were also identified in operating effectiveness, which, when aggregated with the NeuCo noncontrolling
interest deficiency, represents a material weakness in the financial statement close process.
Although the amount related to misstatements was corrected in our consolidated financial
statements, the absence of sufficient controls creates a reasonable possibility that a material
misstatement in our annual or interim consolidated financial statements would not be prevented or
detected in a timely manner. Our independent registered public accounting firm, Ernst & Young LLP,
has issued an audit report on their assessment of our internal control over financial reporting. The
audit report is included herein.
(d) Plan for Remediation of Material Weakness
Management has initiated a remediation plan which includes the following actions:
(cid:129) Processes, procedures and controls over the allocation of NeuCo’s net income (loss) to
noncontrolling interest and the financial close process will be reviewed and modified to ensure
greater oversight and transparency.
(cid:129) We will deploy additional resources to bolster our accounting processes for NeuCo’s
noncontrolling interests and the financial close process to ensure that the amounts are
calculated, reviewed and recorded in a timely and accurate manner.
44
(e)
Important Considerations
The effectiveness of our disclosure controls and procedures and our internal control over financial
reporting is subject to various inherent limitations, including cost limitations, judgments used in
decision making, assumptions about the likelihood of future events, the soundness of our systems, the
possibility of human error, and the risk of fraud. Moreover, projections of any evaluation of
effectiveness to future periods are subject to the risk that controls may become inadequate because of
changes in conditions and the risk that the degree of compliance with policies or procedures may
deteriorate over time. Because of these limitations, there can be no assurance that any system of
disclosure controls and procedures or internal control over financial reporting will be successful in
preventing all errors or fraud or in making all material information known in a timely manner to the
appropriate levels of management.
Item 9B—Other Information
None.
45
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Shareholders of CRA International, Inc.:
We have audited CRA International, Inc.’s internal control over financial reporting as of
January 2, 2016, based on criteria established in Internal Control—Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (2013 framework) (the COSO
criteria). CRA International, Inc.’s management is responsible for maintaining effective internal control
over financial reporting, and for its assessment of the effectiveness of internal control over financial
reporting included in the accompanying Management’s Report on Internal Control over Financial
Reporting in Item 9A. Our responsibility is to express an opinion on the company’s internal control
over financial reporting based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was maintained
in all material respects. Our audit included obtaining an understanding of internal control over
financial reporting, assessing the risk that a material weakness exists, testing and evaluating the design
and operating effectiveness of internal control based on the assessed risk, and performing such other
procedures as we considered necessary in the circumstances. We believe that our audit provides a
reasonable basis for our opinion.
A company’s internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles. A company’s internal
control over financial reporting includes those policies and procedures that (1) pertain to the
maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of the assets of the company; (2) provide reasonable assurance that transactions are
recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only
in accordance with authorizations of management and directors of the company; and (3) provide
reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of the company’s assets that could have a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject
to the risk that controls may become inadequate because of changes in conditions, or that the degree
of compliance with the policies or procedures may deteriorate.
A material weakness is a deficiency, or a combination of deficiencies, in internal control over
financial reporting, such that there is a reasonable possibility that a material misstatement of the
company’s annual or interim financial statements will not be prevented or detected on a timely basis.
The following material weakness has been identified and included in management’s assessment. There
is a material weakness in internal controls over accounting for non-controlling interests in their NeuCo
subsidiary, specifically, that there was inadequate and ineffective analysis and review of the allocation of
NeuCo’s net income (loss) to non-controlling interest subsequent to the recording of NeuCo’s goodwill
impairment. Other deficiencies were also identified in operating effectiveness, which, when aggregated
with the NeuCo non-controlling interest deficiency, represents a material weakness in the financial
statement close process.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), the consolidated balance sheets of CRA International Inc. as of
January 2, 2016 and January 3, 2015, and the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the two years in the periods
ended January 2, 2016. This material weakness was considered in determining the nature, timing and
extent of audit tests applied in our audit of the 2015 consolidated financial statements, and this report
does not affect our report dated March 4, 2016, which expressed an unqualified opinion thereon.
46
In our opinion, because of the effect of the material weakness described above on the achievement
of the objectives of the control criteria, CRA International Inc. has not maintained effective internal
control over financial reporting as of January 2, 2016, based on the COSO criteria.
Boston, Massachusetts
March 4, 2016
/s/ Ernst & Young LLP
47
PART III
We have omitted the information required in Part III of this annual report because we intend to
include that information in our definitive proxy statement for the 2016 annual meeting of shareholders,
which we expect to file within 120 days (or such greater number as permitted by SEC rules) after the
end of fiscal 2015. We incorporate that information in this annual report by reference to the proxy
statement to be filed in connection with the 2016 annual meeting of our shareholders, which we will
refer to herein as our ‘‘2016 annual proxy statement.’’
Item 10—Directors, Executive Officers and Corporate Governance
We incorporate the information required by this item by reference to the sections captioned
‘‘Executive Officers and Directors’’, ‘‘Corporate Governance’’, and ‘‘Section 16(a) Beneficial Ownership
Reporting Compliance’’ in our 2016 annual proxy statement.
Item 11—Executive Compensation
We incorporate the information required by this item by reference to the section captioned
‘‘Compensation of Directors and Executive Officers’’ in our 2016 annual proxy statement.
Item 12—Security Ownership of Certain Beneficial Owners and Management and Related Shareholder
Matters
We incorporate the information required by this item by reference to the sections captioned
‘‘Security Ownership of Certain Beneficial Owners and Management’’ and ‘‘Equity Compensation
Plans’’ in our 2016 annual proxy statement.
Item 13—Certain Relationships and Related Transactions and Director Independence
We incorporate the information required by this item by reference to the sections captioned
‘‘Transactions with Related Parties’’ and ‘‘Corporate Governance’’ in our 2016 annual proxy statement.
Item 14—Principal Accountant Fees and Services
We incorporate the information required by this item by reference to the section captioned
‘‘Principal Accountant Fees and Services’’ in our 2016 annual proxy statement.
48
Item 15—Exhibits and Financial Statement Schedules
PART IV
(a) Financial Statements, Schedules, and Exhibits. We have listed our consolidated financial
statements filed as part of this annual report in the index to consolidated financial statements on
page FS-1. We have listed the exhibits filed as part of this annual report in the accompanying exhibit
index, which follows the signature page to this annual report.
(b) Exhibits. We have listed the exhibits filed as part of this annual report in the accompanying
exhibit index, which follows the signature page to this annual report.
(c) Financial Statement Schedules. We have omitted all financial statement schedules because
they are not applicable or not required or because we have included the necessary information in our
consolidated financial statements or related notes.
49
Pursuant to the requirements of Section 13 or 15(d) 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.
SIGNATURES
Date: March 4, 2016
CRA INTERNATIONAL, INC.
By: /s/ PAUL A. MALEH
Paul A. Maleh
President, Chief Executive Officer and Director
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant in the capacities and on the dates indicated.
Signature
Title
Date
/s/ PAUL A. MALEH
Paul A. Maleh
President, Chief Executive Officer, and
Director (principal executive officer)
March 4, 2016
/s/ CHAD M. HOLMES
Chad M. Holmes
Chief Financial Officer, Executive Vice
President, and Treasurer (principal
financial and accounting officer)
March 4, 2016
/s/ ROWLAND T. MORIARTY
Rowland T. Moriarty
/s/ WILLIAM F. CONCANNON
William F. Concannon
/s/ NANCY HAWTHORNE
Nancy Hawthorne
/s/ ROBERT W. HOLTHAUSEN
Robert W. Holthausen
/s/ THOMAS S. ROBERTSON
Thomas S. Robertson
/s/ WILLIAM T. SCHLEYER
William T. Schleyer
Chairman of the Board
March 4, 2016
March 4, 2016
March 4, 2016
March 4, 2016
March 4, 2016
March 4, 2016
Director
Director
Director
Director
Director
50
Exhibit No.
Description
Filed with
this
Form 10-K
Incorporated by Reference
Form
Filing Date
Exhibit No.
EXHIBIT INDEX
3.1
3.2
3.3
4.1
10.1*
10.2*
10.3*
10.4*
10.5*
10.6*
10.7*
10.8*
10.9*
10.10*
10.11*
10.12*
10.13*
10.14*
10.15*
10.16*
10.17*
10.18*
10.19*
10.20*
10.21*
10.22*
Amended and Restated Articles of Organization.
Articles of Amendment to our Articles of
Organization
Amended and Restated By-Laws, as amended.
Specimen certificate for common stock.
1998 Incentive and Nonqualified Stock Option Plan,
as amended.
1998 Employee Stock Purchase Plan.
2004 Nonqualified Inducement Stock Option Plan.
Amended and Restated 2006 Equity Incentive Plan, as
amended
2009 Nonqualified Inducement Stock Option Plan
Form of Incentive Stock Option under the 1998
Incentive and Nonqualified Stock Option Plan, as
amended.
Form of Nonqualified Stock Option under the 1998
Incentive and Nonqualified Stock Option Plan, as
amended.
Form of Nonqualified Stock Option under the 2004
Nonqualified Inducement Stock Option Plan.
Form of Restricted Stock Agreement for
Non-Employee Director Award Pursuant to
Section 6.9 of the 2006 Equity Incentive Plan.
Form of Restricted Stock Agreement for
Non-Employee Director Award Pursuant to
Section 6.9 of the 2006 Equity Incentive Plan with
Company Right of First Refusal.
Form of Restricted Stock Agreement for
Non-Employee Director Award Pursuant to
Section 6.9 of the 2006 Equity Incentive Plan, as
amended.
Form of Restricted Stock Agreement for Employee or
Independent Contractor Awards under the 2006
Equity Incentive Plan.
Form of Restricted Stock Agreement for Employee or
Independent Contractor Awards under the 2006
Equity Incentive Plan with Company Right of First
Refusal.
Form of Restricted Stock Agreement for Employee or
Independent Contractor Awards under the 2006
Equity Incentive Plan with Company, as amended.
Form of Nonqualified Stock Option under the 2006
Equity Incentive Plan.
Form of Nonqualified Stock Option under the 2006
Equity Incentive Plan with Stock Ownership
Guidelines.
Form of Restricted Stock Unit Award Agreement
under the 2006 Equity Incentive Plan.
Form of Restricted Stock Unit Award Agreement
under the 2006 Equity Incentive Plan with Stock
Ownership Guidelines.
Form of Restricted Stock Unit Award Agreement for
Performance under the 2006 Equity Incentive Plan.
Form of Restricted Stock Unit Award Agreement for
Performance under the 2006 Equity Incentive Plan
with Stock Ownership Guidelines.
CRA International, Inc. Cash Incentive Plan, as
amended.
Summary of Director Compensation.
51
X
S-1/A April 3, 1998
May 11, 2005
8-K
8-K
S-8
10-Q
January 31, 2011
April 21, 2006
June 20, 2002
S-1/A April 3, 1998
10-Q
10-K March 13, 2014
October 15, 2004
10-Q
10-K
June 22, 2009
February 10, 2005
3.2
99.1
3.2
4.4
10.1
10.2
10.1
10.4
10.1
10.4
10-K
February 10, 2005
10.5
10-K
February 10, 2005
10.6
8-K
April 27, 2006
10.2
10-K
February 12, 2009
10.9
10-K March 2, 2012
10.11
8-K
April 27, 2006
10.3
10-K
February 12, 2009
10.11
10-K March 2, 2012
10.14
10-K
February 8, 2007
10.10
10-K March 2, 2012
10.16
10-K
January 29, 2010
10.14
10-K March 2, 2012
10.18
10-K
January 29, 2010
10.15
10-K March 2, 2012
10.20
8-K
March 2, 2012
10.1
Exhibit No.
Description
Filed with
this
Form 10-K
Incorporated by Reference
Form
Filing Date
Exhibit No.
8-K
February 27, 2014
10.1
8-K
March 2, 2015
10.1
10-K
February 23, 2001
10.9
10-K March 17, 2015
10.35
8-K
December 30, 2014
10.1
8-K
November 1, 2006
10.1
8-K
April 6, 2012
10.1
S-1/A April 3, 1998
8-K
April 30, 2013
10.8
10.1
8-K
April 30, 2013
10.2
8-K
July 21, 2015
10.1
10.23
10.24
10.25
10.26
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
21.1
23.1
23.2
31.1
31.2
32.1
Lease dated February 24, 2014 by and between CRA
International, Inc. and BP Hancock LLC
First Amendment to Lease dated as of February 24,
2015 by and between CRA International, Inc. and
BP Hancock LLC
Office Lease dated as of November 29, 1999 between
CRA and 1201 F Street, L.L.C., as amended.
Addenda Nos. 3 and 4 to Office Lease dated as of
November 29, 1999 between CRA and 1201 F Street,
L.L.C. (or its successor in interest,
1201 F Street, L.P.), as amended.
Addendum No. 5 to Office Lease dated as of
November 29, 1999 between CRA and
1201 F Street, L.P., as amended.
Amended and Restated Addendum No. 5 to Office
Lease dated as of November 29, 1999 between CRA
and 1201 F Street L.P., as amended.
Agreement dated as of October 26, 2006 by and
among 99 Bishopsgate (No.1) Limited and
99 Bishopsgate (No.2) Limited, Hammerson UK
Properties PLC, 99 Bishopsgate Management Limited,
CRA International (UK) Limited, and CRA
International, Inc. (including forms of lease
agreement).
Agreement for Surrender of Leases at 99 Bishopsgate,
London EC2, dated April 2, 2012, between CRA
International, Inc., CRA International (UK) Limited,
Hammerson (99 Bishopsgate) Limited, Hammerson
UK Properties PLC and 99 Bishopsgate Management
Limited.
Form of consulting agreement with outside experts.
Credit Agreement dated as of April 24, 2013 by and
among CRA International, Inc. and CRA
International (UK) Limited, as the Borrowers, RBS
Citizens, N.A., as Administrative Agent, Bank of
America, N.A., as Syndication Agent, and the Lenders
party thereto.
Securities Pledge Agreement dated as of April 24,
2013 by and between CRA International, Inc., as
Pledgor, and RBS Citizens, N.A., as Administrative
Agent.
Lease dated July 15, 2015 by and between CRA
International, Inc. and 1411 ISC-Property LLC
Subsidiaries.
Consent of Ernst & Young LLP, Independent
Registered Public Accounting Firm.
Consent of KPMG LLP, Independent Registered
Public Accounting Firm.
Rule 13a-14(a)/15d-14(a) certification of principal
executive officer.
Rule 13a-14(a)/15d-14(a) certification of principal
financial officer.
Section 1350 certification.
X
X
X
X
X
X
X
52
Filed with
this
Form 10-K
X
Incorporated by Reference
Form
Filing Date
Exhibit No.
Exhibit No.
101
Description
The following financial statements from CRA
International, Inc.’s Annual Report on Form 10-K for
the fiscal year ended January 2, 2016, formatted in
XBRL (eXtensible Business Reporting Language), as
follows: (i) Consolidated Statements of Operations for
the fiscal years ended January 2, 2016, January 3,
2015, and December 28, 2013, (ii) Consolidated
Statements of Comprehensive Income (Loss) for the
fiscal years ended January 2, 2016, January 3, 2015,
and December 28, 2013, (iii) Consolidated Balance
Sheets as at January 2, 2016 and January 3, 2015,
(iv) Consolidated Statements of Cash Flows for the
fiscal years ended January 2, 2016, January 3, 2015,
and December 28, 2013, (v) Consolidated Statements
of Shareholders’ Equity for the fiscal years ended
January 2, 2016, January 3, 2015, and December 28,
2013, and (vi) Notes to Consolidated Financial
Statements.
*
Management contract or compensatory plan
53
CRA INTERNATIONAL, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Reports of Independent Registered Public Accounting Firms . . . . . . . . . . . . . . . . . . . . . . . . . . FS-2
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-4
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-5
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-6
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-7
Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-8
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-9
Notes to Consolidated Financial Statements
FS-1
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders of CRA International, Inc.:
We have audited the accompanying consolidated balance sheets of CRA International Inc. as of
January 2, 2016 and January 3, 2015, and the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the two years in the periods
ended January 2, 2016. These financial statements are the responsibility of the Company’s management.
Our responsibility is to express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in all material respects,
the consolidated financial position of CRA International, Inc. at January 2, 2016 and January 3, 2015,
and the consolidated results of its operations and its cash flows for each of the two fiscal years ended
January 2, 2016, in conformity with U.S. generally accepted accounting principles.
As discussed in Note 1 to the consolidated financial statements, the Company changed its
presentation of deferred taxes as a result of the adoption of the amendments to the FASB Accounting
Standards Codification resulting from Accounting Standards Update No. 2015-07, ‘‘Balance Sheet
Classification of Deferred Taxes,’’ effective January 3, 2015.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States), CRA International, Inc.’s internal control over financial reporting as
of January 2, 2016, based on criteria established in Internal Control-Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (2013 framework), and our
report dated March 4, 2016 expressed an adverse opinion thereon.
/s/ Ernst & Young LLP
Boston, Massachusetts
March 4, 2016
FS-2
Report of Independent Registered Public Accounting Firm
The Board of Directors and Shareholders
CRA International, Inc.:
We have audited the accompanying consolidated balance sheet of CRA International, Inc. and
subsidiaries as of December 28, 2013, and the related consolidated statements of operations,
comprehensive income (loss), cash flows, and shareholders’ equity for the fiscal year ended
December 28, 2013. These consolidated financial statements are the responsibility of the Company’s
management. Our responsibility is to express an opinion on these consolidated financial statements
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting
Oversight Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement. An
audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the
financial statements. An audit also includes assessing the accounting principles used and significant
estimates made by management, as well as evaluating the overall financial statement presentation. We
believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of CRA International, Inc. and subsidiaries as of December 28,
2013, and the results of their operations and their cash flows for the fiscal year ended December 28,
2013, in conformity with U.S. generally accepted accounting principles.
Boston, Massachusetts
March 13, 2014
/s/ KPMG LLP
FS-3
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . .
NeuCo goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
NeuCo gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest, net of tax . . . . . . .
Net income attributable to CRA International, Inc.
. . . . . . . . . . .
Net income per share attributable to CRA International, Inc.:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
Year Ended
Year Ended
January 2,
2016
(52 weeks)
January 3,
2015
(53 weeks)
December 28,
2013
(52 weeks)
(in thousands, except per share data)
$278,432
$306,371
189,262
206,813
$303,559
207,650
95,909
72,439
6,552
4,524
12,394
45
(583)
606
(647)
11,815
(5,490)
6,325
1,332
7,657
99,558
69,074
6,443
—
24,041
163
(594)
—
(295)
23,315
(9,908)
13,407
231
89,170
64,242
6,411
—
18,517
155
(574)
—
(180)
17,918
(6,683)
11,235
135
$ 13,638
$ 11,370
0.84
0.83
$
$
1.40
1.38
$
$
1.13
1.12
9,010
9,195
9,747
9,897
10,084
10,173
$
$
$
See accompanying notes to the consolidated financial statements.
FS-4
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Year Ended
Year Ended
Year Ended
January 2,
2016
(52 weeks)
January 3,
2015
(53 weeks)
December 28,
2013
(52 weeks)
$ 6,325
(in thousands)
$13,407
$11,235
Foreign currency translation adjustments . . . . . . . . . . . . . . . . .
(2,546)
(3,280)
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: comprehensive loss attributable to noncontrolling interest .
3,779
1,332
10,127
231
964
12,199
135
Comprehensive income attributable to CRA International, Inc.
. .
$ 5,111
$10,358
$12,334
See accompanying notes to the consolidated financial statements.
FS-5
CRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
January 2,
2016
January 3,
2015
(in thousands, except
share data)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $3,648 at January 2, 2016 and $4,177 at
$ 38,139
$ 48,199
January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
60,904
58,080
Unbilled services, net of allowances of $2,354 at January 2, 2016 and $2,233 at
January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forgivable loans
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets, net of accumulated amortization of $10,454 at January 2, 2016 and
$9,584 at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forgivable loans, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
25,473
11,876
4,402
140,794
31,338
76,970
3,591
18,856
40,283
1,885
25,085
10,716
2,449
144,529
14,696
82,303
4,757
19,272
42,907
5,008
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$313,717
$313,472
Current liabilities:
LIABILITIES AND SHAREHOLDERS’ EQUITY
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses
Deferred revenue and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of note payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Notes payable, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent and facility-related non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Deferred compensation and other non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total noncurrent liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies
Shareholders’ equity:
Preferred stock, no par value; 1,000,000 shares authorized; none issued and outstanding
Common stock, no par value; 25,000,000 shares authorized; 8,859,231 and 9,228,272
shares issued and outstanding at January 2, 2016 and January 3, 2015, respectively . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss
Total CRA International, Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Noncontrolling interest
$ 13,652
65,118
5,730
1,069
814
75
86,458
—
11,836
4,355
—
16,191
$ 13,700
66,548
6,220
1,623
182
—
88,273
981
4,535
3,371
1,608
10,495
—
—
65,731
155,275
(9,250)
211,756
(688)
73,171
147,618
(6,704)
214,085
619
214,704
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
211,068
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$313,717
$313,472
See accompanying notes to the consolidated financial statements.
FS-6
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
OPERATING ACTIVITIES:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Adjustments to reconcile net income to net cash provided by operating
activities, net of effect of acquired businesses:
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Loss on disposal of property and equipment . . . . . . . . . . . . . . . . . . . . .
NeuCo goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes
Share-based compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . .
NeuCo gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable allowances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Changes in operating assets and liabilities:
Accounts receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Unbilled services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets, and other assets . . . . . . . . . . .
Forgivable loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses, and other liabilities . . . . . . . . . . . . .
Net cash provided by operating activities . . . . . . . . . . . . . . . . . . . . . . . . .
INVESTING ACTIVITIES:
Consideration relating to acquisitions, net . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . .
Collections on notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on notes receivable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in investing activities
FINANCING ACTIVITIES:
. . . . . . . . . . . . . . . . . . . . . . . . . . . .
Issuance of common stock, principally stock options exercises . . . . . . . . . .
Borrowings under line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments under line of credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments on notes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments of debt issuance costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax withholding payment reimbursed by restricted shares . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign exchange rates on cash and cash equivalents . . . . . . . . . . .
Net decrease in cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . .
Year Ended
Year Ended
Year Ended
January 2,
2016
(52 weeks)
January 3,
2015
(53 weeks)
December 28,
2013
(52 weeks)
(in thousands)
$ 6,325
$ 13,407
$ 11,235
6,542
16
4,524
6,768
(1,710)
5,791
(128)
(606)
(480)
(3,438)
(772)
(2,126)
233
(515)
20,424
—
(17,975)
1,557
(78)
(16,496)
602
4,000
(4,000)
(300)
—
(668)
128
(12,806)
(13,044)
(944)
(10,060)
48,199
6,438
28
—
220
(1,431)
5,619
(392)
—
(2,996)
1,929
(738)
(4,465)
4,379
8,152
30,150
(1,784)
(4,192)
114
—
(5,862)
469
—
—
(26)
—
(1,222)
392
(25,492)
(25,879)
(1,461)
(3,052)
51,251
6,460
16
—
(1,903)
3,924
3,035
(7)
—
(2,186)
9,917
(2,997)
2,039
(22,199)
11,114
18,448
(15,591)
(2,816)
14
—
(18,393)
207
17,320
(17,320)
(700)
(1,120)
(730)
7
(2,190)
(4,526)
271
(4,200)
55,451
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . .
$ 38,139
$ 48,199
$ 51,251
Noncash investing and financing activities:
Issuance of common stock for acquired business . . . . . . . . . . . . . . . . . . . .
$
42
Purchases of property and equipment not yet paid for . . . . . . . . . . . . . . . .
$ 1,593
Purchases of property and equipment paid by a third party . . . . . . . . . . . . .
$ 2,785
$
$
$
427
23
—
$
$
$
—
—
—
Supplemental cash flow information:
Cash paid for taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities received from a customer for settlement of accounts receivable . . .
$ 9,688
$ 15,580
$ 2,887
$
$
240
192
$
$
443
—
$
$
339
—
See accompanying notes to the consolidated financial statements.
FS-7
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
Common Stock
Shares
Issued
Receivable
From
Amount Shareholder Earnings
Accumulated
Other
CRA
International,
Inc.
Total
Retained Comprehensive Shareholders’ Noncontrolling Shareholders’
Income (Loss)
Equity
BALANCE AT DECEMBER 29, 2012 . . 10,057,448 $ 93,174
Net income (loss)
. . . . . . . . . . . . . .
Foreign currency translation adjustment .
Exercise of stock options . . . . . . . . . .
Share-based compensation expense for
13,389
207
$(120)
$122,610
11,370
$(4,388)
964
employees . . . . . . . . . . . . . . . . . .
Restricted shares vesting . . . . . . . . . .
Redemption of vested employee
2,888
134,384
restricted shares for tax withholding . .
(37,642)
(730)
Tax deficit on stock option exercises and
restricted share vesting . . . . . . . . . .
Payments received on notes receivable
from shareholders . . . . . . . . . . . . .
Shares repurchased . . . . . . . . . . . . .
Share-based compensation expense for
non-employees . . . . . . . . . . . . . . .
Equity transactions of noncontrolling
interest.
. . . . . . . . . . . . . . . . . . .
(254)
(118,968)
(2,190)
120
147
$ —
$133,980
13,638
$(3,424)
(3,280)
BALANCE AT DECEMBER 28, 2013 . . 10,048,611 $ 93,242
Net income (loss)
. . . . . . . . . . . . . .
Foreign currency translation adjustment .
Issuance of common stock . . . . . . . . .
Exercise of stock options . . . . . . . . . .
Share-based compensation expense for
22,520
20,931
427
469
employees . . . . . . . . . . . . . . . . . .
Restricted shares vesting . . . . . . . . . .
Redemption of vested employee
restricted shares for tax withholding . .
Tax benefit on stock option exercises and
restricted share vesting . . . . . . . . . .
Shares repurchased . . . . . . . . . . . . .
Share-based compensation expense for
non-employees . . . . . . . . . . . . . . .
Equity transactions of noncontrolling
interest.
. . . . . . . . . . . . . . . . . . .
5,348
149,195
(41,470)
(1,222)
(971,515)
128
(25,492)
271
$211,276
11,370
964
207
2,888
(730)
(254)
120
(2,190)
147
$223,798
13,638
(3,280)
427
469
5,348
(1,222)
128
(25,492)
271
Interest
$
958
(135)
16
$
839
(231)
11
Equity
$212,234
11,235
964
207
2,888
(730)
(254)
120
(2,190)
147
16
$224,637
13,407
(3,280)
427
469
5,348
(1,222)
128
(25,492)
271
11
BALANCE AT JANUARY 3, 2015 . . . . .
9,228,272 $ 73,171
$ —
$147,618
$(6,704)
$214,085
$
619
$214,704
. . . . . . . . . . . . . .
Net income (loss)
Foreign currency translation adjustment .
Issuance of common stock in connection
with business acquisition . . . . . . . . .
Exercise of stock options . . . . . . . . . .
Share-based compensation expense for
employees . . . . . . . . . . . . . . . . . .
Share-based compensation expense for
non-employees . . . . . . . . . . . . . . .
Restricted shares vesting . . . . . . . . . .
Redemption of vested employee
1,359
29,288
106,504
42
602
5,755
11
restricted shares for tax withholding . .
(28,900)
(668)
Tax deficit on stock option exercises and
restricted share vesting . . . . . . . . . .
Shares repurchased . . . . . . . . . . . . .
Equity transactions of noncontrolling
interest.
. . . . . . . . . . . . . . . . . . .
(477,292)
(376)
(12,806)
7,657
(2,546)
(1,332)
7,657
(2,546)
42
602
5,755
11
(668)
(376)
(12,806)
6,325
(2,546)
42
602
5,755
11
(668)
(376)
(12,806)
25
25
BALANCE AT JANUARY 2, 2016 . . . . .
8,859,231 $ 65,731
$ —
$155,275
$(9,250)
$211,756
$ (688)
$211,068
See accompanying notes to the consolidated financial statements.
FS-8
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1.
Summary of Significant Accounting Policies
Description of Business
CRA International, Inc. (‘‘CRA’’) is a worldwide leading consulting services firm that applies
advanced analytic techniques and in-depth industry knowledge to complex engagements for a broad
range of clients. CRA offers services in two broad areas: litigation, regulatory, and financial consulting
and management consulting. CRA operates in two business segments, which are consulting services and
NeuCo. CRA operates its business under its registered trade name, Charles River Associates.
Fiscal Year
CRA’s fiscal year end is the Saturday nearest December 31 of each year. CRA’s fiscal years
periodically contain 53 weeks rather than 52 weeks. Fiscal 2015 was a 52-week year, fiscal 2014 was a
53-week year, and fiscal 2013 was a 52-week year.
Principles of Consolidation
The consolidated financial statements include the accounts of CRA and its wholly owned
subsidiaries. In addition, as more fully explained below, the consolidated financial statements include
CRA’s interest in NeuCo, Inc. (‘‘NeuCo’’). All significant intercompany transactions and accounts have
been eliminated in consolidation.
NeuCo Interest
CRA’s ownership interest in NeuCo is 55.89% for all periods presented. Therefore, NeuCo’s
financial results have been consolidated with CRA’s and the portion of NeuCo’s results allocable to its
other owners is shown as ‘‘noncontrolling interest.’’ Additionally, a member of CRA’s board of directors
holds a greater than 5% interest in NeuCo as of January 2, 2016. NeuCo’s software sales and
maintenance agreement revenues included in CRA’s consolidated statements of operations for fiscal
2015, fiscal 2014, and fiscal 2013 totaled approximately $3.8 million, $4.8 million, and $5.1 million,
respectively. NeuCo’s net loss included in CRA’s consolidated statements of operations for fiscal 2015,
fiscal 2014 and fiscal 2013 was approximately $3.0 million, $0.5 million and $0.3 million, respectively.
NeuCo’s net loss, net of amounts allocable to its other owners, included in CRA’s consolidated
statements of operations for fiscal 2015, fiscal 2014 and fiscal 2013 was approximately $1.3 million,
$0.2 million and $0.2 million, respectively. NeuCo’s interim reporting schedule is based on calendar
month-ends, but its fiscal year end is the last Saturday of November. CRA’s quarterly results could
include a few days reporting lag between CRA’s quarter end and the most recent financial statements
available from NeuCo. CRA does not believe that the reporting lag will have a significant impact on
CRA’s consolidated statements of operations or financial condition.
On January 8, 2015, NeuCo entered into an agreement to settle a note payable of approximately
$981,000 in exchange for aggregate payments of $375,000. NeuCo recorded a gain on the
extinguishment of this debt in the first quarter of fiscal 2015 of approximately $606,000. Under the
settlement order, the scheduled payments were made as follows: $150,000 on January 8, 2015 and
$150,000 on February 28, 2015. The final payment of $75,000 was paid on February 16, 2016. In case of
default, the original amount would become due with credit given for amounts previously paid. See
note 17, ‘‘Subsequent Events,’’ regarding the final $75,000 repayment of this debt made on February 16,
2016.
In accordance with ASC Topic 350, ‘‘Intangibles—Goodwill and Other,’’ goodwill and intangible
assets with indefinite lives are monitored annually for impairment, or more frequently, as necessary, if
events or circumstances exist that would more likely than not reduce the fair value of the reporting unit
FS-9
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
below its carrying amount. During the fourth quarter of 2015 it was determined that NeuCo’s net book
value exceeded its fair value of equity. Therefore, it was required to perform a step two goodwill
impairment test, which resulted in an impairment charge of $4.5 million.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the U.S. requires management to make significant estimates and judgments that affect the reported
amounts of assets and liabilities, and disclosure of contingent assets and liabilities, at the date of the
financial statements, and the reported amounts of consolidated revenues and expenses during the
reporting period. Estimates in these consolidated financial statements include, but are not limited to,
accounts and unbilled receivable allowances, revenue recognition on fixed price contracts, depreciation
of property and equipment, share-based compensation, valuation of acquired intangible assets,
impairment of long lived assets and goodwill, accrued and deferred income taxes, valuation allowances
on deferred tax assets, accrued compensation, accrued exit costs, and other accrued expenses. These
items are monitored and analyzed by CRA for changes in facts and circumstances, and material
changes in these estimates could occur in the future. Changes in estimates are recorded in the period
in which they become known. CRA bases its estimates on historical experience and various other
assumptions that CRA believes to be reasonable under the circumstances. Actual results may differ
from those estimates if CRA’s assumptions based on past experience or other assumptions do not turn
out to be substantially accurate.
Reclassifications
For presentation purposes, CRA has reclassified certain prior period amounts to conform to the
current period financial statement presentation. These reclassifications had no impact on earnings.
Forgivable loans were reclassed from prepaid expenses and other current assets, as well as other assets,
on the consolidated balance sheets.
Revenue Recognition
CRA derives substantially all of its revenues from the performance of professional services. The
contracts that CRA enters into and operates under specify whether the engagement will be billed on a
time-and-materials or a fixed-price basis. These engagements generally last three to six months,
although some of CRA’s engagements can be much longer in duration.
CRA recognizes substantially all of its revenues under written service contracts with its clients
when the fee is fixed or determinable, as the services are provided, and only in those situations where
collection from the client is reasonably assured and sufficient contractual documentation has been
obtained. In certain cases CRA provides services to its clients without sufficient contractual
documentation, or fees are tied to performance-based criteria, which require CRA to defer revenue in
accordance with U.S. GAAP. In these cases, these amounts are fully reserved until all criteria for
recognizing revenue are met.
Most of CRA’s revenue is derived from time-and-materials service contracts. Revenues from
time-and-materials service contracts are recognized as services are provided based upon hours worked
and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked.
Revenues from the majority of CRA’s fixed-price engagements are recognized on a proportional
performance method based on the ratio of costs incurred, substantially all of which are labor-related, to
the total estimated project costs. CRA derived approximately 14%, 15%, and 13% of consolidated
revenues from fixed-price engagements in fiscal 2015, fiscal 2014, and fiscal 2013, respectively. In
general, project costs are classified as costs of services and are based on the direct salary of the
FS-10
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
consultants on the engagement plus all direct expenses incurred to complete the engagement, including
any amounts billed to CRA by non-employee experts. The proportional performance method is used
for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable
to various stages of a contract can be made, based on historical experience and the terms set forth in
the contract, and are indicative of the level of benefit provided to CRA’s clients. Fixed-price contracts
generally convert to time-and-materials contracts in the event the contract terminates. CRA’s
management maintains contact with project managers to discuss the status of the projects and, for
fixed-price engagements, management is updated on the budgeted costs and resources required to
complete the project. These budgets are then used to calculate revenue recognition and to estimate the
anticipated income or loss on the project. Occasionally, CRA has been required to commit
unanticipated additional resources to complete projects, which has resulted in lower than anticipated
income or losses on those contracts. CRA may experience similar situations in the future. Provisions for
estimated losses on contracts are made during the period in which such losses become probable and
can be reasonably estimated. To date, such losses have not been significant.
Revenues also include reimbursable expenses, which include reimbursements for travel and other
out-of-pocket expenses, outside consultants, and other reimbursable expenses. Reimbursable expenses
are as follows (in thousands):
Year Ended
Year Ended
Year Ended
January 2,
2016
(52 weeks)
January 3,
2015
(53 weeks)
December 28,
2013
(52 weeks)
Reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . . .
$33,548
$36,676
$37,320
CRA’s revenues include projects secured by its non-employee experts as well as projects secured by
its employees. CRA recognizes all project revenue on a gross basis based on the consideration of the
criteria set forth in Accounting Standards Codification (‘‘ASC’’) Topic 605-45, Principal Agent
Considerations.
CRA maintains accounts receivable allowances for estimated losses and disputed amounts resulting
from clients’ failure to make required payments. CRA bases its estimates on historical collection
experience, current trends, and credit policy. In determining these estimates, CRA examines historical
write-offs of its receivables and reviews client accounts to identify any specific customer collection
issues.
If the financial condition of CRA’s customers were to deteriorate or disputes were to arise
regarding the services provided, resulting in an impairment of their ability or intent to make payment,
additional allowances may be required.
Unbilled services represent revenue recognized by CRA for services performed but not yet billed
to the client. Deferred revenue represents amounts billed or collected in advance of services rendered.
CRA collects goods and services and value added taxes from customers and records these amounts
on a net basis, which is within the scope of ASC Topic 605-45, Principal Agent Considerations.
Cash and Cash Equivalents
Cash equivalents consist principally of securities with a maturity of three months or less when
purchased and are stated at amortized cost, which approximates fair value. Cash equivalents in the
form of investments in money market fund shares are held at net asset value, which approximates fair
value.
FS-11
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Fair Value of Financial Instruments
ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that
prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted
prices in active markets for identical assets or liabilities (Level 1 measurement), then priority to quoted
prices for similar instruments in active markets, quoted prices for identical or similar instruments in
markets that are not active and model-based valuation techniques for which all significant assumptions
are observable in the market (Level 2 measurement), then the lowest priority to unobservable inputs
(Level 3 measurement).
The following table shows CRA’s financial instruments as of January 2, 2016 and January 3, 2015
that are measured and recorded in the financial statements at fair value on a recurring basis (in
thousands):
January 2, 2016
Quoted Prices in
Active Markets
for Identical
Assets or Liabilities
Significant
Other
Observable
Inputs
Unobservable
Inputs
Level 1
Level 2
Level 3
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Contingent acquisition liability . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$6,015
$6,015
$ —
$ —
$—
$—
$—
$—
$ —
$ —
$773
$773
January 3, 2015
Quoted Prices in
Active Markets
for Identical
Assets or Liabilities
Significant
Other
Observable
Inputs
Unobservable
Inputs
Level 1
Level 2
Level 3
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Contingent acquisition liability . . . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$20,042
$20,042
$ —
$ —
$—
$—
$—
$—
$ —
$ —
$316
$316
The fair values of CRA’s money market funds are based on quotes received from third-party banks.
The contingent acquisition liability in the table above is for estimated future contingent
consideration payments related to a prior acquisition. The fair value measure of this liability is based
on significant inputs not observed in the market and thus represents a Level 3 measurement. The
significant unobservable inputs used in the fair value measurements of this contingent acquisition
liability are CRA’s measures of the estimated payouts based on internally generated financial
projections and discount rates. The fair value of the contingent acquisition liability is reassessed on a
quarterly basis by CRA using additional information as it becomes available and any change in the fair
value estimate is recorded in the earnings of that period.
FS-12
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
CRA’s financial instruments, including cash, accounts receivable, loans and advances to employees
and non-employee experts, accounts payable, and accrued expenses, are carried at cost, which
approximates their fair value because of the short-term maturity of these instruments or because their
stated interest rates are indicative of market interest rates.
Goodwill
In accordance with ASC Topic 350, ‘‘Intangibles—Goodwill and Other’’ (‘‘ASC Topic 350’’),
goodwill and intangible assets with indefinite lives are not subject to amortization, but are monitored
annually as of October 15th for impairment, or more frequently, as necessary, if events or
circumstances exist that would more likely than not reduce the fair value of the reporting unit below its
carrying amount. For CRA’s goodwill impairment analysis, it operates under two reporting units, which
are consulting services and NeuCo.
Under ASC Topic 350, in performing the first step of the goodwill impairment testing and
measurement process, CRA compares the estimated value of each of its reporting units to its net book
value to identify potential impairment. CRA estimates the fair value of its consulting business utilizing
its market capitalization, plus an appropriate control premium, less the estimated fair value of NeuCo.
Market capitalization is determined by multiplying CRA’s shares outstanding on the test date by the
market price of its common stock on that date. CRA determines the control premium utilizing a
discounted cash flow model that takes into consideration CRA’s forecasted results as well as
appropriate industry, market and other pertinent factors, including indications of such premiums from
data on recent acquisition transactions. The fair value of NeuCo is determined using an income
approach which measures the value of the enterprise based on an expected stream of earnings over
time. If the estimated fair value of a reporting unit is less than its net book value, the second step is
performed to determine if goodwill is impaired. If through the impairment evaluation process a
reporting unit determines that goodwill has been impaired, an impairment charge would be recorded in
CRA’s consolidated income statement.
NeuCo incurred an impairment loss during the fourth quarter of fiscal 2015. CRA’s consulting
services did not incur an impairment loss related to goodwill during fiscal 2015, fiscal 2014 or fiscal
2013 as there were no events or circumstances that would more likely than not reduce its fair value
below its carrying amount, and CRA’s consulting services estimated fair value was greater than its
carrying value as of October 15th of each respective year.
The re-measurement of a reporting unit’s fair value and that of its underlying assets and liabilities
is classified as a Level 3 fair value assessment due to the significance of unobservable inputs developed
using specific information from the reporting units. The fair value adjustment to goodwill, which
resulted in NeuCo’s impairment charge, was computed as the difference between NeuCo’s fair value
and the fair value of its underlying assets and liabilities. The unobservable inputs used to determine the
fair value of the underlying assets and liabilities were based on our specific information such as
estimates of revenue and cost growth rates, profit margins, discount rates, and cost estimated. See
note 4, ‘‘Goodwill and Intangible Assets,’’ for further details.
Intangible Assets
Intangible assets that are separable from goodwill and have determinable useful lives are valued
separately and amortized over their estimated useful lives. Intangible assets consist of non-competition
agreements, customer relationships, customer lists, developed technology, and trademarks, all of which
are amortized on a straight-line basis over their remaining useful lives of four to ten years.
FS-13
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Property and Equipment
Property and equipment are recorded at cost. Depreciation is calculated using the straight-line
method based on the estimated useful lives of three years for computer equipment, three to ten years
for computer software, and ten years for furniture and fixtures. Amortization of leasehold
improvements is calculated using the straight-line method over the shorter of the lease term or the
estimated useful life of the leasehold improvements. Expenditures for maintenance and repairs are
expensed as incurred. Expenditures for renewals and betterments are capitalized.
Leases and Deferred Rent
CRA leases all of its office space. Leases are evaluated and classified as operating or capital leases
for financial reporting purposes. For leases that contain rent escalations and rent holidays, CRA
records the total rent payable during the lease term, as determined above, on a straight-line basis over
the term of the lease and records the difference between the rents paid and the straight-line rent as
deferred rent. Additionally, any tenant improvement allowances received from the lessor are recorded
as a reduction to rent expense.
Impairment of Long-Lived Assets
CRA reviews the carrying value of its long-lived assets (primarily property and equipment and
intangible assets) to assess the recoverability of these assets whenever events or circumstances indicate
that impairment may have occurred. Factors CRA considers important that could trigger an impairment
review include the following:
(cid:129) a significant underperformance relative to expected historical or projected future operating
results;
(cid:129) a significant change in the manner of CRA’s use of the acquired asset or the strategy for CRA’s
overall business; and
(cid:129) a significant negative industry or economic trend.
If CRA determines that an impairment review is required, CRA would review the expected future
undiscounted cash flows to be generated by the assets or asset groups. If CRA determines that the
carrying value of long-lived assets or asset groups may not be recoverable, CRA would measure any
impairment based on a projected discounted cash flow method using a discount rate determined by
CRA to be commensurate with the risk inherent in CRA’s current business model. If impairment is
indicated through this review, the carrying amount of the assets would be reduced to their estimated
fair value.
Concentration of Credit Risk
CRA’s billed and unbilled receivables consist of receivables from a broad range of clients in a
variety of industries located throughout the U.S. and in other countries. CRA performs a credit
evaluation of its clients to minimize its collectability risk. Periodically, CRA will require advance
payment from certain clients. However, CRA does not require collateral or other security. CRA
maintains accounts receivable allowances for estimated losses and disputed amounts resulting from
clients’ failures to make required payments. CRA bases its estimates on historical collection experience,
current trends, and credit policy. In determining these estimates, CRA examines historical write-offs of
its receivables and reviews client accounts to identify any specific customer collection issues. If the
financial condition of any of CRA’s customers were to deteriorate, resulting in an impairment of their
ability or intent to make payment, additional allowances may be required.
FS-14
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A rollforward of the accounts receivable allowances is as follows (in thousands):
Fiscal
Year
2015
Fiscal
Year
2014
Fiscal
Year
2013
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Change related to NeuCo . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases to reserve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of foreign currency translation . . . . . . . . . . . . . . . . . . . .
$ 4,177
—
2,361
(2,881)
(9)
$ 7,210
(18)
948
(3,993)
30
$ 9,459
(2)
5,619
(7,891)
25
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,648
$ 4,177
$ 7,210
A rollforward of the unbilled receivables allowances is as follows (in thousands):
Fiscal
Year
2015
Fiscal
Year
2014
Fiscal
Year
2013
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Increases to reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of foreign currency translation . . . . . . . . . . . . . . . . . . . .
$ 2,233
2,832
(2,711)
—
$ 1,827
5,242
(4,836)
—
$ 2,921
443
(1,538)
1
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 2,354
$ 2,233
$ 1,827
Amounts deemed uncollectible are recorded as a reduction to revenues.
Net Income (Loss) Per Share
CRA computes basic net income or loss per share by dividing net income or loss by the weighted-
average number of shares outstanding. CRA computes diluted net income or loss per share by dividing
net income or loss by the sum of the weighted-average number of shares determined from the basic
earnings per common share computation and the number of common stock equivalents that would have
a dilutive effect. To the extent that there is a net loss, CRA assumes all common stock equivalents to
be anti-dilutive, and they are excluded from diluted weighted-average shares outstanding. CRA
determines common stock equivalent shares outstanding in accordance with the treasury stock method.
In those years in which CRA has both net income and participating securities, CRA computes basic net
income per share utilizing the two-class method earnings allocation formula to determine earnings per
share for each class of stock according to dividends and participation rights in undistributed earnings.
Under the two-class method, basic earnings per common share is computed by dividing net earnings
allocated to common stock by the weighted-average number of common shares outstanding.
Share-Based Compensation
CRA accounts for equity-based compensation using a fair value based recognition method. Under
the fair value recognition requirements of ASC Topic 718, ‘‘Compensation—Stock Compensation’’
(‘‘ASC Topic 718’’), share-based compensation cost is estimated at the grant date based on the fair
value of the award and is recognized as expense over the requisite service period of the award. The
amount of share-based compensation expense recognized at any date must at least equal the portion of
grant date value of the award that is vested at that date. In accordance with ASC Topic 718, for
performance-vesting restricted stock units awarded to employees, CRA estimates share-based
compensation cost at the grant date based on the fair value of the award and recognizes the cost over
the requisite service period on a straight line basis.
FS-15
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For share-based awards granted to non-employee experts, CRA accounts for the compensation
under variable accounting in accordance with ASC Topic 718 and ASC Topic 505-50, ‘‘Equity-Based
Payments to Non-Employees’’ (formerly Emerging Issues Task Force 96-18, ‘‘Accounting for Equity
Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling,
Goods or Services’’), and recognizes the cost over the related vesting period.
Income Taxes
CRA accounts for income taxes using the asset and liability method of accounting for income
taxes. Deferred tax assets and liabilities are recognized based upon anticipated future tax consequences
attributable to differences between the financial statement carrying amounts of existing assets and
liabilities and their respective income tax bases, and operating loss and tax credit carryforwards.
Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable
income in the years in which those temporary differences are expected to be recovered or settled. The
effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date. A valuation allowance is recorded to reduce the carrying
amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
In addition, the calculation of CRA’s tax liabilities involves dealing with uncertainties in the
application of complex tax regulations in several different tax jurisdictions. CRA records liabilities for
estimated tax obligations resulting in a provision for taxes that may become payable in the future, in
accordance with ASC Topic 740-10, ‘‘Income Taxes,’’ which prescribes a recognition threshold and
measurement attribute for the financial statement recognition and measurement of a tax position taken
or expected to be taken in a tax return and also provides guidance on derecognition, classification,
interest and penalties, accounting in interim periods, and disclosure. CRA includes accrued interest and
penalties, if any, related to uncertain tax positions in income tax expense.
Foreign Currency Translation
Balance sheet accounts of CRA’s foreign subsidiaries are translated into U.S. dollars at year-end
exchange rates and operating accounts are translated at average exchange rates for each year. The
resulting translation adjustments are recorded in shareholders’ equity as a component of accumulated
other comprehensive income (loss). Foreign currency transactions are translated at current exchanges
rates, with adjustments recorded in the statement of operations. The effect of transaction gains and
losses recorded in income (loss) before (provision) benefit for income taxes amounted to losses of
$0.6 million, $0.3 million, and $0.2 million for fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
Recent Accounting Standards
Leases (Topic 842)
In February 2016, the Financial Accounting Standards Board (‘‘FASB’’) issued Accounting
Standards Update (‘‘ASU’’) No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’). ASU 2016-02 establishes
a comprehensive new lease accounting model. The new standard clarifies the definition of a lease,
requires a dual approach to lease classification similar to current lease classifications, and causes lessees
to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset for
leases with a lease term of more than twelve months. The new standard is effective for interim and
annual periods beginning after December 15, 2018. Early adoption is permitted. The new standard
requires a modified retrospective transition for capital or operating leases existing at or entered into
after the beginning of the earliest comparative period presented in the financial statements, but it does
not require transition accounting for leases that expire prior to the date of initial application. CRA has
not yet determined the effects, if any, that the adoption of ASU 2016-02 may have on its financial
position, results of operations, cash flows, or disclosures.
FS-16
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Income Taxes (Topic 740): Balance Sheet Classification of Deferred Taxes
In November 2015, the Financial Accounting Standards Board (‘‘FASB’’) updated Accounting
Standards Codification (‘‘ASC’’) Topic 740, Income Taxes to simplify the presentation of deferred taxes.
ASU 2015-17, Balance Sheet Classification of Deferred Taxes, amends ASC Topic 740 by requiring the
classification of all deferred tax liabilities and assets as noncurrent in a classified statement of financial
position. The amendments in this ASU have no effect on entities not presenting a classified statement
of financial position. The standard is effective for annual and interim periods beginning after
December 15, 2016, for public business entities. Earlier application is permitted for all entities as of the
beginning of an interim or annual reporting period. An entity may apply the amendments either
prospectively to all deferred tax liabilities and assets or retrospectively to all periods presented. All
entities would disclose the nature of and reason for the change in accounting principle in both the
interim and annual period first adopted. For prospective application, an entity would note that prior
periods were not retrospectively adjusted; for retrospective application, an entity would disclose
quantitative information about the effects of the accounting change on prior periods. CRA early
adopted ASU 2015-17, which resulted in the reclassification of $20.5M from current deferred income
taxes to noncurrent deferred income taxes on CRA’s consolidated balance sheets as of January 3, 2015.
Adoption of ASU 2015-17 had no impact on CRA’s results of operations.
January 3, 2015
As Filed
Reclass
As Adjusted
Current deferred income tax assets . . . . . . . . . . . . . . . . . .
Long-term deferred income tax assets . . . . . . . . . . . . . . . .
Current deferred income tax liabilities . . . . . . . . . . . . . . . .
Long-term deferred income tax liabilities . . . . . . . . . . . . . .
$ 20,638
174
(121)
(3,027)
(in thousands)
$(20,638)
19,098
121
1,419
$
—
19,272
—
(1,608)
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 17,664
$
— $ 17,664
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
165,167
(20,638)
144,529
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
315,012
(1,540)
313,472
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
88,394
(121)
88,273
Total shareholder’s equity . . . . . . . . . . . . . . . . . . . . . . . . .
214,704
— 214,704
Business Combinations (Topic 805): Simplifying the Accounting for Measurement-Period Adjustments
In September 2015, the FASB issued ASU No. 2015-16, Business Combinations (Topic 805):
Simplifying the Accounting for Measurement-Period Adjustments (‘‘ASU 2015-16’’). With the issuance
of ASU 2015-16, the current guidance under FASB ASC 805 eliminates the requirement that an
acquirer retrospectively adjust provisional amounts recognized in a business combination during the
measurement period. The measurement period is one year from the date of the acquisition. The
amendments in ASU 2015-16 require that an acquirer recognize adjustments to provisional amounts
that are identified during the measurement period in the reporting period in which the adjustment
amounts are determined. For public business entities, the amendments in this Update are effective for
fiscal years beginning after December 15, 2015, including interim periods within those fiscal years. CRA
believes that the adoption of ASU 2015-16 will not have a material impact on its financial position,
results of operations, cash flows, or disclosures.
FS-17
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenue from Contracts with Customers
In August 2015, the FASB issued ASU No. 2015-14, Revenue from Contracts with Customers
(Topic 606): Deferral of the Effective Date (‘‘ASU 2015-14’’). ASU 2015-14 defers by one year the
effective date of ASU No. 2014-09, Revenue from Contracts with Customers (‘‘ASU 2014-09’’). The
deferral results in ASU 2014-09 being effective for fiscal years, and interim periods within those fiscal
years, beginning after December 15, 2017. Early adoption is permitted for interim and annual periods
beginning after December 15, 2016. The main provision of ASU 2014-09 is to recognize revenue when
control of the goods or services transfers to the customer, as opposed to the existing guidance of
recognizing revenue when the risks and rewards transfer to the customer. CRA has not yet determined
the effects, if any, that the adoption of ASU 2014-09 may have on its financial position, results of
operations, cash flows, or disclosures.
Simplifying the Presentation of Debt Issuance Costs
In April 2015, the FASB issued ASU No. 2015-03, Interest-Imputation of Interest (Subtopic 835-30):
Simplifying the Presentation of Debt Issuance Costs (‘‘ASU 2015-03’’). ASU 2015-03 requires that debt
issuance costs related to a recognized debt liability be presented in the balance sheet as a direct
deduction from the carrying amount of that debt liability, consistent with debt discounts. ASU 2015-03
is effective for the first interim period for fiscal years beginning after December 15, 2015. CRA believes
that the adoption of ASU 2015-03 will not have a material impact on its financial position, results of
operations, cash flows, or disclosures.
Reporting of Going-Concern Uncertainties
In August 2014, the FASB issued ASU No. 2014-15, Presentation of Financial Statements—Going
Concern (Subtopic 205-40): Disclosure of Uncertainties about an Entity’s Ability to Continue as a Going
Concern (‘‘ASU 2014-15’’). ASU 2014-15 is intended to define management’s responsibility to evaluate
whether there is substantial doubt about an organization’s ability to continue as a going concern and
provides guidance to an organization’s management, with principles and definitions that are intended to
reduce diversity in the timing and content of disclosures in the financial statement footnotes. ASU
2014-15 is effective for the annual period ending after December 15, 2016, and for annual periods and
interim periods thereafter. Early application is permitted. CRA believes that the adoption of ASU
2014-15 will not have a material impact on its financial position, results of operations, cash flows, or
disclosures.
Accounting for Share-Based Payments
In June 2014, the FASB issued ASU No. 2014-12, Accounting for Share-Based Payments When the
Terms of an Award Provide That a Performance Target Could Be Achieved after the Requisite Service Period
(a consensus of the FASB Emerging Issues Task Force) (‘‘ASU 2014-12’’). ASU 2014-12 clarifies that
entities should treat performance targets that can be met after the requisite service period of a share-
based payment award as performance conditions that affect vesting. Therefore, an entity would not
record compensation expense (measured as of the grant date without taking into account the effect of
the performance target) related to an award for which transfer to the employee is contingent on the
entity’s satisfaction of a performance target until it becomes probable that the performance target will
be met. There are no new disclosures required under ASU 2014-12. ASU 2014-12 is effective for fiscal
years, and interim periods within those years, beginning after December 15, 2015. CRA believes that
the adoption of ASU 2014-12 will not have a material impact on its financial position, results of
operations, cash flows, or disclosures.
FS-18
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
2. Business Acquisition
On January 31, 2013, CRA announced that an approximate 40-person litigation consulting team
joined CRA, effective February 1, 2013. Under an agreement to hire the team, CRA accelerated the
previously announced start dates of certain key personnel from May 2013. Under the terms of the
transaction, CRA acquired certain intangible assets, accounts receivable, and certain client projects
currently underway. The fair values of the assets acquired and the liabilities assumed as part of the
acquisition were finalized in the first quarter of fiscal 2014. The acquisition was not material. The
acquisition was accounted for under the purchase method of accounting, and the results of operations
have been included in the accompanying consolidated statements of operations from the date of
acquisition.
3.
Forgivable Loans
In order to attract and retain highly skilled professionals, CRA may issue forgivable loans to
employees and non-employee experts, certain of which loans may be denominated in local currencies.
A portion of these loans is collateralized. The forgivable loans have terms that are generally between
three and eight years with interest ranging up to 3.25%. The principal amount of forgivable loans and
accrued interest is forgiven by CRA over the term of the loans, so long as the employee or
non-employee expert continues employment or affiliation with CRA and complies with certain
contractual requirements. During fiscal years 2015 and 2014, there were no balances due under these
loans for which the full principal and interest were not collected. The expense associated with the
forgiveness of the principal amount of the loans is recorded as compensation expense over the service
period, which is consistent with the term of the loans. CRA has not typically recorded an allowance for
doubtful accounts for these loans due to its collection experience and its assessment of collectability.
For fiscal 2015 and fiscal 2014, no allowances or write offs of these loans were recorded.
Forgivable loan activity for fiscal years 2015 and 2014 is as follows (in thousands):
January 2,
2016
January 3,
2015
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Terminations
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 45,356
14,531
—
(15,202)
$ 54,759
5,964
(2,158)
(13,209)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 44,685
$ 45,356
Current portion of forgivable loans . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,402
$ 2,449
Non-current portion of forgivable loans . . . . . . . . . . . . . . . . . . . . . . . .
$ 40,283
$ 42,907
4. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for fiscal 2015 and fiscal 2014 are as follows
(in thousands):
Balance at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill impairment related to NeuCo . . . . . . . . . . . . . . .
Effect of foreign currency translation . . . . . . . . . . . . . . . . .
$154,196
—
(809)
$(71,893)
(4,524)
—
Goodwill,
gross
Accumulated
impairment
losses
Goodwill,
net
$82,303
(4,524)
(809)
Balance at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
$153,387
$(76,417)
$76,970
FS-19
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Balance at December 28, 2013 . . . . . . . . . . . . . . . . . . . . . .
Goodwill adjustments related to acquisitions . . . . . . . . . . . .
Effect of foreign currency translation . . . . . . . . . . . . . . . . .
$153,466
1,797
(1,067)
$(71,893)
—
—
Goodwill,
gross
Accumulated
impairment
losses
Goodwill,
net
$81,573
1,797
(1,067)
Balance at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . .
$154,196
$(71,893)
$82,303
NeuCo incurred an impairment loss during the fourth quarter of fiscal 2015. NeuCo did not incur
an impairment loss in fiscal 2014 or fiscal 2013. CRA did not incur an impairment loss during fiscal
2015, fiscal 2014 or fiscal 2013 as there were no events or circumstances that would more likely than
not reduce CRA’s fair value below its carrying amount, and CRA’s estimated fair value was greater than
its carrying value as of October 15th of each respective year.
Intangible assets that are separable from goodwill and have determinable useful lives are valued
separately and amortized over their expected useful lives. There were no impairment losses related to
intangible assets during fiscal 2015, fiscal 2014, or fiscal 2013.
The components of acquired identifiable intangible assets are as follows (in thousands):
Non-competition agreements, net of accumulated amortization of $4,064
and $4,046, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Customer relationships, net of accumulated amortization of $4,598 and
January 2,
2016
January 3,
2015
$ 129
$ 236
$3,746, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
3,462
4,521
Other intangible assets, net of accumulated amortization of $1,792 and
$1,792, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
—
—
$3,591
$4,757
Amortization of intangible assets was $1.0 million, $1.4 million, and $1.2 million in fiscal 2015,
fiscal 2014, and fiscal 2013, respectively. Amortization of intangible assets held at January 2, 2016 for
the next five fiscal years is expected to be as follows (in thousands):
Fiscal Year
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization
Expense
$ 870
827
802
547
545
$3,591
FS-20
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
5.
Property and Equipment
Property and equipment consist of the following (in thousands):
January 2,
2016
January 3,
2015
Computer, office equipment and software . . . . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 21,920
29,361
6,930
$ 24,197
21,613
7,730
Total cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . .
58,211
(26,873)
53,540
(38,844)
$ 31,338
$ 14,696
Depreciation expense, including amounts recorded in costs of services, was $5.5 million,
$5.0 million, and $5.2 million, in fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
January 2,
2016
January 3,
2015
Compensation and related expenses . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$57,963
323
6,832
$61,527
490
4,531
$65,118
$66,548
As of January 2, 2016 and January 3, 2015, $44.9 million and $49.2 million of accrued bonuses for
fiscal 2015 and fiscal 2014, respectively, were included above in ‘‘Compensation and related expenses’’.
7. Credit Agreement
CRA is party to a credit agreement that provides CRA with a $125.0 million revolving credit
facility and a $15 million sublimit for the issuance of letters of credit. CRA may use the proceeds of
the revolving credit facility for working capital and other general corporate purposes. CRA may repay
any borrowings under the revolving credit facility at any time, but no later than April 24, 2018. There
were no amounts outstanding under this revolving line of credit as of January 2, 2016 and January 3,
2015, respectively.
As of January 2, 2016, the amount available under this revolving line of credit was reduced by
certain letters of credit outstanding, which amounted to $2.5 million. Borrowings under the revolving
credit facility bear interest at a rate per annum of either (i) the adjusted base rate, as defined in the
credit agreement, plus an applicable margin, which varies between 0.50% and 1.50% depending on
CRA’s total leverage ratio as determined under the credit agreement, or (ii) the adjusted eurocurrency
rate, as defined in the credit agreement, plus an applicable margin, which varies between 1.50% and
2.50% depending on CRA’s total leverage ratio. CRA is required to pay a fee on the unused portion of
the revolving credit facility at a rate per annum that varies between 0.25% and 0.375% depending on
its total leverage ratio. Borrowings under the credit facility are secured by 100% of the stock of certain
of CRA’s U.S. subsidiaries and 65% of the stock of certain of its foreign subsidiaries, which represent
approximately $6.0 million and $6.4 million in net assets as of January 2, 2016 and January 3, 2015,
respectively.
FS-21
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under the credit agreement, CRA must comply with various financial and non-financial covenants.
Compliance with these financial covenants is tested on a fiscal quarterly basis. Any indebtedness
outstanding under the credit facility may become immediately due and payable upon the occurrence of
stated events of default, including CRA’s failure to pay principal, interest or fees or a violation of any
financial covenant. The financial covenants require CRA to maintain an adjusted consolidated EBITDA
to consolidated interest expense ratio of more than 2.5:1.0 and to comply with a consolidated debt to
adjusted consolidated EBITDA ratio of not more than 3.0:1.0. The non-financial covenant restrictions
of the senior credit agreement include, but are not limited to, CRA’s ability to incur additional
indebtedness, engage in acquisitions or dispositions, and enter into business combinations. As of
January 2, 2016 and January 3, 2015, CRA was in compliance with the covenants of its credit
agreement.
8. Employee Benefit Plans
CRA maintains qualified defined-contribution plans under Section 401(k) of the Internal Revenue
Code, covering substantially all U.S. employees who meet specified age and service requirements.
Company contributions are made at the discretion of CRA, and cannot exceed the maximum amount
deductible under applicable provisions of the Internal Revenue Code. Effective in fiscal 2014, CRA also
has a defined-contribution plan covering employees in the United Kingdom for which company
contributions are made at the discretion of CRA. Company contributions under these plans amounted
to approximately $2.2 million, $1.6 million, and $1.7 million for fiscal 2015, fiscal 2014, and fiscal 2013,
respectively.
9. Net Income (Loss) Per Share
CRA calculates basic and diluted earnings per common share using the two-class method. Under
the two-class method, net earnings are allocated to each class of common stock and participating
security as if all of the net earnings for the period had been distributed. CRA’s participating securities
consist of unvested share-based payment awards that contain a nonforfeitable right to receive dividends
and therefore are considered to participate in undistributed earnings with common shareholders. Basic
earnings per common share excludes dilution and is calculated by dividing net earnings allocable to
common shares by the weighted-average number of common shares outstanding for the period. Diluted
earnings per common share is calculated by dividing net earnings allocable to common shares by the
weighted-average number of common shares as of the balance sheet date, as adjusted for the potential
dilutive effect of non-participating share-based awards. Net earnings allocable to these participating
securities were not significant for fiscal 2015, fiscal 2014 or fiscal 2013.
The following table presents a reconciliation from net income to the net income available to
common shareholders (in thousands):
Net income, as reported . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: net income attributable to participating shares . . . . . .
Net income available to common shareholders . . . . . . . . . .
Fiscal Year
2015
Fiscal Year
2014
Fiscal Year
2013
$7,657
59
$7,598
$13,638
20
$11,370
27
$13,618
$11,343
FS-22
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For fiscal 2015, fiscal 2014 and fiscal 2013, the following is a reconciliation of basic to diluted
weighted average shares of common stock outstanding (in thousands):
Basic weighted average shares outstanding . . . . . . . . . . . . .
Common stock equivalents:
Stock options and restricted stock . . . . . . . . . . . . . . . . . . .
Diluted weighted average shares outstanding . . . . . . . . . . .
9,195
Fiscal Year
2015
Fiscal Year
2014
Fiscal Year
2013
9,010
9,747
10,084
185
150
9,897
89
10,173
For fiscal 2015, fiscal 2014 and fiscal 2013, the anti-dilutive share based awards that were excluded
from the calculation of common stock equivalents for purposes of computing diluted weighted average
shares outstanding amounted to 522,593, 764,748, and 1,138,411 shares, respectively.
10. Common Stock
Share-Based Compensation. Approximately $5.8 million, $5.3 million, and $2.9 million of share-
based compensation expense was recorded in fiscal 2015, fiscal 2014, and fiscal 2013, respectively, as an
increase to common stock for share-based payment awards made to CRA’s employees and directors,
based on the estimated grant date fair values of stock options, shares of restricted stock, and restricted
stock units vesting during the period.
CRA also recorded $11,000, $271,000, and $147,000 for fiscal 2015, fiscal 2014, and fiscal 2013,
respectively, in shared-based compensation expense for grants to non-employees (other than directors).
Restricted Share Vesting.
In fiscal 2015, fiscal 2014, and fiscal 2013, 106,504, 149,195, and 134,384
shares of restricted stock and restricted stock units vested, respectively. CRA redeemed 28,900, 41,470,
and 37,642 of these shares from their holders in order to pay $0.7 million, $1.2 million, and
$0.7 million, respectively, of employee tax withholdings.
Common Stock Repurchases and Retirements. On August 10, 2012, February 13, 2014, and
October 23, 2014, CRA’s Board of Directors authorized the repurchase of up to $5.0 million,
$15.0 million, and $30.0 million, respectively, of CRA’s common stock. Repurchases under these
programs are discretionary and CRA may make such repurchases under any of these programs in the
open market (including under any Rule 10b5-1 plan adopted by CRA) or in privately negotiated
transactions, in each case in accordance with applicable insider trading and other securities laws and
regulations. CRA records the retirement of its repurchased shares as a reduction to common stock.
During fiscal 2015, CRA repurchased and retired 477,292 shares under these share repurchase
programs at an aggregate price of approximately $12.8 million, resulting in approximately $8.1 million
available for future repurchases as of January 2, 2016. During fiscal 2014, CRA repurchased and retired
971,515 shares under these share repurchase programs at an aggregate price of approximately
$25.5 million, resulting in approximately $20.9 million available for future repurchases as of January 3,
2015. During fiscal 2013, CRA repurchased and retired 118,968 shares under these share repurchase
programs at an aggregate price of approximately $2.2 million, resulting in approximately $1.4 million
available for future repurchases as of December 28, 2013.
Exercise of Stock Options. During fiscal 2015, 29,288 options were exercised for $0.6 million of
proceeds. During fiscal 2014, 20,931 options were exercised for $0.5 million of proceeds. During fiscal
2013, 13,389 options were exercised for $0.2 million of proceeds.
Tax Benefits and Deficits on Stock Option Exercises and Restricted Share Vesting.
In fiscal 2014,
CRA recorded $0.1 million of tax benefits on stock option exercises and the vesting of shares of
restricted stock and restricted stock units as an increase to common stock. CRA recorded tax deficits
FS-23
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
on stock options exercises and the vesting of shares of restricted stock and restricted stock units as a
decrease to common stock in fiscal 2015 and fiscal 2013, totaling $0.4 million and $0.3 million,
respectively.
11. Share-Based Compensation
CRA recorded approximately $5.8 million, $5.3 million, and $2.9 million of compensation expense
for fiscal 2015, fiscal 2014, and fiscal 2013 for share-based awards consisting of stock options, shares of
restricted stock, time-vesting restricted stock units, and performance-vesting restricted stock units issued
to employees and directors based on their respective estimated grant date fair values. Performance-
vesting restricted stock units are expensed using the graded acceleration method.
In addition, CRA recorded $11,000, $271,000, and $147,000 of share-based compensation expense
during fiscal 2015, fiscal 2014, and fiscal 2013, respectively, for share-based awards consisting of stock
options and shares of restricted stock issued to non-employees (other than directors).
CRA maintains share-based compensation plans that use restricted stock, stock options, restricted
stock units, as well as an employee stock purchase plan, to provide incentives to its directors,
employees and independent contractors. Additionally, during fiscal 2009, CRA implemented a
long-term incentive program for certain key employees. Under this program, participants may receive a
mixture of stock options, time-vesting restricted stock units, and performance-vesting restricted stock
units. The program is designed to reward key employees and provide participants the opportunity to
share in the long-term growth of CRA. CRA has granted options, time-vesting restricted stock units,
and performance-vesting restricted stock units under this program during fiscal 2009 through fiscal
2015, except fiscal 2012. These awards are granted under the 2006 Incentive Plan discussed below.
CRA’s Amended and Restated 2006 Equity Incentive Plan, as amended (the ‘‘2006 Incentive
Plan’’), authorizes the grant of a variety of incentive and performance awards to CRA’s directors,
employees and independent contractors, including incentive stock options, nonqualified stock options,
restricted stock awards, restricted stock unit awards, performance awards and other share-based awards.
Each share of CRA’s common stock issued pursuant to an award (other than a stock option) granted
under the 2006 Incentive Plan on or after April 30, 2010 counts as 1.83 shares against the maximum
number of shares issuable under the plan, as does any restricted stock unit or other performance award
granted under the plan on or after April 30, 2010 to the extent that shares of CRA’s common stock
were or will be used for measurement purposes. The maximum number of shares issuable under the
2006 Incentive Plan is 4,874,000, consisting of (1) 500,000 shares initially reserved for issuance under
the 2006 Incentive Plan, (2) 1,000,000 shares that either remained for future awards under CRA’s 1998
Incentive and Nonqualified Stock Option Plan (the ‘‘1998 Plan’’) on April 21, 2006, the date CRA’s
shareholders initially approved the 2006 Incentive Plan, or were subject to stock options issued under
the 1998 Plan that were forfeited or terminated after April 21, 2006, (3) 210,000 shares approved by
CRA’s shareholders in 2008, (4) 1,464,000 shares approved by CRA’s shareholders in 2010, and (5) the
1,700,000 shares that CRA has determined to use of the 2,500,000 shares approved by CRA’s
shareholders in 2012.
FS-24
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Under CRA’s 2009 Nonqualified Inducement Stock Option Plan, options to purchase 200,000
shares have been granted. A maximum of 250,000 shares may be issued pursuant to stock option grants
under the 2009 Nonqualified Inducement Stock Option Plan. Accordingly, there are an additional
50,000 stock options available for grant under this plan. Each stock option granted under this plan vests
over four years, has a term of seven years, and an exercise price equal to $50.00 per share.
A summary of option activity from all plans is as follows:
Weighted Weighted Average
Average
Exercise
Price
Remaining
Contractual
Term
Options
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at January 3, 2015 . . . . . . . . . . . . . .
Fiscal 2015:
1,154,945
$29.93
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
250,835
(29,288)
(138,695)
(31,019)
Outstanding at January 2, 2016 . . . . . . . . . . . . . .
1,206,778
Options exercisable at January 2, 2016 . . . . . . . . .
701,514
21.74
20.57
46.22
38.66
26.36
28.53
Vested or expected to vest at January 2, 2016 . . . .
1,190,974
$26.40
$103
42
21
$ 41
3.98
2.45
3.96
The weighted average fair market value using the Black-Scholes option-pricing model of the stock
options granted in fiscal 2015, fiscal 2014 and fiscal 2013 was $7.37, $12.24 and $7.77, respectively. The
fair market value of the stock options at the date of grant was estimated using the Black-Scholes
option-pricing model with the following weighted average assumptions:
2015
2014
2013
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeiture rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . .
5.00
Expected dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . — — —
1.4% 1.6% 1.4%
39% 43% 47%
1.1% 4.0% 4.5%
4.50
5.00
The risk-free interest rate is based on U.S. Treasury interest rates with corresponding terms
consistent with the expected life of the stock options. Expected volatility and expected life are based on
CRA’s historical experience. Expected dividend yield was not considered in the option-pricing formula
because CRA does not pay dividends and has no current plans to do so in the future. The forfeiture
rate used was based upon historical experience. CRA believes its historical experience is an appropriate
indicator of future forfeiture.
FS-25
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The aggregate intrinsic value of stock options exercised in fiscal 2015, fiscal 2014, and fiscal 2013
was approximately $0.1 million for each year. The following table summarizes stock options outstanding
and stock options exercisable as of January 2, 2016:
Options Outstanding
Options Exercisable
Number
Outstanding at
January 2,
2016
Weighted-Average
Remaining
Contractual
Life (years)
Weighted-Average
Exercise
Price
Number
Exercisable
at January 2,
2016
Weighted-Average
Exercise
Price
Range of Exercise Prices
$18.48 . . . . . . . . . . . . . .
$18.49 - 22.81 . . . . . . . .
$22.82 - 29.07 . . . . . . . .
$29.08 - 32.26 . . . . . . . .
$32.27 - 48.85 . . . . . . . .
$48.86 - 50.00 . . . . . . . .
$50.01 - 53.72 . . . . . . . .
244,625
539,238
80,400
180,015
12,500
150,000
—
Total . . . . . . . . . . . . . . .
1,206,778
4.88
4.43
1.02
5.90
0.07
0.51
—
3.98
$18.48
21.61
24.23
30.98
48.85
50.00
—
$26.36
122,296
294,029
78,400
44,289
12,500
150,000
—
701,514
$18.48
21.68
24.21
30.97
48.85
50.00
—
$28.53
The following table summarizes the status of CRA’s non-vested stock options since January 3,
2015:
Non-vested Options
Number of Weighted-Average
Shares
Fair Value
Non-vested at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
417,185
250,835
(156,737)
(6,019)
Non-vested at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
505,264
$ 9.98
7.48
9.57
11.61
$ 8.75
The total fair value of stock options that vested during fiscal 2015, fiscal 2014, and fiscal 2013 was
$1.5 million, $1.4 million, and $1.3 million, respectively. As of January 2, 2016, there was $4.1 million
of total unrecognized compensation cost, net of expected forfeitures, related to non-vested stock
options granted. That cost is expected to be recognized over a weighted-average period of 3.1 years.
CRA grants restricted stock and time-vesting restricted stock unit awards, which are subject to the
execution of a restricted stock agreement or restricted stock unit agreement, as applicable. Generally,
shares of restricted stock and time-vesting restricted stock units vest in four equal annual installments
beginning on the first anniversary of the date of grant. Total unrecognized compensation cost, net of
expected forfeitures, related to restricted stock and time-vesting restricted stock unit awards as of
January 2, 2016 was $6.4 million, which is expected to be recognized over a weighted-average period of
3.1 years.
FS-26
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table summarizes the status of CRA’s non-vested restricted stock and time-vesting
restricted stock unit awards since January 3, 2015:
Non-vested
Restricted Stock and Stock
Units
Number of Weighted-Average
Shares
Fair Value
Non-vested at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
286,142
144,784
(106,504)
(3,009)
Non-vested at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . .
321,413
$23.72
$22.01
$22.72
$28.26
$23.17
The total fair value of restricted units that vested during fiscal 2015, fiscal 2014, and fiscal 2013
was $2.4 million, $3.2 million, and $3.1 million, respectively.
In accordance with ASC Topic 718, for performance-vesting restricted stock units awarded to
employees, CRA estimates share-based compensation cost at the grant date based on the fair value of
the award and recognizes the cost over the requisite service period using the graded acceleration
method. As of January 2, 2016, the following shares may become issuable under performance-vesting
restricted stock unit awards upon achievement of certain financial performance goals as follows: up to
approximately 121,000 shares for a measurement period falling within the first quarter of fiscal 2014
through the fourth quarter of fiscal 2015, up to approximately 150,000 shares for a measurement period
falling within the first quarter of fiscal 2015 through the fourth quarter of fiscal 2016 and up to
approximately 204,000 shares for a measurement period falling within the first quarter of fiscal 2016
through the fourth quarter of fiscal 2017.
In fiscal 1998, CRA adopted its 1998 Employee Stock Purchase Plan. The 1998 Employee Stock
Purchase Plan authorizes the issuance of up to an aggregate of 243,000 shares of common stock to
participating employees at a purchase price equal to 85% of fair market value on either the first or the
last day of the one-year offering period under the Stock Purchase Plan. In fiscal 2015, fiscal 2014, and
fiscal 2013, there were no offering periods under this plan and no shares were issued.
During fiscal 2015, CRA modified awards through an acceleration of the vesting schedule for an
employee and a director in connection with their refirement. The modification resulted in total
additional compensation cost of $294 thousand dollars.
12. Business Segment and Geographic Information
CRA operates in two business segments, which are consulting services and NeuCo. NeuCo’s
financial information is included below and is immaterial to the overall consolidated financial
FS-27
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
statements. Revenue and long-lived assets by country, based on the physical location of the operation
to which the revenues or the assets relate, are as follows (in thousands):
Revenue:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$243,261
$238,466
$216,815
Fiscal Year
Fiscal Year
Fiscal Year
2015
(52 weeks)
2014
(53 weeks)
2013
(52 weeks)
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
44,248
16,050
60,298
49,127
18,778
67,905
46,987
14,630
61,617
$303,559
$306,371
$278,432
January 2,
2016
January 3,
2015
Long-lived assets (property and equipment, net):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$29,877
$12,753
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
1,075
386
1,461
1,595
348
1,943
$31,338
$14,696
13. Income Taxes
The components of income (loss) before (provision) benefit for income taxes are as follows (in
thousands):
Income before (provision) benefit for income taxes:
U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,565
1,250
$20,899
2,416
$13,659
4,259
Total
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,815
$23,315
$17,918
Fiscal Year
Fiscal Year
Fiscal Year
2015
(52 weeks)
2014
(53 weeks)
2013
(52 weeks)
FS-28
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The provision (benefit) for income taxes consists of the following (in thousands):
Fiscal Year
Fiscal Year
Fiscal Year
2015
(52 weeks)
2014
(53 weeks)
2013
(52 weeks)
Currently payable:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,104
546
1,550
$ 8,585
876
1,878
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,200
11,339
(799)
(307)
(604)
(1,068)
(505)
142
$(1,710)
$ (1,431)
$ 5,490
$ 9,908
$1,241
1,264
254
2,759
3,592
(238)
570
$3,924
$6,683
A reconciliation of CRA’s tax rates with the Federal statutory rate is as follows:
Federal statutory rate . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State income taxes, net of federal income tax benefit
. . . . .
State law changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign losses benefited . . . . . . . . . . . . . . . . . . . . . . . . . .
Losses not benefited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential
. . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign tax credit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
NeuCo goodwill impairment . . . . . . . . . . . . . . . . . . . . . . .
NeuCo tax provision (benefit) . . . . . . . . . . . . . . . . . . . . . .
Permanently disallowed expenses . . . . . . . . . . . . . . . . . . . .
Prior period adjustments . . . . . . . . . . . . . . . . . . . . . . . . . .
Release of valuation allowance . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year
Fiscal Year
Fiscal Year
2015
35.0%
9.2
(3.8)
(9.2)
5.0
(2.7)
—
8.7
13.4
(13.6)
6.8
(0.6)
(1.7)
—
46.5%
2014
35.0%
3.6
—
(1.8)
0.6
0.6
—
0.7
—
0.9
2.1
3.0
(2.2)
—
42.5%
2013
35.0%
4.4
—
(2.8)
0.3
(0.4)
(0.1)
(2.1)
—
1.5
1.6
—
—
(0.1)
37.3%
FS-29
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of CRA’s deferred tax assets (liabilities) are as follows (in thousands):
January 2,
2016
January 3,
2015
Deferred tax assets:
Accrued compensation and related expense . . . . . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$25,148
2,159
4,097
2,462
$23,876
2,065
5,201
967
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,866
(4,003)
32,109
(4,912)
Total deferred tax assets net of valuation allowance . . . . . . . . . . . . . . .
Deferred tax liabilities:
29,863
27,197
Goodwill and other intangible asset amortization . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax basis in excess of financial basis of debentures . . . . . . . . . . . . . . .
4,715
3,723
2,569
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
11,007
5,191
498
3,844
9,533
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$18,856
$17,664
The net change in the total valuation allowance for fiscal 2015 was a decrease of approximately
$0.9 million compared to fiscal 2014. The $0.9 million net decrease is comprised primarily of benefits
realized for the use of net operating loss carryforwards related to current and prior year taxable income
as well as a release of valuation allowance, and reduction for reserve items. This is offset partially by an
additional valuation allowance recorded against NeuCo’s net deferred tax assets and liabilities.
At January 2, 2016 CRA had $3.9 million of foreign net operating loss carry forwards. The foreign
operating losses have an indefinite life, except for $0.2 million that will begin to expire in fiscal 2017.
NeuCo has federal, state, and foreign net operating losses of $8.6 million, $3.9 million, and
$0.1 million, respectively, which are subject to a full valuation allowance and begin to expire in 2016.
NeuCo files separate tax returns and none of its losses are available to offset CRA’s consolidated
taxable income.
The aggregate changes in the balances of gross unrecognized tax benefits were as follows (in
thousands):
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions taken during prior years . . . . . . . . . . . . . . .
Additions for tax positions taken during the current year . . . . . . . . . . .
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 535
—
892
(162)
Balance at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,265
$372
127
45
(9)
$535
January 2,
2016
January 3,
2015
CRA files income tax returns in the U.S. federal jurisdiction and various state and foreign
jurisdictions. A number of years may elapse before an uncertain tax position, for which CRA has
unrecognized tax benefits, is audited and finally resolved. While it is often difficult to predict the final
outcome or the timing of resolution of any particular uncertain tax position, CRA believes that its
unrecognized tax benefits reflect the most likely outcome. CRA adjusts these unrecognized tax benefits,
and the associated interest, in light of changing facts and circumstances. At the end of fiscal 2015, CRA
had $91,000 of interest accrued on its unrecognized tax benefit balance for a total unrecognized tax
FS-30
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
benefit balance on the balance sheet of $1,356,000. Of the total unrecognized tax benefit balance,
$86,000 is offset by a future tax deduction when recognized. CRA reported $18,000 of interest and
penalties related to unrecognized tax benefits in income tax expense during fiscal 2015 as compared to
$85,000 during fiscal 2014. Settlement of any particular position could require the use of cash. Of the
total $1,265,000 balance at the end of fiscal 2015, a favorable resolution would result in $855,000 being
recognized as a reduction to the effective income tax rate in the period of resolution. It is reasonably
likely that $195,000 of gross unrecognized tax benefits will reverse within the next twelve months.
The number of years with open tax audits varies depending on the tax jurisdiction. CRA’s major
taxing jurisdiction is the United States where we are no longer subject to U.S. federal examinations by
the Internal Revenue Service for years before fiscal 2012. Within the significant states where CRA is
subject to income tax, CRA is no longer subject to examinations by state taxing authorities before fiscal
2011. CRA’s United Kingdom subsidiary’s corporate tax returns are no longer subject to examination by
Her Majesty’s Revenue and Customs for fiscal years before fiscal 2011. During this fiscal year, 2015,
CRA has concluded the examinations in France for fiscal 2011 and fiscal 2012, and CRA has effectively
settled the examination in Germany for fiscal 2008 through 2011. CRA believes its reserves for
uncertain tax positions are adequate.
CRA has not provided for deferred income taxes or foreign withholding taxes on undistributed
earnings from its foreign subsidiaries of approximately $3.4 million as of January 2, 2016 because such
earnings are considered to be indefinitely reinvested. CRA does not rely on these unremitted earnings
as a source of funds for its domestic business as it expects to have sufficient cash flow in the U.S. to
fund its U.S. operational and strategic needs. If CRA were to repatriate its foreign earnings that are
indefinitely reinvested, it would accrue substantially no additional tax expense.
14. Related-Party Transactions
CRA made payments to shareholders of CRA who performed consulting services exclusively for
CRA in the amounts of $11.6 million, $10.2 million, and $6.1 million in fiscal 2015, fiscal 2014, and
fiscal 2013, respectively. These payments were to exclusive non-employee experts for consulting services
performed for CRA’s clients in the ordinary course of business.
15. Commitments and Contingencies
Operating Lease Commitments
At January 2, 2016, CRA had the following minimum rental commitments for office space and
equipment leases, all of which are under non-cancelable operating leases (in thousands):
Fiscal Year
2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental
Commitments
$ 8,906
8,621
7,648
6,815
6,530
35,956
$74,476
Certain office leases contain renewal options that CRA may exercise at its discretion, which were
not included in the amounts above. Rent expense was approximately $11.6 million, $10.0 million, and
$9.6 million in fiscal 2015, fiscal 2014, and fiscal 2013, respectively.
FS-31
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
On February 24, 2014, CRA entered into an agreement to lease 57,602 square feet of office space
in Boston, Massachusetts. The lease commenced on February 1, 2015 and is set to expire on July 31,
2025. Subject to certain conditions, the lease will be extendible for two five-year periods. The annual
base rent under the lease is approximately $2.4 million for the first lease year, and is subject to annual
increases of approximately 2% per annum. The performance of CRA’s obligations under the lease is
secured by a $1.0 million letter of credit. On February 24, 2015, CRA signed a first amendment to
lease additional office space of 10,057 square feet for a total of 67,659 square feet. The lease
commenced on June 15, 2015 and is set to expire on June 30, 2020. Subject to certain conditions, the
lease will be extendible for one three-year period. The annual fixed rent under the lease is
approximately $0.5 million. The original lease included a tenant improvement allowance of
approximately $4.8 million, as well as a rent abatement of approximately $1.2 million.
On November 29, 1999, CRA entered into an agreement to lease 44,932 square feet of office space
in Washington, D.C. The lease commenced on May 1, 2000 and was set to expire on February 28, 2011.
The original annual base rent was approximately $1.4 million for the first year, and subject to annual
increases of approximately 2% per annum. Subsequent to entering into the lease, the original lease has
had five amendments with the last being signed on June 30, 2015. The amended and restated lease
consists of 33,458 square feet, is set to expire on December 31, 2027, and has an annual base rent of
approximately $1.4 million for the first year, subject to increases of 2.25% per annum. The amended
and restated addendum includes a tenant improvement allowance of approximately $2.8 million and a
rent abatement of approximately $2.3 million. The performance of CRA’s obligations under the lease is
secured by a $0.2 million letter of credit.
On July 15, 2015, CRA entered into an agreement to lease 25,261 square feet of office space in
New York, New York. The lease commenced on August 1, 2015 with a rent commencement date of
June 1, 2016. The lease will expire on May 31, 2026, and subject to certain conditions, will be
extendible for one five-year period. The annual base rent under the lease is approximately $1.8 million
per annum for the first five years of the lease’s base term, and is subject to increase to $2.0 million per
annum during the remainder of the lease’s base term. The lease includes a ten month base rent
abatement period from lease commencement to rent commencement date for a total abatement of
approximately $1.5 million. In addition, the lease includes a tenant improvement allowance of
approximately $2.1 million. The performance of CRA’s obligations under the lease is secured by a
$0.9 million letter of credit.
On February 14, 2008, CRA entered into an agreement to lease 36,570 square feet of office space
in Chicago, Illinois. The lease commenced on April 1, 2008 with a rent commencement date of
August 1, 2008. The lease will expire on July 31, 2018. The annual base rent under the lease was
approximately $1.0 million in fiscal year 2015 and is subject to 2.5% increases per annum during the
remainder of the lease’s term. The lease included an eight month rent abatement period from rent
commencement date to March 31, 2009 for a total abatement of approximately $0.6 million. In
addition, the lease included a tenant improvement allowance of approximately $2.4 million.
On October 26, 2006, CRA entered into an agreement to lease 32,168 square feet of office space
in London, UK for the 24th, 25, and 26th floors. The leases commenced on March 1, 2007 for the
25th and 26th floors and November 1, 2007 for the 24th floor. The 24th floor lease terminated on
June 30, 2012. The 25th and 26th floor leases are set to expire on October 2, 2016. The initial base rent
for the three floors was approximately 1.8 million GBP per year and in 2015, the base rent was
approximately 1.2 million GBP. At the end of the lease, CRA will be responsible to return the vacated
floors to original condition at CRA’s expense.
FS-32
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Other
CRA is party to standby letters of credit with its bank in support of the minimum future lease
payments under leases for permanent office space and bonds required per the terms of certain project
proposals and contracts amounting to $2.5 million as of January 2, 2016.
Outstanding debt related to NeuCo amounted to $75,000 at January 2, 2016 and was reported as
current portion of note payable on the consolidated balance sheet. This debt was repaid on
February 16, 2016. See note 17, ‘‘Subsequent Events,’’ regarding this NeuCo debt.
Contingencies
CRA’s contingent consideration obligation relating to a previous acquisition amounted to
$773 thousand and $316 thousand at January 2, 2016 and January 3, 2015, respectively. The amount of
this obligation is computed based on the likelihood of achieving certain forecasted revenues over the
contractual measurement period. The liability is re-measured on a quarterly basis.
CRA is subject to legal actions arising in the ordinary course of business. In management’s
opinion, CRA believes it has adequate legal defenses and/or insurance coverage with respect to the
eventuality of such actions. CRA does not believe any settlement or judgment relating to any pending
legal action would materially affect its financial position or results of operations.
16. Quarterly Financial Data (Unaudited)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . . . . . .
Income (loss) before provision (benefit) for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
Quarter Ended
April 4,
2015
July 4,
2015
October 3,
2015
January 2,
2016
(In thousands, except per share data)
$78,039
24,220
4,476
$76,535
25,860
5,648
$76,525
24,496
4,581
$72,460
21,333
(2,310)
4,631
2,899
5,391
3,202
4,346
2,813
(2,553)
(2,589)
interest, net of tax . . . . . . . . . . . . . . . . . . . . . . .
(120)
123
47
1,282
Net income (loss) attributable to CRA
International, Inc.
. . . . . . . . . . . . . . . . . . . . . . .
Basic net income (loss) per share . . . . . . . . . . . . . .
Diluted net income (loss) per share . . . . . . . . . . . .
Weighted average number of shares outstanding:
$ 2,779
0.30
$
0.30
$
$ 3,325
0.37
$
0.36
$
$ 2,860
0.32
$
0.31
$
$ (1,307)
$ (0.15)
$ (0.15)
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
9,190
9,403
9,034
9,253
8,940
9,025
8,876
8,876
FS-33
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Gross profit . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net loss attributable to noncontrolling interest,
Quarter Ended
March 29,
2014
June 28,
2014
September 27,
2014
January 3,
2015
(In thousands, except per share data)
$76,245
24,379
5,629
5,384
3,308
$78,184
25,515
6,493
6,334
3,167
$73,483
24,066
5,795
5,575
3,189
$78,459
25,598
6,124
6,022
3,743
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . .
102
21
35
73
Net income attributable to CRA
International, Inc.
. . . . . . . . . . . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . .
Weighted average number of shares
outstanding:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,410
0.34
$
0.34
$
$ 3,188
0.32
$
0.32
$
$ 3,224
0.33
$
0.33
$
$ 3,816
0.41
$
0.40
$
10,029
10,108
9,919
10,026
9,729
9,919
9,344
9,560
Total net (loss) income per share was computed using the two-class method earnings allocation
formula when there were earnings to distribute to participating securities in a given quarter. In those
quarters above that include a net loss for the quarter, the two-class method would not apply. As such,
the aggregate net (loss) income per share for fiscal 2015 as a whole would not agree in the aggregate
with the quarterly information presented above.
During the fourth quarter of fiscal 2015, NeuCo incurred an impairment loss of $4.5 million. After
considering taxes and allocation of net losses to noncontrolling interest, the net charge amounted to
$1.6 million.
During the fourth quarter of fiscal 2015, CRA identified a prior period error, relating to client
reimbursable revenue and expenses, and recorded an adjustment of $0.7 million to revenue and $0.3
million to pre-tax income to correct this error. CRA concluded that this error was not material to its
prior reporting periods.
During the second quarter of fiscal 2014, CRA identified a prior period error relating to the
valuation of deferred tax assets in CRA’s previously issued consolidated financial statements, and
recorded a non-cash tax expense of approximately $0.8 million to correct this error. CRA concluded
that this error was not material to its prior reporting periods.
17. Subsequent Events
On February 16, 2016, NeuCo made its final debt payment of $75,000. As of January 2, 2016,
$75,000 was reported as current portion of note payable on the consolidated balance sheet.
On February 22, 2016, CRA announced the commencement of a modified ‘‘Dutch auction’’
self-tender offer to purchase for cash up to $30 million in value of shares of its common stock at a
price within (and including) the range of $18.00 to $19.75 per share. The tender offer will expire on
Monday, March 21, 2016, unless extended by CRA. CRA intends to finance the tender offer with cash
on hand and by borrowing under CRA’s existing revolving credit facility.
On February 22, 2016, CRA announced that Thomas A. Avery was appointed to CRA’s Board of
Directors effective February 22, 2016.
FS-34
CERTIFICATION
Exhibit 31.1
I, Paul A. Maleh, certify that:
1.
I have reviewed this annual report on Form 10-K of CRA International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to affect adversely the registrant’s
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: March 4, 2016
By: /s/ PAUL A. MALEH
Paul A. Maleh
President and Chief Executive Officer
CERTIFICATION
Exhibit 31.2
I, Chad M. Holmes, certify that:
1.
I have reviewed this annual report on Form 10-K of CRA International, Inc.;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact
or omit to state a material fact necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to the period covered by this
report;
3. Based on my knowledge, the financial statements, and other financial information included in
this report, fairly present in all material respects the financial condition, results of operations and cash
flows of the registrant as of, and for, the periods presented in this report;
4. The registrant’s other certifying officer and I are responsible for establishing and maintaining
disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and
internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for
the registrant and have:
a) Designed such disclosure controls and procedures, or caused such disclosure controls and
procedures to be designed under our supervision, to ensure that material information relating to
the registrant, including its consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this report is being prepared;
b) Designed such internal control over financial reporting, or caused such internal control
over financial reporting to be designed under our supervision, to provide reasonable assurance
regarding the reliability of financial reporting and the preparation of financial statements for
external purposes in accordance with generally accepted accounting principles;
c) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and
presented in this report our conclusions about the effectiveness of the disclosure controls and
procedures, as of the end of the period covered by this report based on such evaluation; and
d) Disclosed in this report any change in the registrant’s internal control over financial
reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth
fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to
materially affect, the registrant’s internal control over financial reporting; and
5. The registrant’s other certifying officer and I have disclosed, based on our most recent
evaluation of internal control over financial reporting, to the registrant’s auditors and the audit
committee of the registrant’s board of directors (or persons performing the equivalent functions):
a) All significant deficiencies and material weaknesses in the design or operation of internal
control over financial reporting which are reasonably likely to affect adversely the registrant’s
ability to record, process, summarize and report financial information; and
b) Any fraud, whether or not material, that involves management or other employees who
have a significant role in the registrant’s internal control over financial reporting.
Date: March 4, 2016
By: /s/ CHAD M. HOLMES
Chad M. Holmes
Chief Financial Officer, Executive Vice
President, and Treasurer
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. §1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Annual Report on Form 10-K of CRA International, Inc. (the ‘‘Company’’)
for the fiscal year ended January 2, 2016, as filed with the Securities and Exchange Commission on the
date hereof (the ‘‘Report’’), each of the undersigned President and Chief Executive Officer and
Executive Vice President, Treasurer, and Chief Financial Officer of the Company, certifies, to the best
knowledge and belief of the signatory, pursuant to 18 U.S.C. §1350, as adopted pursuant to Section 906
of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities
Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial
condition and results of operations of the Company.
/s/ PAUL A. MALEH
/s/ CHAD M. HOLMES
Paul A. Maleh
President and Chief Executive Officer
Date: March 4, 2016
Chad M. Holmes
Chief Financial Officer, Executive Vice President,
and Treasurer
Date: March 4, 2016
45996nar.qxp_2015-AR-insert 5/17/16 11:14 AM Page 7
Charles River Associates
Executive Officers
Paul A. Maleh
President and Chief Executive Officer
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Chad M. Holmes
Chief Financial Officer, Executive Vice President, and Treasurer
Transfer Agent
Arnold J. Lowenstein
Executive Vice President and Chief Strategy Officer
Computershare Trust Company, N.A.
PO Box 43078
Providence, RI 02940-3078
Board of Directors
Rowland T. Moriarty
Chairman of the Board, CRA International, Inc.
Outside Legal Counsel
Foley Hoag LLP
155 Seaport Boulevard, Boston, MA 02210-2600
Paul A. Maleh
President, Chief Executive Officer, CRA International, Inc.
Stock Listing
William F. Concannon
CEO, Global Workplace Solutions, CBRE, Inc.
Nancy Hawthorne
Finance Business Leader and
Veteran Public-Company Director
Robert W. Holthausen
EY Professor
The Nomura Securities Professor
Professor of Accounting and Finance
Chairman of the Department of Accounting
Wharton School of the University of Pennsylvania
Thomas A. Avery
Financial Executive and Business Leader
Thomas S. Robertson
Joshua J. Harris Professor
Professor of Marketing
The Wharton School
University of Pennsylvania
William T. Schleyer
Former Chairman and CEO,
Adelphia Communications Corporation
General Counsel
Jonathan D. Yellin
Vice President and General Counsel
NASDAQ Global Select Market Symbol: CRAI
Stock Price History by Quarter
Fiscal Year Ended
January 2, 2016
High
Low
January 4, 2015 – April 4, 2015
$32.47
$28.11
April 5, 2015 – July 4, 2015
$32.23
$25.89
July 5, 2015 – October 3, 2015
$28.06
$21.02
October 4, 2015 – January 2, 2016
$32.50
$24.64
The preceding table sets forth the high and low sale prices as reported on the
NASDAQ Global Select Market from January 4, 2015 to January 2, 2016. CRA had
approximately 109 holders of record of its common stock as of May 6, 2016. This
number does not include stockholders for whom shares were held in a “nominee”
or “street” name. CRA has not paid cash dividends since its initial public offering and
does not anticipate paying any cash dividends in the foreseeable future.
Shareholder Inquiries
For information on CRA’s common stock, please contact:
Investor Relations
Charles River Associates
200 Clarendon Street
Boston, MA 02116-5092
Telephone: +1-617-425-3000
E-mail: investor@crai.com
45996nar.qxp_2015-AR-insert 5/17/16 11:14 AM Page 8
Charles River Associates Locations
Boston (World Headquarters)
200 Clarendon Street
Boston, MA 02116-5092
USA
+1-617-425-3000 tel
Amsterdam
Koninginneweg 11
1217 KP Hilversum
The Netherlands
+31-20-808-1320 tel
Brussels
143 Avenue Louise
B-1050 Brussels
Belgium
+32-2-627-1400 tel
Chicago
One South Wacker Drive
34th Floor
Chicago, IL 60606
USA
+1-312-357-1000 tel
College Station
Galleria Tower, Suite 600
1716 Briarcrest Drive
Bryan, TX 77802-2751
USA
+1-979-691-0600 tel
Dallas
2001 Ross Avenue
Suite 3525
Dallas, TX 75201-2911
USA
+1-214-414-9210 tel
Geneva
Route de St-Cergue 15
CH-1260 Nyon
Switzerland
+41-22-360-8090 tel
Houston
1600 Smith Street
Suite 3700
Houston, TX 77002
USA
+1-713-659-4800 tel
London
99 Bishopsgate
London, EC2M 3XD
UK
+44-20-7664-3700 tel
Los Angeles
633 West Fifth Street
Suite 5880
Los Angeles, CA 90071
USA
+1-213-330-4001 tel
Munich
Leopoldstrasse 8-12
80802 Munich
Germany
+49-89-20-18-36-36-0 tel
New York
1411 Broadway
35th Floor
New York, NY 10018
USA
+1-212-520-7100 tel
Oakland
5335 College Avenue
Suite 26
Oakland, CA 94618-2804
USA
+1-510-595-2700 tel
Paris
27 Avenue de l’Opéra
75001 Paris
France
+33-1-70-38-52-78 tel
Pleasanton
5000 Hopyard Road
Suite 430
Pleasanton, CA 94588
USA
+1-925-201-5999 tel
Salt Lake City
170 South Main Street
Suite 1050
Salt Lake City, UT 84101-1622
USA
+1-801-536-1500 tel
Tallahassee
1545 Raymond Diehl Road
Suite 210
Tallahassee, FL 32308
USA
+1-850-402-4200 tel
Toronto
80 Bloor Street West
Suite 1501
Toronto, Ontario M5S 2V1
Canada
+1-416-413-4070 tel
Washington, DC
1201 F Street, NW
Suite 700
Washington, DC 20004-1229
USA
+1-202-662-3800 tel
45996cov.qxp 5/17/16 9:07 AM Page 2
World Headquarters
200 Clarendon Street
Boston, Massachusetts 02116-5092
+1-617-425-3000 tel
www.crai.com