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World Headquarters
200 Clarendon Street
Boston, Massachusetts 02116-5092
+1-617-425-3000 tel
www.crai.com
CRA’s 2017 Incoming Analyst & Associate Class
2017 Annual Report
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Charles River Associates
Charles River Associates® is a leading global consulting firm specializing in economic,
financial, and management consulting services. 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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Dear Fellow Shareholders:
For many years now, our strategy has been rather simple – do what you do best. Our pursuits have focused on the
set of services currently offered by CRA in those geographies that are most familiar to us. We have concentrated on
what we know best by tapping into adjacencies that build on CRA’s established capabilities and reputation.
With the end-markets for our services not growing rapidly, this st rategy has required a disciplined approach to
managing our portfolio of services and being good stewards of the firm’s capital. We continue to target annual revenue
growth in the mid-single digits, primarily from organic initiatives, and a consultant utilization in the mid-70% range.
The resulting level of performance provides ample capital to reinvest in the business for value-creating growth and t o
return substantive capital to shareholders.
A review of our recent history demonstrates adherence to this strategy and the results such a commitment can
produce. During the past five years, we have seen non-GAAP revenue increase by 40%. 1 We supported this topline
growth by a similarly sized increase to consulting headcount of 36% while maintaining utilization of 74%. Consistent
with our strategy, we converted our topline expansion into meaningful profit growth, seeing non-GAAP earnings per
diluted share (EPS) increase 95% during the past five fiscal years. The growth in profitability during that period is even
more impressive when considering the $83 million of non-cash forgivable loan amortization expense flowing through
our income statement that is associated primarily with our talent acquisi tion pursuits.
Fiscal 2017 marked a continuation of the broad-based, profitable growth that we have experienced during the past
several years. During the year, we saw contributions from across the firm – from our various service offerings, from
legacy operations and recently acquired practices, and from domestic and international operations – resulting in
double-digit revenue growth and three times as much profit growth on a non-GAAP basis. In addition to driving
revenue and profit growth, our commitment to broad-based contributions has also led to greater consistency in
financial performance. For example, through the first quarter of 2018, CRA has reported year-over-year revenue
growth for each of the past nine quarters and 14 of the past 17 quarters.
Our strong performance in fiscal 2017 tran slated into attractive cash flows, enabling CRA to invest in the business for
value-creating growth and to return capital to shareholders. Notably, during fiscal 2017 we completed the acquisition
of the C1 Consulting business, established four new offices in cities across the United States and Europe, and
returned nearly $25 million to shareholders through share repurchases and quarterly dividends. A ll of these activities
were funded from internal operations.
Exhibit 1 provides a summary of selected operating metrics for fiscal 2017 and the past five fiscal years.
Exhibit 1: Selected Operating Metrics
Revenue
Growth*
14%
Fiscal 2017
Fiscal Years
2013-2017
40%
*Presented on a non-GAAP basis
Headcount
Growth
17%
maintaining
utilization of 74%
36%
maintaining
utilization of 74%
EPS
Growth*
44%
95%
Stock
Repurchases
$20M
average price of
$35.23 per share
$79M
average price of
$27.23 per share
1 With respect to each non-GAAP financial measure presented in this letter, the comparable GAAP financial measure and a reconciliation of it to
the non-GAAP financial measure are presented on the page following this letter.
822780ins.qxp_822780ins 5/16/18 5:04 PM Page 3
Operating results
Contributions from across the portfolio drive revenue growth: Continued broad-based demand for our
services resulted in strong revenue growth. For fiscal 2017, we achieved revenue of $370 million, or 14% growth over
fiscal 2016, which was balanced between organic and inorganic contributions. Performance was led by double-digit
revenue growth in our Energy, Forensic Services, Life Sc iences (aided by the acquisition of C1 Consulting in January
2017), and Marakon practices. Further highlighting the strength of our portfolio, despite currency headwinds, our
European operations grew 7% in fiscal 2017 led by our Antitrust & Competition Economics, Energy, Life Sciences,
and Marakon practices.
Exhibit 2: Revenue* (in millions)
$302
$300
$324
$273
$370
$400
$350
$300
$250
$200
$150
$100
2013
2014
2015
2016
2017
*Presented on a non-GAAP basis
Continued headcount growth while maintaining consultant productivity: To support the growing demand for
our services, we continued to prudently expand headcount. We concluded fiscal 2017 with 631 consulting staff, which
represents 17% net growth over year-end fiscal 2016. This net headcount growth was driven by a combination of
organic hires and our new colleagues from C1 Consulting. As illustrated in Exhibit 3, we successfully managed the
onboarding of these new colleagues and maintained companywide utilization of 74%, in line with our historical
performance and long-term utilization target.
Exhibit 3: Consulting Headcount and Utilization
800
700
600
500
400
300
200
100
0
73%
76%
74%
74%
74%
442
451
511
540
631
2013
2014
2015
2016
2017
Headcount
Utilization
100%
90%
80%
70%
60%
50%
40%
30%
20%
10%
0%
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Extended history of profitability: Actively managing consulting productivity and other operating costs, CRA
translated top-line growth into bottom line profit. As depicted in Exhibit 4, non-GAAP EPS grew by more than 40%
in fiscal 2017 and more than tripled our revenue growth. This strong profit growth in fiscal 2017 is especially notable
given the $20 million of non-cash forgivable loan amortization expense flowing through our income statement that is
associated primarily with our talent acquisition pursuits.
Exhibit 4: Earnings Per Diluted Share*
$1.41
$1.33
$1.13
$1.10
$1.91
$2.00
$1.75
$1.50
$1.25
$1.00
$0.75
$0.50
$0.25
$0.00
2013
2014
2015
2016
2017
*Presented on a non-GAAP basis
Capital allocation
As we seek to maximize long-term value per share, we approach all capital allocation decisions with a value
orientation rather than with a short-term focus on quarterly performance. 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 value-creating growth
and return capital to shareholders. Fiscal 2017 was no exception. We concluded fiscal 2017 with $54 million of
cash and cash equivalents and no borrowings under our recently renewed $125 million credit facility. Our fiscal 2017
ending cash balance is nearly identical to that of fiscal 2016 despite our continuing investment in the business for
both talent (including the acquisition of C1 Consulting) and required office expansions, as well as returning nearly
$25 million of capital to shareholders during the year. As summarized in Exhibit 5, our capital allocation decisions
in fiscal 2017 were consistent with those over the past five fiscal years.
Exhibit 5: Uses of Capital ($ in millions)
100%
80%
60%
40%
20%
0%
Talent Acquisition,
$26
Capital Expenditures,
$10
Redistribution to
Shareholders, $25
Talent Acquisition,
$112
Capital Expenditures,
$48
Redistribution to
Shareholders, $85
FY2017
FY2013-2017
Redistribution to Shareholders
Capital Expenditures
Talent Acquisition
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Share repurchases will continue to be our dominant means of capital redistribution as long as the expected return
meets or exceeds CRA’s cost of capital. During fiscal 2017, we saw good value in our shares and spent $20 million
to repurchase 555,000 shares at an average price of $35.23 per share.
In addition to our share repurchase activity, we made $5.1 million of dividend payments in fiscal 2017, which reflects
the 21% increase in our quarterly dividend that we announced in the fourth quarter of fiscal 2017. The quarterly
dividend and its inaugural increase further demonstrate our continuing commitment to redistribute capital to
shareholders and expands the universe of investors interested in CRA.
Outlook
We strive to be the firm of choice for our clients as they address their most important legal, regulatory, and strategic
challenges, as well as for our employees as they seek a fulfilling and exciting place to work. Our portfolio continues
to see solid demand, and we will continue to seek opportunities to strengthen our firm, concentrating our
investments in areas where we have a strong market presence and see opportunities for value-creating growth.
As summarized in Exhibit 6, CRA has been rewarded for its ability to support the business through prudent
investments while at the same time returning capital to shareholders. We look to build on the successes of fiscal
2017 in the years to come.
Exhibit 6: Cumulative Total Stock Returns (as of 31 December 2017)
CRA
S&P 500
NASDAQ
Composite
1 Year
25%
22%
30%
2 Years
146%
36%
41%
3 Years
51%
38%
51%
5 Years
132%
108%
143%
I am extremely proud to share our fiscal 2017 performance with you. None of it would be possible without the efforts
and commitment of our entire CRA team. I am also extremely appreciative of the support from you, my fellow
shareholders, as we continue our journey. I am pleased by the performance across our portfolio in fiscal 2017 and
look forward to discussing further achievements with you in the years ahead.
Sincerely,
Paul Maleh
President and Chief Executive Officer
May 15, 2018
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Charles River Associates
Reconciliation of Non-GAAP Financial Measures (Unaudited)
Note: Adjustments for GNU and Other arise from activity related to GNU, CRA’s majority owned subsidiary, formerly known as “NeuCo,” in CRA's GAAP results. In April 2016, substantially all of GNU's
assets were sold. Additional adjustments referred to as “Other” include goodwill and intangible impairment charges, restructuring charges, valuation changes in contingent consideration liabilities
associated with prior acquisitions, estimated impact of The Tax Cuts and Jobs Act ("Tax Act"), and certain other unusual charges.
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 December 30, 2017
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, a
smaller reporting company, or an emerging growth company. See the definitions of ‘‘large accelerated filer,’’ ‘‘accelerated filer,’’
‘‘smaller reporting company,’’ and ‘‘emerging growth company’’ in Rule 12b-2 of the Exchange Act (Check one):
Large accelerated filer (cid:2)
Accelerated filer (cid:3)
Non-accelerated filer (cid:2)
(Do not check if a
smaller reporting
company)
Smaller reporting company (cid:2)
Emerging growth company (cid:2)
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period
for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. (cid:2)
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 June 30, 2017, the last business day of
the registrant’s most recently completed second fiscal quarter, based on the closing sale price of $36.32 as quoted on the NASDAQ
Global Select Market as of the last trading day before that date, was approximately $286.2 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 March 6, 2018, CRA had outstanding 8,375,199 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 2018 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 December 30, 2017.
CRA INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED December 30, 2017
TABLE OF CONTENTS
Page
PART I
ITEM 1
BUSINESS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2
ITEM 1A RISK FACTORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ITEM 1B UNRESOLVED STAFF COMMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 2
PROPERTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 3
LEGAL PROCEEDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ITEM 4 MINE SAFETY DISCLOSURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
PART II
ITEM 5 MARKET FOR REGISTRANT’S COMMON EQUITY, RELATED
SHAREHOLDER MATTERS AND ISSUER PURCHASES OF EQUITY
SECURITIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
ITEM 6
SELECTED FINANCIAL DATA . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
ITEM 7 MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
ITEM 7A QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK . . 46
ITEM 8
FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA . . . . . . . . . . . . . . . . 47
ITEM 9
CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE . . . . . . . . . . . . . . . . . . . . . . . . . 47
ITEM 9A CONTROLS AND PROCEDURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
ITEM 9B OTHER INFORMATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 49
PART III
ITEM 10 DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE . . . 52
ITEM 11 EXECUTIVE COMPENSATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ITEM 12
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT AND RELATED SHAREHOLDER MATTERS . . . . . . . . . . . . . . 52
ITEM 13 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND
DIRECTOR INDEPENDENCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52
ITEM 14
PRINCIPAL ACCOUNTING FEES AND SERVICES . . . . . . . . . . . . . . . . . . . . . . . 52
PART IV
ITEM 15 EXHIBITS AND FINANCIAL STATEMENT SCHEDULES . . . . . . . . . . . . . . . . . . 53
ITEM 16
FORM 10-K SUMMARY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53
SIGNATURES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58
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.
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 100% of our consolidated revenues for
fiscal 2017. We provide our consulting services primarily through our highly credentialed and
experienced staff of employee consultants. Our employee consultants have backgrounds in a wide range
of disciplines, including economics, business, corporate finance, materials sciences, accounting, and
engineering. 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.
2
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
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
3
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 and specialized expertise, experience, and
prestige that are not available to them internally. In addition, companies’ strategic, organizational, and
operational problems have become 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, 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 December 30,
2017, we employed 631 consultants, which consisted of 476 senior staff and 155 junior staff.
Approximately three fourths of our senior staff has a doctorate or other advanced degree. 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 been quoted in
the press. 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 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. 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.
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
4
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 each 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 the University of Chicago, the University of
California at Berkeley, Yale University, Georgetown University, the University of East Anglia,
Northwestern University, the University of Toronto, Harvard University, the Massachusetts Institute of
Technology, Texas A&M University, and Brigham Young 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.
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 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
5
theory of the case and in preparing the testimony of expert witnesses from among our employees, 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 advise;
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.
Forensic & Cyber
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.
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Areas of Functional Expertise
Description of Area of Service
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 &
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 & 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.
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.
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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.
Environmental & Energy
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.
8
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
(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 2017,
fiscal 2016, or fiscal 2015.
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We derived approximately 25%, 17%, and 14% of consolidated revenues from fixed-price contracts
in fiscal 2017, fiscal 2016, and fiscal 2015, 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 20% of our total revenues in
fiscal 2017, fiscal 2016, and fiscal 2015, 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
Please refer to the sections captioned ‘‘Principles of Consolidation’’ and ‘‘GNU Interest’’ in note 1
of our Notes to Consolidated Financial Statements contained in this Form 10-K for more details
regarding our majority owned subsidiary GNU which was dissolved on December 15, 2017.
Human Capital
As of December 30, 2017, we employed 631 consultants, consisting of 476 senior staff and
155 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 or hiring our employees for one year or longer
following termination of the person’s employment with us. 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 compensate our senior corporate leaders, practice leaders, key revenue generators, and other
employees with salary and a mixture of other programs and plans providing for incentive-based cash
and equity compensation. We maintain a bonus program through which we pay annual, performance-
based cash bonuses to our employee consultants and certain other employees. In 2009, the
compensation committee of our board of directors adopted our long-term incentive program, or
‘‘LTIP,’’ as a framework for equity grants made under our 2006 equity incentive plan to our senior
corporate leaders, practice leaders, and key revenue generators. The equity awards granted under the
LTIP include stock options, time-vesting restricted stock units, and performance-vesting restricted stock
units. In December 2016, our compensation committee modified the LTIP to enable the grant, in lieu
of or in addition to equity awards, service- and performance-based cash awards to our senior corporate
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leaders, practice leaders, and key revenue generators. These LTIP cash awards are currently granted
under our cash incentive plan. The LTIP is designed to reward our senior corporate leaders, practice
leaders and key revenue generators and to provide them with the opportunity to share in the long-term
growth of our business. The compensation committee of our board of directors is responsible for
approving all cash and equity awards under the LTIP, all other equity compensation awards, and the
total bonuses to be distributed under our bonus program, and for establishing performance goals under
compensation awards and determining the extent to which these goals are achieved. 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 employee-consultants and other employees.
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
rewarding nature of the work. Several non-employee experts, generally comprising the more active of
those with whom we work, have entered into restrictive covenants with us of varying lengths, which, in
some cases, include noncompetition agreements.
Our revenues largely 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.
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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
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
12
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
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 covenants 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. The restrictive covenants 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 covenants 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.
Tax law changes may have a material impact on our financial position and results of operations.
On December 22, 2017, the Tax Cuts and Jobs Act (the ‘‘Tax Act’’) was signed into U.S. law. The
Tax Act significantly changes the Internal Revenue Code of 1986, as amended. The Tax Act, among
other things, includes changes to the U.S. corporate tax rate, expands limitations on the deductibility of
meals and entertainment, eliminates the exception to the section 162(m) limitation on the deductibility
of the compensation paid to certain of our executive officers for ‘‘qualified performance-based
compensation,’’ allows for the expensing of capital expenditures, the migration from a ‘‘worldwide’’
system of taxation to a territorial system, and a one-time transition tax on the mandatory deemed
repatriation of cumulative foreign earnings as of December 31, 2017. The overall impact of the Tax Act
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is uncertain, and it may have a material impact on our estimated cash taxes and our net income. We
will continue to examine the impact this tax legislation may have on our business as additional guidance
is provided. Refer to Note 13, ‘‘Income Taxes,’’ of our audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for further discussion of the Tax Act.
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
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, dividends, 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
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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.
Changes in financial accounting standards or practices may cause unexpected financial reporting fluctuations
and affect our reported results of operations
We are required to prepare our consolidated financial statements in accordance with generally
accepted accounting principles in the United States of America, which may change periodically. From
time to time, we are required to adopt new or revised accounting standards issued by recognized
authoritative bodies, including the Financial Accounting Standards Board and the Securities and
Exchange Commission. A change in accounting standards or practices may adversely affect our
reported financial results or the way we conduct our business. It may also require changes to the
current accounting treatment of certain transactions and the way they are reported in our financial
statements. Additionally, such a change in accounting standards or practices may require us to enhance
our internal accounting systems and processes, as well as our internal control over financial reporting.
In order to comply with the requirements of the new revenue recognition standard under Accounting
Standards Codification 606, which we adopted effective December 31, 2017, we have been updating and
enhancing our internal accounting systems and processes and our internal control over financial
reporting. This has required, and will continue to require, additional investments by us, and may
require incremental resources and system configurations that could increase our operating costs in
future periods. Further, the interpretation and application of ASC 606 will likely evolve over time,
which could adversely impact our financial results (including potentially results reported prior to such
evolution) and require changes to our disclosures and internal systems, processes, and controls.
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
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
15
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 cybersecurity attack or other 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 and integrity of this information is critical to our reputation and the success
of our businesses. We must comply with the privacy laws of all of the jurisdictions in which we operate,
including the newly adopted strict general data privacy regulation (GDPR) in the European Union, and
these laws are becoming increasingly complex and vary by jurisdiction. The costs of complying with
these laws and any fines resulting from lack of compliance, and the other costs of protecting our and
our clients’ confidential information, could have a material effect on our financial results. In addition,
we may be affected by or subject to events that are out of our control, including, but not limited to,
cybersecurity or other malicious attacks, which continue to evolve and pose a constant risk,
unauthorized system intrusions by unknown third parties, viruses, malicious software, worms, failures in
our or our third party hosting sites’ (whether hosted offsite or in the cloud) information and technology
systems, disruptions in the Internet or electricity grids, natural disasters, and terrorism. Any of these
events could disrupt our or our client’s business operations or cause us or our clients to incur
unanticipated losses, including the costs of investigating and remediating any such event and any fines
related thereto, as well as reputational damage, any of 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 or corrupted, 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, whether due to a cybersecurity attack or otherwise, 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
16
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
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 fall 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;
17
(cid:129) the extent to which we can reassign our employee consultants efficiently from one engagement
to the next;
(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 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; 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 result in repayment by us 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 contracts
with government agencies in the United States. Because of this, 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 federal 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) changes in quarterly dividends;
(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;
19
(cid:129) changes in accounting principles or methods or issues with our internal control over financial
reporting;
(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.
There can be no assurance that we will continue to declare cash dividends at all or in any particular amounts
Our board of directors declared the first quarterly dividend on our common stock during 2016 and
we have continued to pay quarterly dividends throughout fiscal 2017. Although we anticipate paying
regular quarterly dividends on our common stock for the foreseeable future, the declaration of
dividends is subject to the discretion of our board of directors, and is restricted by applicable state law
limitations on distributions to shareholders. As a result, the amount, if any, of the dividends to be paid
by us in the future depends upon a number of factors, including but not limited to our available cash
on hand, anticipated cash needs, overall financial condition, and future prospects for earnings and cash
flows, as well as other factors considered relevant by our board of directors. In addition, our board of
directors may also suspend the payment of dividends at any time. Any reduction or suspension in our
dividend payments could adversely affect the price of our common stock.
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 are 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
20
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
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, and for fiscal years prior to 2016, less the
estimated fair value of GNU. 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 data from publicly available premium studies for the trailing four quarters for public
company transactions in our industry group. 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.
We have identified material weaknesses in our internal control over financial reporting which could, if not
remediated, result in material misstatements in our financial statements
We are responsible for establishing and maintaining adequate internal control over our financial
reporting, as defined in Rule 13a-15(f) under the Securities Exchange Act. As disclosed in Item 9A, we
identified material weaknesses in our internal control over financial reporting. A material weakness is
defined as a deficiency, or combination of deficiencies, in internal control over financial reporting, such
that there is a reasonable possibility that a material misstatement of our annual or interim financial
statements will not be prevented or detected on a timely basis. As a result of these material
weaknesses, we concluded that our internal control over financial reporting was not effective based on
criteria set forth by the Committee of Sponsoring Organization of the Treadway Commission in
Internal Control—An Integrated Framework (2013).
To implement remedial measures, we may need to commit additional resources, hire additional
staff, and provide additional management oversight. If our remedial measures are insufficient to
address the material weaknesses, or if additional material weaknesses or significant deficiencies in our
internal control over financial reporting are discovered or occur in the future, our consolidated
financial statements may contain material misstatements, and we could be required to restate our
financial results. In addition, if we are unable to successfully remediate these material weaknesses and
if we are unable to produce accurate and timely financial statements, our stock price may be adversely
21
affected and we may be unable to maintain compliance with applicable stock exchange listing
requirements.
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 October 24, 2022. At December 30, 2017, we had no
borrowings outstanding under the credit agreement and approximately $121.4 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
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
22
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 articles of organization and 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 December 30, 2017, we leased approximately 292,361 square feet of office
space in locations around the world.
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.
23
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 December 30, 2017
High
Low
January 1, 2017 to April 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 2, 2017 to July 1, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 2, 2017 to September 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 1, 2017 to December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$40.00
$39.52
$41.79
$47.30
$31.91
$31.77
$34.49
$40.86
Fiscal Year Ended December 31, 2016
High
Low
January 3, 2016 to April 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
April 3, 2016 to July 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
July 3, 2016 to October 1, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
October 2, 2016 to December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$21.73
$25.78
$31.31
$37.48
$16.25
$18.44
$23.96
$25.85
Shareholders. We had approximately 102 holders of record of our common stock as of March 6,
2018. This number does not include shareholders for whom shares were held in a ‘‘nominee’’ or
‘‘street’’ name.
Dividends. On October 26, 2016, our board of directors declared our first quarterly dividend on
our common stock and we continued to pay quarterly dividends throughout fiscal 2017. We anticipate
paying regular quarterly dividends each year. These dividends are anticipated to be funded through
cash flow from operations and available cash on hand. Although we anticipate paying regular quarterly
dividends on our common stock for the foreseeable future, the declaration of any future dividends is
subject to the discretion of our board of directors.
Repurchases of Equity Securities. The following table provides information about our repurchases
of shares of our common stock during the fiscal quarter ended December 30, 2017. 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 fiscal quarter into
three periods of four weeks, four weeks and five weeks, respectively, to coincide with our reporting
periods during the fourth quarter of fiscal 2017.
24
Issuer Purchases of Equity Securities
(d)
Maximum Number
(or Approximate
Dollar Value) of
(c)
Period
(a)
Total Number
of Shares
(b)
Average Price
Purchased(1) Paid per Share(1)
Total Number of Shares Shares that May Yet
Purchased as Part of
Publicly Announced
Plans or Programs
Be Purchased
Under the Plans
or Programs(2)
October 1, 2017 to October 28, 2017 .
October 29, 2017 to November 25,
—
—
2017 . . . . . . . . . . . . . . . . . . . . . .
56,662
$44.88 per share
November 26, 2017 to December 30,
2017 . . . . . . . . . . . . . . . . . . . . . .
—
—
—
—
—
$9,493,667
$9,493,667
$9,493,667
(1) During the four weeks ended November 25, 2017, we accepted 56,662 shares of our common stock as a
tax withholding from certain of our employees, in connection with the vesting of restricted stock units
that occurred during the period, pursuant to the terms of our 2006 equity incentive plan, at the average
price per share of $44.88.
(2) On March 21, 2016, May 3, 2017 and February 15, 2018, we announced that our board of directors
approved share repurchase programs of up to $20.0 million, $20.0 million, and $20.0 million,
respectively, of our common stock. We may repurchase shares under 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.
Approximately $9.5 million and $29.5 million were available for future repurchases under these
programs as of December 30, 2017 and February 15, 2018. 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 four companies consisting of FTI Consulting, Inc., Huron
Consulting Group Inc., Exponent Inc. and Navigant Consulting, Inc.
The graph tracks the performance of a $100 investment in our common stock, in the peer group,
and in a market index (with the reinvestment of all dividends) from December 29, 2012 to
December 30, 2017. We initiated a quarterly dividend in the fourth quarter of fiscal 2016 and continued
to pay quarterly dividends throughout fiscal 2017. Although we anticipate paying regular quarterly
dividends on our common stock for the foreseeable future, the declaration of any future dividends is
subject to the discretion of our board of directors. The performance of the market index and the peer
group indices is shown on a total return (dividends reinvested) basis.
25
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CRA International, Inc., the NASDAQ Composite Index,
and a Peer Group
$300
$250
$200
$150
$100
$50
$0
12/29/12
12/28/13
1/3/15
1/2/16
12/31/16
12/30/17
CRA International, Inc.
NASDAQ Composite
Peer Group
7MAR201819113376
*
$100 invested on 12/29/12 in stock or 12/31/12 in index, including reinvestment of dividends. Indexes
calculated on month-end basis.
12/29/12
12/28/13
1/3/15
1/2/16
12/31/16
12/30/17
CRA International, Inc.
. . . . . . . . . . . . . . . .
NASDAQ Composite . . . . . . . . . . . . . . . . . . .
Peer Group . . . . . . . . . . . . . . . . . . . . . . . . . .
100.00
100.00
100.00
110.16
141.63
155.25
161.49
162.09
149.14
99.20
173.33
148.43
195.56
187.19
179.10
243.93
242.29
168.89
The stock price performance included in this graph is not necessarily indicative of future stock price
performance.
26
Item 6—Selected Financial Data
The following selected consolidated financial data for each of the fiscal years in the five-year
period ended December 30, 2017, has been derived from our audited consolidated financial statements.
Consolidated Statements of Operations
Data(1)(2):
Revenues . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services (exclusive of depreciation
December 30,
2017
(52 weeks)
December 31,
2016
(52 weeks)
January 2,
2016
(52 weeks)
January 3,
2015
(53 weeks)
December 28,
2013
(52 weeks)
$370,075
$324,779
$303,559
$306,371
$278,432
and amortization) . . . . . . . . . . . . . . . .
258,829
227,380
207,650
206,813
189,262
Selling, general and administrative
expenses(6) . . . . . . . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . .
GNU goodwill impairment(3) . . . . . . . . . .
Income from operations . . . . . . . . . . . . .
GNU gain on extinguishment of debt . . . .
GNU gain on sale of business assets . . . . .
Interest expense, net . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . .
Income before provision for income taxes .
Provision for income taxes . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to
86,537
8,945
—
15,764
—
250
(484)
(366)
15,164
(7,463)
7,701
70,584
7,896
—
18,919
—
3,836
(469)
(397)
21,889
(7,656)
14,233
72,439
6,552
4,524
12,394
606
—
(538)
(647)
11,815
(5,490)
6,325
69,074
6,443
—
24,041
—
—
(431)
(295)
23,315
(9,908)
13,407
64,242
6,411
—
18,517
—
—
(419)
(180)
17,918
(6,683)
11,235
noncontrolling interest, net of tax . . . . .
(77)
(1,345)
1,332
231
135
Net income attributable to CRA
International, Inc.
. . . . . . . . . . . . . . . .
$
7,624
$ 12,888
$
7,657
$ 13,638
$ 11,370
Net income per share attributable to CRA
International, Inc.(4):
Basic . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average number of shares
outstanding(4):
Basic . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . .
$
$
0.91
0.89
$
$
1.50
1.49
$
$
0.84
0.83
$
$
1.40
1.38
$
$
1.13
1.12
8,292
8,497
8,503
8,601
9,010
9,195
9,747
9,897
10,084
10,173
December 30,
2017
December 31,
2016
January 2,
2016
January 3,
2015
December 28,
2013
Consolidated Balance Sheet Data(1)(2):
Working capital(5) . . . . . . . . . . . . . . . .
Total assets(5) . . . . . . . . . . . . . . . . . . .
Total long-term debt . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . .
$ 62,300
361,757
—
207,229
$ 76,411
323,642
—
207,883
$ 54,336
313,717
—
211,068
$ 56,256
313,472
981
214,704
$ 57,197
320,137
1,007
224,637
(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 consolidated statements of operations
from the date of acquisition.
27
(2) On January 31, 2017, we acquired substantially all of the assets and assumed certain liabilities of
C1 Consulting LLC, an independent consulting firm, and its wholly-owned subsidiary C1 Associates
for initial consideration comprised of cash and CRA restricted common stock. 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.
(3) See note 4 to our Notes to Consolidated Financial Statements. GNU incurred an impairment loss
during the fourth quarter of fiscal 2015 in the amount of $4.5 million.
(4) Basic net income per share attributable to CRA represents net income attributable to CRA divided
by the weighted average shares of common stock outstanding during the period. Diluted net
income per share attributable to CRA represents net income attributable to CRA divided by the
weighted average shares of common stock and common stock equivalents outstanding during the
period, if applicable. Weighted average shares used in computing 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. The treasury
stock method was used to compute diluted net income per share for fiscal years 2014 and 2013,
while the two-class method was used for fiscal years 2017, 2016 and 2015. The change in methods
was required due to the changes in shareholder grants for certain restricted stock units.
(5) 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 and 2013 to conform prior period classifications to the new
guidance.
(6) On November 20, 2017, we entered into a transaction agreement with IQVIA Inc where we, and
certain former employees of IQVIA, agreed to certain terms and conditions relating to the former
employees’ employment agreements with IQVIA, and to settle certain claims among the parties to
the agreement. We paid IQVIA an aggregate amount of $5.7 million as consideration under the
transaction agreement. This amount has been reported as a component of selling, general and
administrative expenses for fiscal 2017.
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.
28
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% for fiscal years
2017, 2016, and 2015.
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
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 20% of our total
revenues in fiscal 2017, fiscal 2016, and fiscal 2015, respectively. Revenue by country is detailed in
note 12 to our Notes to Consolidated Financial Statements.
Noncontrolling Interest
Please refer to the section captioned ‘‘Principles of Consolidation’’ and ‘‘GNU Interest’’ in note 1
of our Notes to Consolidated Financial Statements contained in this Form 10-K.
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 accounting principles
generally accepted in the United States of America (‘‘U.S. GAAP’’). The preparation of these financial
statements requires us to make significant estimates and judgments that affect the reported amounts of
assets and liabilities, as well as related disclosure of contingent assets and liabilities, at the date of the
financial statements, and the reported amounts of revenues and expenses during the reporting period.
Estimates in these consolidated financial statements include, but are not limited to, allowances for
accounts receivable and unbilled services, 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 certain 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.
29
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.
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.
The following discussion of our revenue recognition accounting policies is based on the accounting
principles that were used to prepare the fiscal year 2017 consolidated financial statements included in
this Annual Report on Form 10-K. On December 31, 2017, we adopted ASC Topic 606, Revenue from
Contracts with Customers (‘‘ASC 606’’). This standard replaces existing revenue recognition rules with a
comprehensive revenue measurement and recognition standard and expanded disclosure requirements.
Refer to Note 2, ‘‘Significant Accounting Policies,’’ of our audited consolidated financial statements
included elsewhere in this Annual Report on Form 10-K for discussion of recently issued accounting
standards.
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. 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.
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. 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 a 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. We maintain accounts
receivable allowances for estimated losses resulting from disputed amounts or the inability of our
30
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.
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
was determined based on our annualized dividend rate per share, as a percentage of average market
price of the common stock, on each dividend payment date. 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.
Our Amended and Restated 2006 Equity Incentive Plan, as amended (the ‘‘2006 Equity Plan’’),
authorizes the grant of a variety of incentive and performance equity awards to our directors,
employees and independent contractors, including stock options, shares of restricted stock, restricted
stock units, and other equity awards. The 2006 Equity Plan has used standard ‘‘fungibility ratios’’ to
count grants of full-share awards (such as shares of restricted stock and restricted stock units) against
the maximum number shares issuable under the plan. The current fungibility ratio, applicable to
full-share grants made on or after April 30, 2010, is 1.83. The fungibility ratio applicable to full-share
grants made before March 12, 2008 was 1.8, and the fungibility ratio applicable to full-share grants
made from March 12, 2008 and before April 30, 2010 was 2.2. The fungibility ratio does not apply to
grants of stock options. The maximum number of shares issuable under the 2006 Equity Plan is
5,274,000, consisting of (1) 500,000 shares initially reserved for issuance under the 2006 Equity Plan,
(2) 1,000,000 shares that either remained for future awards under our 1998 Incentive and Nonqualified
Stock Option Plan (the ‘‘1998 Option Plan’’) on April 21, 2006, the date our shareholders initially
approved the 2006 Equity Plan, or were subject to stock options issued under the 1998 Option Plan
that were forfeited or terminated after April 21, 2006, (3) 210,000 shares approved by our shareholders
in 2008, (4) 1,464,000 shares approved by our shareholders in 2010, and (5) the 2,500,000 shares
approved by our shareholders in 2012 reduced by the 800,000 shares cancelled by our board of
directors in fiscal 2016, and (6) the 400,000 shares approved by CRA’s shareholders on July 12, 2017.
31
As of December 30, 2017, there were 434,374 shares of our common stock available for award
grants under the 2006 Equity Incentive plan, calculated as follows:
Maximum shares of common stock issuable under the 2006 Equity Plan . . .
Full-share awards granted/reserved through March 12, 2008 . . . . . . . . . . . .
Full-share awards granted/reserved from March 12, 2008 to April 29, 2010 .
Full-share awards granted/reserved on or after April 30, 2010 . . . . . . . . . . .
Cancellation of full-share awards granted/reserved through March 12, 2008 .
Cancellation of full-share awards granted/reserved between March 12, 2008
and April 29, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cancellation of full-share awards granted/reserved on or after April 30,
2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options cancelled . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Options forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Shares available for grant under the 2006 Equity Plan as of December 30,
Actual
Shares
Shares Using
Fungibility Ratio
471,827
352,932
1,974,505
91,277
5,274,000
(849,289)
(776,450)
(3,611,880)
164,299
91,964
202,321
636,982
1,165,679
(1,400,318)
227,017
38,995
2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
434,374
Deferred Compensation. We account for performance and service based cash awards using a
prospective accrual method. Under the requirements of ASC Topic 710, ‘‘Compensation General’’ (‘‘ASC
Topic 710’’) to the extent the terms of the contract attribute all or a portion of the expected future
benefits to a period of service greater than one year, the cost of those benefits are accrued over the
period of the employee or non-employee’s service in a systematic and rational manner. We have
implemented a process that requires the liability to be re-evaluated on a quarterly basis.
The required service period typically ranges from three to six years starting at the beginning of the
awards measurement period. A recipient of such an award is expected to be affiliated with CRA for the
entire measurement period. If a recipient terminates affiliation with CRA during the measurement
period, the amount paid will be determined in accordance with the recipient’s specific contract
provisions.
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 fiscal 2017 goodwill impairment analysis, we operate under one reporting
unit, which is consulting services. Prior to April 13, 2016, we operated under two reporting units, which
were consulting services and GNU.
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 prior to fiscal 2016, the estimated
fair value of GNU. 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
32
utilizing data from publicly available premium studies for the trailing four quarters for public company
transactions in our industry group. 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.
GNU 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 2017, fiscal 2016 or fiscal
2015. The estimated fair value of CRA’s consulting services was greater than its carrying value as of
October 15th in each of these fiscal years.
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 GNU’s impairment charge in the fourth quarter of fiscal 2015, was computed as the
difference between its 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 estimated costs. See Note 3, ‘‘Goodwill and Intangible Assets,’’ for further details.
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.
33
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
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 2014. Within the significant states where we are subject
to income tax, we are no longer subject to examinations by state taxing authorities before fiscal 2013.
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 2016. During fiscal 2016, an examination
by the Internal Revenue Service for fiscal 2014 commenced. The examination has continued in fiscal
2017 with no adjustments noted. We believe our reserves for uncertain tax positions are adequate.
On December 22, 2017, the Tax Cuts and Jobs Act (the ‘‘Tax Act’’) was enacted into law and the
new legislation contains several key tax provisions that affected us, including a reduction of the
corporate income tax rate to 21% effective January 1, 2018, an expansion of limitations around the
deductibility of meals and entertainment and compensation of our executive officers, among others. We
are required to recognize the effect of the tax law changes in the period of enactment, such as
remeasuring our U.S. deferred tax assets and liabilities. In December 2017, the SEC staff issued Staff
Accounting Bulletin No. 118, Income Tax Accounting Implications of the Tax Cuts and Jobs Act
(SAB 118), which allows us to record provisional amounts during a measurement period not to extend
beyond one year of the enactment date.
Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and
accounting interpretation are expected over the next 12 months, we consider the accounting to be
incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax
positions. Adjustments to these preliminary amounts identified during the measurement period, as
defined, will be included as an adjustment to tax expense from continuing operations in the period the
amounts are determined. We believe that we have made a good faith effort to complete the accounting
under ASC 740 with respect to the Tax Act. SAB 118 provides that the measurement period is
complete when a company’s accounting is complete and in no circumstances, should the measurement
period extend beyond one year from the enactment date of the applicable change in tax law.
In connection with the Tax Act, we have recorded a provisional amount attributable to the
remeasurement of deferred taxes assets and liabilities from a 35 percent tax rate to the new 21 percent
rate. The provisional amount recorded was increase in tax expense in the amount of $3.6 million.
Business Combinations. We recognize and measure identifiable assets acquired, and liabilities
assumed, of our acquirees as of the acquisition date at fair value. Fair value measurements require
extensive use of estimates and assumptions, including estimates of future cash flows to be generated by
the acquired assets. We recognize and measure contingent consideration at fair value as of the
acquisition date using a monte carlo simulation. Contingent consideration obligations that are classified
as liabilities are remeasured at fair value each reporting period with the changes in fair value resulting
from either the passage of time, revised expectations of performance, or ultimate settlement to the
amount or timing of the initial measurement recognized in the consolidated statements of
comprehensive income.
34
Recent Accounting Standards
Revenue from Contracts with Customers
In August 2015, Financial Accounting Standards Board (the ‘‘FASB’’) issued Accounting Standards
Update (‘‘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. 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. Companies may use either a full
retrospective or a modified retrospective approach to adopt ASU 2014-09. The standard will have an
impact on the amount and timing of revenue recognized and the related disclosures on our financial
statements. We will adopt ASU 2014-09 effective December 31, 2017, using the modified retrospective
approach. Upon adoption, we will recognize the cumulative effect of adopting this guidance as an
adjustment to our opening balance of retained earnings. Prior periods will not be retrospectively
adjusted. The cumulative effect adjustment will result in an increase to our opening balance of retained
earnings of between approximately $0.3 million to $0.7 million, net of tax.
All revenue derived from contracts with our customers are generated from our time-and-materials
or fixed-price contracts. For our time-and-materials projects, we will use the right-to-invoice practical
expedient when we have a right to consideration from a customer in an amount that corresponds
directly with the value of the entity’s performance completed to date. For our fixed-price arrangements,
we will recognize revenue as individual performance obligations are satisfied, using a measure of
progress that is based on the efforts and costs incurred (i.e. an input method measure of progress).
These methods for determining the appropriate revenue recognition under ASU 2014-09 is consistent
with our current revenue recognition policy.
Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’).
ASU 2016-02 establishes a comprehensive new lease accounting model. The 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 standard
is effective for interim and annual periods beginning after December 15, 2018. Early adoption is
permitted. The 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.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting (‘‘ASU 2016-09’’). ASU 2016-09 requires all
of the tax effects related to share-based payments to be recorded through the income statement. The
pronouncement also allows for the option of estimating awards expected to vest or accounting for
forfeitures when they occur. In the statement of cash flows, cash paid by employers when withholding
shares for tax withholding purposes should be classified as a financing activity whereas cash flows
resulting from excess tax benefits should be reported in operating activities. The amendments in this
update are effective for annual periods beginning after December 15, 2016, and interim periods within
those annual periods. Accordingly, we adopted ASU No. 2016-09 on January 1, 2017, resulting in the
recognition of a tax benefit of $0.05 million to retained earnings as of that date. We had traditionally
classified employee taxes paid through employer share withholdings as financing activities, therefore no
35
further adjustment was necessary. We have classified the excess tax benefits from share-based
compensation as operating activities on a prospective basis beginning in the quarter ended April 1,
2017. We did not make any changes to our accounting for forfeitures and continue to estimate
forfeitures based on historical experience.
Statement of Cash Flows (Topic 230): Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash (‘‘ASU 2016-18’’). ASU 2016-18 amends ASC 230 to add or clarify guidance on the
classification and presentation of restricted cash in the statement of cash flows. The standard requires
cash and cash equivalents balances on the statement of cash flows to include restricted cash and cash
equivalent balances. ASU 2016-18 requires the registrant to provide appropriate disclosures about its
accounting policies pertaining to restricted cash in accordance with GAAP. Additionally, changes in
restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents,
and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the
statement of cash flows. A registrant with a material balance of amounts generally described as
restricted cash and restricted cash equivalents must disclose information about the nature of the
restrictions. The standard is effective for interim and annual periods beginning after December 15,
2017. We believe that the adoption of ASU 2016-18 will not have a material impact on our financial
position, results of operations, cash flows, or disclosures.
Business Combinations (Topic 805): Clarifying the Definition of a Business
On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805):
Clarifying the Definition of a Business (‘‘ASU 2017-01’’). ASU 2017-01 clarifies the definition of a
business with the objective of adding guidance to assist companies and other reporting organizations
with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. Under the amendments, a business is an integrated set of activities and assets that is
capable of being conducted and managed for the purpose of providing a return in the form of
dividends, lower costs, or other economic benefits directly to investors or other owners, members, or
participants. For public companies, ASU 2017-01 is effective for annual periods beginning after
December 15, 2017, including interim periods within those periods. Early application of the
amendments in ASU 2017-01 is allowed for transactions for which the acquisition date occurs before
the issuance date or effective date of the amendments, only when the transaction has not been
reported in financial statements that have been issued or made available for issuance; and for
transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur
before the issuance date or effective date of the amendments, only when the transaction has not been
reported in financial statements that have been issued or made available for issuance. We believe that
the adoption of ASU 2017-01 will not have a material impact on our financial position, results of
operations, cash flows, or disclosures.
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
On January 26, 2017, the FASB issued ASU No. 2017-04, Intangibles—Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment (‘‘ASU 2017-04’’). ASU 2017-04 simplifies the
subsequent measurement of goodwill, and eliminates Step 2 from the goodwill impairment test. Under
the amendments, an entity should perform its annual, or interim, goodwill impairment test by
comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the
carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The
amendment also eliminated the requirements for any reporting unit with a zero or negative carrying
amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the
goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An
36
entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or
negative carrying amount of net assets. For public companies, ASU 2017-04 is effective for annual or
interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1,
2017. We have not yet determined the effects, if any, that the adoption of ASU 2017-04 may have on
our financial position, results of operations, cash flows, or disclosures.
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
On May 10, 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation
(Topic 718): Scope of Modification Accounting (‘‘ASU 2017-09’’). ASU 2017-09 updates guidance about
which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. Under the amendments, an entity should account for the effects
of a modification unless all the following conditions are met. First, the fair value (or calculated value or
intrinsic value, if such an alternative measurement method is used) of the modified award is the same
as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is
used) of the original award immediately before the original award is modified. If the modification does
not affect any of the inputs to the valuation technique that the entity uses to value the award, the
entity is not required to estimate the value immediately before and after the modification. Second, the
vesting conditions of the modified award are the same as the vesting conditions of the original award
immediately before the original award is modified. Third, the classification of the modified award as an
equity instrument or a liability instrument is the same as the classification of the original award
immediately before the original award is modified. The standard is effective for annual and interim
periods beginning after December 15, 2017. Early adoption is permitted, including adoption in any
interim period, for public entities for reporting periods for which financial statements have not yet been
issued. We will adopt ASU 2017-09 during the first quarter of 2018. We have not completed our
assessment of this standard and have not yet determined whether the impact of the adoption of this
standard on our financial position, results of operations, cash flows, or disclosures will be material.
Staff Accounting Bulletin No. 118 (SAB 118)
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, ‘‘Income Tax
Accounting Implications of the Tax Cuts and Jobs Act’’ (‘‘SAB 118’’), to address the application of
US GAAP in situations when a registrant does not have the necessary information available, prepared,
or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of the Tax Cuts and Jobs Act (the ‘‘Tax Act’’). SAB 118 summarizes a three-step
process to be applied at each reporting period to account for and disclose: (1) the effects of the change
in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional
amounts) for the effects of the change in tax law where accounting is not complete, but a reasonable
estimate has been determined; and (3) current or deferred tax amounts reflected in accordance with
law prior to the enactment of the change in tax law because the accounting of the effects of the change
in tax law are not complete and a reasonable estimate has not been determined, together with
qualitative disclosure of the effects of the changes in tax law for which the accounting is not compete,
the reason why the accounting is not complete, and the additional information that is needed to be
obtained, prepared or analyzed in order to complete the accounting. Since the Tax Act was passed late
in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over
the next 12 months, we consider the accounting of deferred tax remeasurements and other items to be
incomplete due to the forthcoming guidance and our ongoing analysis of final year-end data and tax
positions. Adjustments to these preliminary amounts identified during the measurement period, as
defined, will be included as an adjustment to tax expense from continuing operations in the period the
amounts are determined. We believe that we have made a good faith effort to complete the accounting
under ASC 740 with respect to the Tax Act. SAB 118 provides that the measurement period is
complete when a company’s accounting is complete and in no circumstances, should the measurement
period extend beyond one year from the enactment date of the applicable change in tax law.
37
Results of Operations
The following table provides operating information as a percentage of revenues for the periods
indicated:
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cost of services (exclusive of depreciation and
amortization) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Selling, general and administrative expenses . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . .
GNU goodwill impairment . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . .
GNU gain on extinguishment of debt . . . . . . . . . . . . . .
GNU gain on sale of business assets . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net
Income before provision for income taxes . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interest,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income attributable to CRA International, Inc.
. . .
Fiscal Year Ended
December 30,
2017
(52 weeks)
December 31,
2016
(52 weeks)
January 2,
2016
(52 weeks)
100.0%
100.0%
100.0%
69.9
23.4
2.4
—
4.3
—
0.1
(0.2)
(0.1)
4.1
(2.0)
2.1
70.0
21.7
2.4
—
5.8
—
1.2
(0.2)
(0.1)
6.7
(2.4)
4.4
(0.0)
2.1%
(0.4)
4.0%
68.4
23.9
2.2
1.5
4.0
0.2
—
(0.2)
(0.1)
3.9
(1.8)
2.1
0.4
2.5%
Fiscal 2017 Compared to Fiscal 2016
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 2017 and fiscal 2016 were both 52-week years.
Revenues. Revenues increased by $45.3 million, or 13.9%, to $370.1 million for fiscal 2017 from
$324.8 million for fiscal 2016. Revenues increased primarily in our business consulting practice. The
increase in net revenue was a result of an increase in gross revenues of $49.7 million as compared to
fiscal 2016, offset by an increase in write-offs and reserves of $4.4 million as compared to fiscal 2016.
Revenue growth was driven by an increase in average consulting headcount during fiscal 2017
compared to fiscal 2016, driven primarily by the addition of 84 consultants from the C1 acquisition and
other recruiting activities during fiscal 2017. Utilization remained flat at 74% for fiscal 2017 and fiscal
2016. GNU revenue decreased $0.8 million in fiscal 2017 as compared to fiscal 2016, principally due to
the cessation of its operations in April 2016.
Overall, revenues outside of the U.S. represented approximately 20% and 22% of total revenues
for fiscal 2017 and fiscal 2016, respectively. Revenues derived from fixed-price engagements increased
to 25% of total revenues for fiscal 2017 as compared with 17% for fiscal 2016. 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. This increase in revenues derived from fixed-
price engagements was primarily attributable to the acquisition of C1.
38
Costs of Services (exclusive of depreciation and amortization). Costs of services (exclusive of
depreciation and amortization) increased by $31.4 million, or 13.8%, to $258.8 million for fiscal 2017
from $227.4 million for fiscal 2016. The increase in costs of services was due primarily to an increase of
$15.5 million in employee compensation and fringe benefit costs attributable to salaries and benefits for
our increased consulting headcount, which was primarily attributable to the C1 acquisition, as well as a
$8.3 million increase in retention, incentive and share-based compensation. Additionally, client
reimbursable expenses increased by $7.0 million in fiscal 2017 compared to fiscal 2016 principally
driven by the increased use of consultants supporting our life sciences projects. Despite the overall
increase in cost of services, as a percentage of net revenue, costs of services remained relatively flat at
69.9% for fiscal 2017 and 70.0% for fiscal 2016. GNU’s costs of services declined during fiscal 2017 by
$0.5 million, principally due to the cessation of its operations in April 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
increased by $15.9 million, or 22.5%, to $86.5 million for fiscal 2017 from $70.6 million for fiscal 2016.
Significant contributors to this increase were a $5.4 million increase in other professional and legal fees
related to ongoing controls remediation, audit fees and legal costs associated with the IQVIA
transaction, and $5.7 million of consideration paid to IQVIA. Additional contributors to this increase
include the following increases in, or additions to, costs in fiscal 2017 compared to fiscal 2016: a
$1.9 million increase in rent expense related to incremental leased office space in Chicago, New York
and San Francisco; a $1.5 million increase in travel and entertainment expenses; a $0.8 million increase
in employee compensation and fringe benefit costs; $0.5 million related to software development costs,
which were not capitalizable; and a $0.3 million increase in bad debt reserves and write-offs for loans
to employees. In addition, another contributor to this increase was commissions to our non-employee
experts of $0.6 million for fiscal 2017 as compared to fiscal 2016, as a higher amount of our revenue
fiscal 2017 was sourced by our non-employee experts. GNU selling, general and administrative expenses
decreased by $1.0 million to $0.1 million for fiscal 2017 from $1.1 million for fiscal 2016, due to the
cessation of its operations in April 2016.
As a percentage of revenues, selling, general and administrative expenses increased to 23.4% for
fiscal 2017 from 21.7% for fiscal 2016 due primarily to the increase in the previously mentioned selling,
general and administrative expenses and the increase in revenues. Commissions to non-employee
experts decreased to 2.7% of revenue in fiscal 2017 compared to 2.9% of revenue in fiscal 2016 as less
revenue as a percentage of overall revenue was sourced by nonemployee experts in fiscal 2017.
GNU Gain on Sale of Business Assets. On April 13, 2016, a buyer acquired substantially all of the
business assets and assumed substantially all of the liabilities of GNU for a purchase price of
$1.35 million. Of this amount, $1.1 million was received at closing, with the remaining $0.25 million
paid in full on May 3, 2017. GNU recognized a gain on sale of its business assets of $0.25 million in
fiscal 2017 of which $0.14 million was attributed to CRA, as compared to $3.8 million in fiscal 2016, of
which $2.1 million was attributed to CRA.
Provision for Income Taxes. For fiscal 2017, our income tax provision was $7.5 million and the
effective tax rate was 49.2% as compared to a provision of $7.7 million and an effective tax rate of
35.0% for fiscal 2016. The effective tax rate for fiscal 2017 was higher than the prior year rate and our
combined federal and state statutory rate primarily due to the December 22, 2017, enactment of the
Tax Cuts and Jobs Act (the ‘‘Tax Act’’) which lowers the U.S. corporate statutory tax rate from
35 percent to 21 percent. As a result of the enactment, we recorded a $3.6 million provision in
connection with the remeasurement of U.S. deferred tax assets at the lower enacted corporate tax rate,
partially offset by tax benefits related to stock-based compensation as a result of the adoption of
ASU 2016-09. The effective tax rate in fiscal 2016 was lower than our combined federal and state
statutory tax rate primarily due to the tax benefit realized for the use of GNU net operating loss
carryforwards that previously had a valuation allowance as a result of the sale of their assets during Q2
of 2016, jurisdictional mix of income, and certain favorable prior period adjustments.
39
Net Income Attributable to CRA International, Inc. Net income attributable to CRA
International, Inc. decreased by $5.3 million to net income of $7.6 million for fiscal 2017 from net
income of $12.9 million for fiscal 2016.
The diluted net income per share was $0.89 per share for fiscal 2017, compared to diluted net
income per share of $1.49 for fiscal 2016. Diluted weighted average shares outstanding decreased by
approximately 104,000 shares to approximately 8,497,000 shares for fiscal 2017 from approximately
8,601,000 shares for fiscal 2016. 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 December 31, 2016.
Fiscal 2016 Compared to Fiscal 2015
Fiscal 2016 and fiscal 2015 were both 52-week years.
Revenues. Revenues increased by $21.2 million, or 7.0%, to $324.8 million for fiscal 2016 from
$303.6 million for fiscal 2015. Revenue growth was driven by an increase in average consulting
headcount during fiscal 2016 compared to fiscal 2015, while utilization remained flat at 74% for fiscal
2016 and fiscal 2015. Offsetting this increase, GNU revenue decreased $2.9 million in fiscal 2016 as
compared to fiscal 2015, principally due to the cessation of its operations in April 2016.
Overall, revenues outside of the U.S. represented approximately 22% and 20% of total revenues
for fiscal 2016 and fiscal 2015, respectively. Revenues derived from fixed-price engagements increased
to 17% of total revenues for fiscal 2016 as compared with 14% for fiscal 2015. 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 (exclusive of depreciation and amortization). Costs of services (exclusive of
depreciation and amortization) increased by $19.7 million, or 9.5%, to $227.4 million for fiscal 2016
from $207.7 million for fiscal 2015. These increased costs were driven by the salaries and fringe benefits
of our increased consulting headcount, as well as increases in incentive compensation and forgivable
loan amortization. As a percentage of revenues, costs of services increased to 70.0% for fiscal 2016
from 68.4% for fiscal 2015 due to the previously mentioned increase to employee compensation and
fringe benefits costs as more revenue was sourced by employees rather than non-employee experts in
fiscal 2016 as compared to fiscal 2015. GNU’s costs of services declined during fiscal 2016 by
$0.9 million, principally due to the cessation of its operations in April 2016.
Selling, General and Administrative Expenses. Selling, general and administrative expenses
decreased by $1.8 million, or 2.5%, to $70.6 million for fiscal 2016 from $72.4 million for fiscal 2015. A
significant contributor to this decrease was reduction in commissions to our nonemployee experts of
$0.7 million for fiscal 2016 compared to fiscal 2015, as a lower percentage of our revenue for fiscal
2016 was sourced by our nonemployee experts as compared to fiscal 2015. In addition, there was an
overall decrease in rent expense of $1.9 million principally due to higher double rent payments related
to our Boston, Massachusetts office in fiscal 2015 compared to our London office in fiscal 2016.
Selling, general and administrative expense for GNU decreased by $2.0 million to $1.1 million for fiscal
2016 from $3.1 million for fiscal 2015, due to the cessation of its operations in April 2016. Offsetting
these cost reductions were increases in professional fees of $1.4 million, incentive compensation of
$0.7 million and bad debt of $1.0 million.
As a percentage of revenues, selling, general and administrative expenses decreased to 21.7% for
fiscal 2016 from 23.9% for fiscal 2015 due primarily to the decrease in the previously mentioned selling,
general and administrative expenses and the increase in revenues. Commissions to non-employee
experts decreased to 2.9% of revenue in fiscal 2016 compared to 3.4% of revenue in fiscal 2015 as less
revenue was sourced by nonemployee experts in fiscal 2016.
40
GNU 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 GNU’s net book value exceeded the fair value of its equity. Therefore, GNU was
required to perform a step two goodwill impairment test, which resulted in an impairment charge of
$4.5 million. No goodwill impairment was taken in fiscal 2016.
GNU Gain on Extinguishment of Debt. On January 8, 2015, GNU entered into an agreement to
settle a note payable of approximately $981,000 in exchange for aggregate payments of $375,000. GNU
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.
GNU Gain on Sale of Business Assets. On April 13, 2016, a buyer acquired substantially all of the
business assets and assumed substantially all of the liabilities of GNU for a purchase price of
$1.35 million. Of this amount, $1.1 million was received at closing, with the remaining $0.25 million
payable on or after April 13, 2017, subject to contingencies, as outlined in the asset purchase
agreement. GNU recognized a gain on sale of its business assets of $3.8 million during the second
quarter of fiscal 2016, of which $2.1 million is attributed to CRA.
Other Expense, Net. Other expense, net decreased by $0.2 million to $0.4 million for fiscal 2016
from $0.6 million for fiscal 2015. Other expense, net consists primarily of net 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 2016, our income tax provision was $7.7 million and the
effective tax rate was 35.0% as compared to a provision of $5.5 million and an effective tax rate of
46.5% for fiscal 2015. The effective tax rate for fiscal 2016 was lower than the prior year rate primarily
due to lower tax reserves and permanent items in the current year coupled with the negative impact of
GNU’s goodwill impairment in prior year. The effective tax rate in fiscal 2016 was lower than our
combined federal and state statutory tax rate primarily due to the tax benefit realized for the use of
GNU net operating loss carryforwards that previously had a valuation allowance as a result of the sale
of their assets during Q2, jurisdictional mix of income, and certain favorable prior period adjustments.
Absent the GNU sale and deferred taxes associated with the GNU liquidation, the effective tax rate in
fiscal 2016 would have been 39.1%. The effective tax rate in fiscal 2015 was higher than our combined
federal and state statutory tax rate due to the GNU 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.
Net (Income) Loss Attributable to Noncontrolling Interest, Net of Tax. Our ownership interest in
GNU was 55.89% at the end of fiscal 2016 and fiscal 2015. As a result, GNU’s financial results are
consolidated with ours and allocations of the noncontrolling interest’s share of GNU’s net income
result in deductions to our net income, while allocations of the noncontrolling interest’s share of
GNU’s net loss result in additions to our net income. GNU’s results of operations allocable to its other
owners was net income of $1.3 million for fiscal 2016, primarily as a result of the gain on sale
attributable to its other owners of $1.7 million and a net loss of $0.4 million.
Net Income Attributable to CRA International, Inc. Net income attributable to CRA
International, Inc. increased by $5.2 million to net income of $12.9 million for fiscal 2016 from net
income of $7.7 million for fiscal 2015. The diluted net income per share was $1.49 per share for fiscal
41
2016, compared to diluted net income per share of $0.83 for fiscal 2015. Diluted weighted average
shares outstanding decreased by approximately 594,000 shares to approximately 8,601,000 shares for
fiscal 2016 from approximately 9,195,000 shares for fiscal 2015. 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 2, 2016.
Liquidity and Capital Resources
We believe that current cash, cash equivalents, cash generated from operations, and amounts
available under our existing revolving credit facility will be sufficient to meet our anticipated working
capital and capital expenditure requirements for at least the next 12 months.
General.
In fiscal 2017, our cash and cash equivalents increased slightly by $0.5 million,
completing the year with cash and cash equivalents of $54.0 million and working capital (defined as
current assets less current liabilities) of $62.3 million. The principal drivers of the increase in cash were
the increase in annual revenues of $45.3 million and the decrease in days sales outstanding from
102 days at the end of fiscal 2016 to 101 days at the end of fiscal 2017, offset by payment of our fiscal
2016 performance bonuses, the buildout of new leased office space, the repurchase and retirement of
shares of our common stock, and cash paid in connection with the C1 acquisition and IQVIA
transaction.
At December 30, 2017, $33.3 million of our cash and cash equivalents was held within the U.S. We
have sufficient sources of liquidity in the U.S., including cash flow from operations and availability on
our revolving line of credit to fund U.S. cash requirements without the need to repatriate funds from
our foreign subsidiaries. As of December 30, 2017, a substantial portion of CRA’s cash accounts was
concentrated at a single financial institution, which potentially exposes CRA to credit risk. The financial
institution has a short term credit rating of A-2 by Standard & Poor’s ratings services. CRA has not
experienced any losses related to such accounts. CRA does not believe that there is significant risk of
nonperformance by the financial institution, and its cash on deposit is fully liquid. CRA continually
monitors the credit ratings of the institution.
Sources and Uses of Cash. During fiscal 2017, net cash provided by operations was $45.9 million.
Net income was $7.7 million for fiscal 2017. The primary sources of cash from operations were an
increase of $23.4 million in the ‘‘accounts payable, accrued expenses, and other liabilities’’ line item of
the cash flow statement and a $6.1 million decrease in the ‘‘prepaid expenses and other current assets,
and other assets’’ line item of the cash flow statement. Offsetting these sources of cash was cash used
in operations of $18.9 million due to an increase in accounts receivable, net of allowances, and unbilled
services, net of allowances. Cash provided by operations also included non-cash items related to
depreciation and amortization expense of $8.9 million, share-based compensation expenses of
$6.6 million, and a change in forgivable loans for the period of $5.6 million, which was primarily driven
by $14.2 million of forgivable loan amortization and $3.2 million of repayments and reclassifications,
offset by $11.7 million of forgivable loan issuances.
During fiscal 2017, net cash used in investing activities was $25.7 million, which included
$16.2 million in consideration relating to the C1 acquisition and $9.8 million for capital expenditures,
which were primarily related to leasehold improvements for our leased office spaces and expenses
incurred for computer equipment and software of $6.9 million and $2.9 million, respectively. Offsetting
these uses of cash was $0.25 million of cash proceeds received from the sale of GNU’s business assets.
We used $21.9 million of net cash in financing activities during fiscal 2017, primarily for the
repurchase and retirement of shares of our common stock of $19.5 million, the payment of $5.1 million
cash dividend to shareholders and cash paid on dividend equivalents, the redemption of approximately
$3.3 million in vested employee restricted shares for tax withholdings, and distributions to
noncontrolling interests of $0.4 million. Offsetting these uses of cash was $6.4 million received upon the
issuance of shares of common stock related to the exercise of stock options.
42
Indebtedness
We are party to an amended and restated credit agreement that provides us with a $125.0 million
revolving credit facility and a $15.0 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. We may repay any borrowings under the revolving credit facility at any time, but must repay
all borrowings no later than October 24, 2022. There were no borrowings outstanding under this
revolving credit facility as of December 30, 2017.
The amount available under this revolving credit facility was reduced by certain letters of credit
outstanding, which amounted to $3.6 million as of December 30, 2017.Borrowings under the revolving
credit facility bear interest at a rate per annum, at our election, of either (i) the adjusted base rate, as
defined in the credit agreement, plus an applicable margin, which varies between 0.25% and 1.25%
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
1.25% and 2.25% 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 0.20% and 0.35%
depending on our total leverage ratio. Borrowings under the revolving 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 $27.3 million in net assets as of December 30, 2017.
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 revolving 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.
Compensation Arrangements
We have entered into cash compensation arrangements for the payment of incentive performance
awards to certain of our non-employee experts and employees if specific performance targets are met.
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
borrowings on our existing revolving credit facility.
43
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. See note 3 of our Notes to Consolidated Financial
Statements contained in this Form 10-K for further details of the C1 acquisition.
Share Repurchases
On March 21, 2016, May 3, 2017, and February 15, 2018, we announced that our board of
directors approved share repurchase programs of up to $20.0 million, $20.0 million, and $20.0 million,
respectively, of our common stock. Repurchases under these programs are discretionary and we may
make such purchases under any of these programs in the open market (including under any
Rule 10b5-1 plan adopted by us) or in privately negotiated transactions, in each case in accordance with
applicable insider trading and other securities laws and regulations. During fiscal 2017, we repurchased
and retired 554,708 shares under these programs at an average price per share of $35.23.
Approximately $9.5 million and $29.5 million was available for future repurchases as of December 30,
2017 and February 15, 2018, respectively.
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.
Dividends to Shareholders
We anticipate paying regular quarterly dividends each year. These dividends are anticipated to be
funded through cash flow from operations, available cash on hand and/or borrowing under our
revolving credit facility. Although we anticipate paying regular quarterly dividends on our common
stock for the foreseeable future, the declaration, timing and amounts of which remain subject to the
discretion of CRA’s board of directors.
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;
(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;
44
(cid:129) dividends to shareholders;
(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 and regular dividends 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 existing revolving 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;
(cid:129) the volatility and overall condition of the capital markets; and
(cid:129) the market prices of our securities.
Contractual Obligations
The following table presents information about our known contractual obligations as of
December 30, 2017. 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 2018
Fiscal 2019-2020
Fiscal 2021-2022
After Fiscal 2022
Operating lease obligations . . . .
Deferred LTIP cash awards . . . .
Contingent consideration . . . . .
$133,727
6,800
5,137
$12,340
1,645
—
Total
. . . . . . . . . . . . . . . . . . . .
$145,664
$13,985
$27,230
3,455
—
$30,685
$27,021
1,700
5,137
$33,858
$67,136
—
—
$67,136
(in thousands)
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 amounting to $3.6 million as of December 30, 2017.
45
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 either the British Pound or the 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. Holding all other variables
constant, fluctuations in foreign exchange rates may affect reported revenues and expenses, based on
our currency exposures at December 30, 2017. A hypothetical 10% movement in foreign exchange rates
on December 30, 2017 would have affected our income before provision for income taxes for the fourth
quarter of fiscal 2017 by approximately $2.0 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 December 30, 2017, 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 currencies 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 and the Euro. The changes in the net investments of foreign subsidiaries whose
currencies are denominated in currencies other than the U.S. Dollar for fiscal 2017 were gains of
$3.9 million. The changes in the net investments of foreign subsidiaries whose currencies are
denominated in currencies other than the U.S. Dollar for fiscal 2016 and fiscal 2015 were losses of
$4.6 million and $2.5 million, respectively. These translation gains and 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
December 30, 2017 primarily due to their short maturity.
46
Item 8—Financial Statements and Supplementary Data
We have included our consolidated financial statements in this annual report on pages FS-3 -
FS-39. 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 December 30, 2017, because of material
weaknesses, described below in Management’s Report on Internal Control over Financial Reporting.
Notwithstanding the material weaknesses 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 as at the end of, and the results of operations and cash flows
for, the periods presented in conformity with accounting principles generally accepted in the United
States.
(b) Management’s Report on Internal Control over Financial Reporting
Our management is responsible for establishing and maintaining adequate internal control over
financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act).
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 December 30, 2017 because of the material
weaknesses 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 a
company’s annual or interim financial statements will not be prevented or detected on a timely basis. In
fiscal 2017, we did not maintain internal controls that were adequately designed or executed over
non-routine technical accounting matters and information technology general controls (‘‘ITGC’’)
related to program changes to our accounting software. Despite the significant efforts to remediate our
previously identified material weaknesses as described in section (d), the material weakness in internal
controls over ITGC prevents our ability to remediate the material weaknesses in internal controls over
financial reporting in respect of revenue and related reserve processes and compensation-related
processes previously reported in Item 9A of our Annual Report on Form 10-K for the fiscal year ended
December 31, 2016. We are in the process of remediating these controls at December 30, 2017.
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.
47
(c) Evaluation of Changes in Internal Control over Financial Reporting
Except for the material weaknesses noted in section (b) and the ongoing remediation of the
material weaknesses as described in section (d) pursuant to the plan described in Item 9A of our
Annual Report on Form 10-K for the fiscal year ended December 31, 2016, the evaluation of our
internal control over financial reporting discussed in Section (b) did not identify any changes in our
internal control over financial reporting during the fourth quarter of fiscal 2017 that materially affected,
or are reasonably likely to materially affect, our internal control over financial reporting.
(d) Plan for Remediation of Material Weakness
We are committed to remediating the control deficiencies that gave rise to the material weaknesses
described in section (b). Management is responsible for implementing changes and improvements to
our internal control over financial reporting and for remediating the control deficiencies that gave rise
to these material weaknesses.
With input and oversight from the Audit Committee, we have taken significant steps to remediate
our internal control deficiencies by redesigning our controls. Our efforts have focused on strengthening
our finance organization and designing a suite of controls in respect of our revenue and related reserve
processes, compensation-related processes, and certain non-routine technical accounting processes.
Consistent with the remediation plan as reported in Item 9A of our Annual Report on Form 10-K for
the fiscal year ended December 31, 2016, during fiscal 2017 we:
(cid:129) Established a Special Internal Controls Committee reporting to the Audit Committee, led by our
President and Chief Executive Officer, comprised of other members of senior management. The
Special Internal Controls Committee met with the Audit Committee at each of its eight regularly
scheduled meetings, as well as in eight special sessions throughout the year;
(cid:129) Established a Chief Accounting Officer role;
(cid:129) Enhanced our policies, procedures and controls over the receipt, review and accounting for
client contracts, receivables and related reserves, to ensure greater oversight and transparency;
(cid:129) Enhanced our policies, procedures, data and controls over the assessment, determination and
documentation of management’s judgments and estimates associated with compensation-related
processes;
(cid:129) Enhanced our management review controls over revenue, compensation and technical
accounting processes; and
(cid:129) Hired additional resources to bolster our technical accounting expertise and accounting
processes.
(cid:129) Engaged third party advisors to assist in the design, development and documentation of internal
controls over financial reporting.
In fiscal 2018, we will supplement our system of internal controls over financial reporting with the
following actions:
(cid:129) The Special Internal Controls Committee will remain in place and continue to guide our
remediation efforts;
(cid:129) Establishment of an enhanced program change management process and controls over
information technology systems, databases, applications and reports created from certain key
systems used in the financial reporting process; and
(cid:129) Continuation of the strengthening of our accounting policies, procedures, controls and
formalized documentation of our control policies, in addition to the execution thereof.
(cid:129) Engage a third party to assist in the design and development of our information technology
capabilities; processes and systems.
48
(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 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
49
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of CRA International, Inc.
Opinion on Internal Control over Financial Reporting
We have audited CRA International, Inc.’s internal control over financial reporting as of
December 30, 2017, 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). In our opinion, because of the effect of the material weaknesses described below on the
achievement of the objectives of the control criteria, CRA International, Inc. (and subsidiaries) (the
Company) has not maintained effective internal control over financial reporting as of December 30,
2017, based on the COSO criteria.
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.
The following material weaknesses have been identified and included in management’s assessment.
Management has identified material weaknesses in internal controls over certain non-routine technical
accounting processes and information technology general controls (‘‘ITGC’’) related to program
changes, and as a result, internal controls related to substantially all underlying financial statement
accounts and disclosures are ineffective, including the accounting for revenue and related reserve
processes and compensation-related processes.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of
December 30, 2017 and December 31, 2016, the related consolidated statements of operations,
comprehensive income, shareholders’ equity and cash flows for each of the three years in the period
ended December 30, 2017, and the related notes. These material weaknesses were considered in
determining the nature, timing and extent of audit tests applied in our audit of the 2017 consolidated
financial statements, and this report does not affect our report dated March 12, 2018, which expressed
an unqualified opinion thereon.
Basis for Opinion
The Company’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 are a public accounting firm registered with the PCAOB and are required to
be independent with respect to the Company in accordance with the U.S. federal securities laws and
the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audit in accordance with the standards of the PCAOB. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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
50
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.
Boston, Massachusetts
March 12, 2018
/s/ Ernst & Young LLP
51
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 2018 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 2017. We incorporate that information in this annual report by reference to the proxy
statement to be filed in connection with the 2018 annual meeting of our shareholders, which we will
refer to herein as our ‘‘2018 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
‘‘Corporate Governance’’ (specifically, its subsections captioned ‘‘Overview,’’ ‘‘Executive officers and
directors’’ and ‘‘Audit committee’’), and ‘‘Section 16(a) Beneficial Ownership Reporting Compliance’’ in
our 2018 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 2018 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 2018 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’’ (specifically, its subsection captioned
‘‘Overview’’) in our 2018 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 2018 annual proxy statement.
52
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.
Item 16—Form 10-K Summary
None
53
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*
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 Employee Stock Purchase Plan.
Amended and Restated 2006 Equity Incentive
Plan, as amended
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
Non-Employee Director Award Pursuant to
Section 6.9 of the 2006 Equity Incentive Plan, as
amended.
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 Nonqualified Stock Option under the
2006 Equity Incentive Plan with Ownership
Guidelines.
Form of Nonqualified Stock Option under the
2006 Equity Incentive Plan with 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
under the 2006 Equity Incentive Plan with
Ownership Guidelines.
X
X
54
S-1/A
8-K
April 3, 1998
May 11, 2005
3.2
99.1
January 31, 2011
8-K
April 21, 2006
S-8
S-1/A
April 3, 1998
DEF 14A April 28, 2017
3.2
4.4
10.2
Annex A
8-K
April 27, 2006
10.2
10-K
February 12, 2009
10.9
10-K
March 2, 2012
10.11
10-K
March 15, 2017
10.9
8-K
April 27, 2006
10.3
10-K
February 12, 2009
10.11
10-K
March 2, 2012
10.14
10-K
10-K
February 8, 2007
10.10
March 2, 2012
10.16
10-K
March 15, 2017
10.12
10-K
10-K
January 29, 2010
10.14
March 2, 2012
10.18
10-K
March 15, 2017
10.15
Filed with
this
Form 10-K
X
Incorporated by Reference
Form
Filing Date
Exhibit No.
X
X
10-K
January 29, 2010
10.15
10-K
March 2, 2012
10.20
10-K
March 15, 2017
10.18
DEF 14A April 28, 2017
Annex B
8-K
December 12, 2016
10.2
8-K
December 12, 2016
10.3
8-K
8-K
February 27, 2014
10.1
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
10-K
March 4, 2016
10.28
10-Q
October 31, 2017
10.3
8-K
May 25, 2016
10.1
8-K
May 25, 2016
10.2
8-K
May 25, 2016
10.3
Exhibit No.
10.18*
10.19*
10.20*
10.21*
10.22*
10.23*
10.24*
10.25*
10.26*
10.27
10.28
10.29
10.30
10.31
10.32
10.33
10.34
10.35
10.36
Description
Form of Restricted Stock Unit Award Agreement
under the 2006 Equity Incentive Plan with
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.
Form of Restricted Stock Unit Award Agreement
for Performance under the 2006 Equity Incentive
Plan with Ownership Guidelines.
Form of Restricted Stock Unit Award Agreement
for Performance under the 2006 Equity Incentive
Plan with Ownership Guidelines.
CRA International, Inc. Cash Incentive Plan, as
amended.
Form of Service Cash Awards Agreement under
the Cash Incentive Plan with Ownership
Guidelines.
Form of Performance Cash Awards Agreement
under the Cash Incentive Plan with Ownership
Guidelines.
Summary of Director Compensation.
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.
Addendum No. 6 to Lease dated July 11, 2016 by
and between CRA International, Inc. and
1201 F Street, L.P.
Agreement for Leases dated May 20, 2016 by and
among Mitsubishi Estate London Limited, CRA
International (UK) Limited and CRA
International, Inc.
Lease relating to Unit 2, Part Ground Floor, 8
Finsbury Circus, London EC2 dated May 20, 2016
by and among Mitsubishi Estate London Limited,
CRA International (UK) Limited and CRA
International, Inc.
Lease relating to Fourth Floor, 8 Finsbury Circus,
London EC2 dated May 20, 2016 by and among
Mitsubishi Estate London Limited, CRA
International (UK) Limited and CRA
International, Inc.
55
Filed with
this
Form 10-K
Incorporated by Reference
Form
Filing Date
Exhibit No.
8-K
May 25, 2016
10.4
8-K
May 25, 2016
10.5
8-K
May 25, 2016
10.6
8-K
November 27, 2017
10.1
8-K
July 21, 2015
10.1
8-K
May 5, 2017
10.1
10-Q
May 11, 2017
10.2
10-Q
October 31, 2017
10.2
S-1/A
April 3, 1998
10.8
8-K
October 26, 2017
10.1
8-K
October 26, 2017
10.2
Exhibit No.
10.37
10.38
10.39
10.40
10.41
10.42
10.43
10.44
10.45
10.46
10.47
Description
Licence to Carry Out Works relating to Unit 2,
Part Ground Floor, 8 Finsbury Circus, London
EC2 dated May 20, 2016 by and among
Mitsubishi Estate London Limited, CRA
International (UK) Limited and CRA
International, Inc.
Licence to Carry Out Works relating to Fourth
Floor, 8 Finsbury Circus, London EC2 dated
May 20, 2016 by and among Mitsubishi Estate
London Limited, CRA International (UK)
Limited and CRA International, Inc.
Side Deed dated May 20, 2016 by and among
Mitsubishi Estate London Limited, CRA
International (UK) Limited and CRA
International, Inc.
Agreement for Lease dated November 21, 2017
by and among Mitsubishi Estate London Limited,
CRA International (UK) Limited and CRA
International, Inc.
Lease dated July 15, 2015 by and between CRA
International, Inc. and 1411 IC-SIC
Property LLC.
First Amendment to Lease dated April 21, 2017
by and between CRA International, Inc. and 1411
IC-SIC Property LLC
Lease dated as of February 14, 2008 by and
between Teachers Insurance and Annuity
Association of America, as landlord, and CRA
International, Inc., as tenant, and the First
Amendment to Lease dated as of May 8, 2017 by
and among John Hancock Life Insurance
Company (U.S.A.), as landlord and
successor-in-interest to Teachers Insurance and
Annuity Association of America, and CRA
International, Inc., as tenant.
Office Lease dated April 2, 2013 by and between
C1 Consulting Limited Liability Company and 221
Main Property Owner LLC, as amended by First
Amendment to Lease dated July 21, 2017 by and
between CRA International, Inc. (as successor to
C1 Consulting Limited Liability Company) and
Columbia REIT—221 Main, LLC (as successor to
221 Main Property Owner LLC)
Form of consulting agreement with outside
experts.
Amended and Restated Credit Agreement, dated
as of October 24, 2017, by and among CRA
International, Inc., CRA International (UK)
Limited, CRA International (Netherlands) B.V.,
and CRA International Limited, as the
Borrowers, Citizens Bank, N.A., as Administrative
Agent, a Lender and an Issuing Bank, Bank of
America, N.A., as a Lender and an Issuing Bank,
and Santander Bank, N.A., as a Lender
Amended and Restated Securities Pledge
Agreement, dated as of October 24, 2017, by and
between CRA International, Inc., as Pledgor, and
Citizens Bank, N.A., as Administrative Agent
56
Filed with
this
Form 10-K
Incorporated by Reference
Form
Filing Date
Exhibit No.
8-K
November 27, 2017
10.2
X
X
X
X
X
X
Exhibit No.
10.48
21.1
23.1
31.1
31.2
32.1
101
Description
Transaction Agreement dated November 20, 2017
by and among IMSWorld Publications Ltd., IMS
Health Technology Solutions Norway AS, IMS
Health GmbH & Co. OHG, IQVIA Inc., CRA
International, Inc., CRA International (UK)
Limited and the Former Employees
Subsidiaries.
Consent of Ernst & Young 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.
The following financial statements from CRA
International, Inc.’s Annual Report on Form 10-K
for the fiscal year ended December 30, 2017,
formatted in XBRL (eXtensible Business
Reporting Language), as follows: (i) Consolidated
Statements of Operations for the fiscal years
ended December 30, 2017, December 31, 2016,
and January 2, 2016, (ii) Consolidated Statements
of Comprehensive Income (Loss) for the fiscal
years ended December 30, 2017, December 31,
2016, and January 2, 2016, (iii) Consolidated
Balance Sheets as at December 30, 2017 and
December 31, 2016, (iv) Consolidated Statements
of Cash Flows for the fiscal years ended
December 30, 2017, December 31, 2016, and
January 2, 2016, (v) Consolidated Statements of
Shareholders’ Equity for the fiscal years ended
December 30, 2017, December 31, 2016, and
January 2, 2016, and (vi) Notes to Consolidated
Financial Statements.
*
Management contract or compensatory plan
57
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 12, 2018
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 12, 2018
/s/ CHAD M. HOLMES
Chad M. Holmes
Chief Financial Officer, Executive Vice
President, and Treasurer (principal
financial officer)
March 12, 2018
/s/ DOUGLAS C. MILLER
Douglas C. Miller
Vice President and Chief Accounting
Officer (principal accounting officer)
March 12, 2018
/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 A. AVERY
Thomas A. Avery
/s/ ROBERT A. WHITMAN
Robert A. Whitman
Chairman of the Board
March 12, 2018
Director
Director
Director
Director
Director
58
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
March 12, 2018
CRA INTERNATIONAL, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
Report of Independent Registered Public Accounting Firm . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-2
Consolidated Statements of Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-3
Consolidated Statements of Comprehensive Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-4
Consolidated Balance Sheets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-5
Consolidated Statements of Cash Flows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-6
Consolidated Statements of Shareholders’ Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-7
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . FS-8
Notes to Consolidated Financial Statements
Report of Independent Registered Public Accounting Firm
To the Shareholders and the Board of Directors of CRA International, Inc.
Opinion on the Financial Statements
We have audited the accompanying consolidated balance sheets of CRA International, Inc. (the
Company) as of December 30, 2017 and December 31, 2016, the related consolidated statements of
operations, comprehensive income, shareholders’ equity and cash flows for each of the three years in
the period ended December 30, 2017, and the related notes (collectively referred to as the ‘‘financial
statements’’). In our opinion, the financial statements present fairly, in all material respects, the
consolidated financial position of the Company at December 30, 2017 and December 31, 2016, and the
consolidated results of its operations and its cash flows for each of the three years in the period ended
December 30, 2017, in conformity with U.S. generally accepted accounting principles.
We also have audited, in accordance with the standards of the Public Company Accounting
Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as
of December 30, 2017, 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 12, 2018 expressed an adverse opinion thereon.
Adoption of ASU No. 2016-09
As discussed in Note 1, Summary of Significant Accounting Policies to the consolidated financial
statements, the Company changed its method of accounting for the tax effects of share-based payments
which are now recorded through the statement of operations in the year ended December 30, 2017 due
to the adoption of ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to
Employee Share-Based Payment Accounting.
Basis for Opinion
These financial statements are the responsibility of the Company’s management. Our responsibility
is to express an opinion on the Company’s financial statements based on our audits. We are a public
accounting firm registered with the PCAOB and are required to be independent with respect to the
Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of
the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require
that we plan and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement, whether due to error or fraud. Our audits included
performing procedures to assess the risks of material misstatement of the financial statements, whether
due to error or fraud, and performing procedures that respond to those risks. Such procedures included
examining, on a test basis, evidence regarding the amounts and disclosures in the financial statements.
Our audits also included evaluating the accounting principles used and significant estimates made by
management, as well as evaluating the overall presentation of the financial statements. We believe that
our audits provide a reasonable basis for our opinion.
/s/ Ernst & Young LLP
We have served as the Company’s auditor since 2014.
Boston, Massachusetts
March 12, 2018
FS-2
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year Ended
Year Ended
Year Ended
December 30,
2017
(52 weeks)
December 31,
2016
(52 weeks)
January 2,
2016
(52 weeks)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Costs of services (exclusive of depreciation and amortization) . . .
Selling, general and administrative expenses . . . . . . . . . . . . . . .
Depreciation and amortization . . . . . . . . . . . . . . . . . . . . . . . . .
GNU goodwill impairment . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GNU gain on extinguishment of debt . . . . . . . . . . . . . . . . . . . .
GNU gain on sale of business assets . . . . . . . . . . . . . . . . . . . . .
Interest expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other expense, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . . . . . . . . . . . . .
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling interest, net of
(in thousands, except per share data)
$324,779
227,380
70,584
7,896
—
$370,075
258,829
86,537
8,945
—
$303,559
207,650
72,439
6,552
4,524
15,764
—
250
(484)
(366)
15,164
(7,463)
7,701
18,919
—
3,836
(469)
(397)
21,889
(7,656)
14,233
tax . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(77)
(1,345)
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
$
$
7,624
$ 12,888
0.91
0.89
8,292
8,497
$
$
1.50
1.49
8,503
8,601
See accompanying notes to the consolidated financial statements.
FS-3
12,394
606
—
(538)
(647)
11,815
(5,490)
6,325
1,332
7,657
0.84
0.83
9,010
9,195
$
$
$
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year Ended
Year Ended
Year Ended
December 30,
2017
(52 weeks)
December 31,
2016
(52 weeks)
January 2,
2016
(52 weeks)
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax . . . . . . . .
Comprehensive income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: comprehensive (income) loss attributable to
$ 7,701
3,922
11,623
(in thousands)
$14,233
$ 6,325
(4,568)
(2,546)
9,665
3,779
noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . .
(77)
(1,345)
1,332
Comprehensive income attributable to CRA International, Inc.
.
$11,546
$ 8,320
$ 5,111
See accompanying notes to the consolidated financial statements.
FS-4
CRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
December 30,
2017
December 31,
2016
(in thousands, except
share data)
Current assets:
ASSETS
Cash and cash equivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accounts receivable, net of allowances of $7,378 at December 30, 2017
$ 54,035
$ 53,530
and $4,253 at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . .
79,803
66,852
Unbilled services, net of allowances of $1,746 at December 30, 2017 and
$1,720 at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Prepaid expenses and other current assets . . . . . . . . . . . . . . . . . . . . . . . .
Forgivable loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
Intangible assets, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forgivable loans, net of current portion . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
33,530
11,373
5,540
184,281
44,643
89,000
9,208
8,713
23,088
2,824
24,937
19,295
5,897
170,511
36,381
74,764
2,685
10,049
28,065
1,187
Total assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$361,757
$323,642
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred revenue and other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred rent . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Current portion of deferred compensation . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-Current liabilities:
Deferred rent and facility-related non-current liabilities . . . . . . . . . . . . . .
Deferred compensation and other non-current liabilities . . . . . . . . . . . . . .
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total non-current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Commitments and contingencies (Note 15)
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; 8,297,172 and
8,333,990 shares issued and outstanding at December 30, 2017 and
December 31, 2016, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated other comprehensive loss . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total CRA International, Inc. shareholders’ equity . . . . . . . . . . . . . . . . . . .
Noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 18,473
94,573
6,896
1,131
908
121,981
11,526
20,656
365
32,547
$ 13,729
75,281
3,021
1,499
570
94,100
15,191
6,346
122
21,659
—
—
47,414
169,390
(9,896)
206,908
321
207,229
54,124
166,914
(13,818)
207,220
663
207,883
Total liabilities and shareholders’ equity . . . . . . . . . . . . . . . . . . . . . . . . . . .
$361,757
$323,642
See accompanying notes to the consolidated financial statements.
FS-5
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 . . . . . . . . . . . . . . . . . . . . . . . . . . .
GNU goodwill impairment
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Impairment of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
GNU gain on sale of business assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred rent
Deferred income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . . . . .
GNU 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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Incentive cash awards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . .
Accounts payable, accrued expenses, and other liabilities
Net cash provided by operating activities
INVESTING ACTIVITIES:
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash consideration paid for acquisitions
. . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Purchase of property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . .
GNU cash proceeds from sale of business assets
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 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax withholding payment reimbursed by shares
. . . . . . . . . . . . . . . . . . . . . . . . .
Excess tax benefits from share-based compensation . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid on dividend equivalent
Cash dividends paid to stockholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repurchase of common stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Distribution to noncontrolling interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net cash used in financing activities
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign exchange rates on cash and cash equivalents . . . . . . . . . . . . . . . . . .
Net increase (decrease) in cash and cash equivalents
. . . . . . . . . . . . . . . . . . . . . . .
Cash and cash equivalents at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . .
Year Ended
Year Ended
Year Ended
December 30,
2017
(52 weeks)
December 31,
2016
(52 weeks)
January 2,
2016
(52 weeks)
(in thousands)
$ 7,701
$ 14,233
$ 6,325
8,859
71
—
530
(250)
3,171
1,651
6,616
—
—
3,065
(14,358)
(7,640)
6,067
5,641
1,319
23,415
45,858
(16,163)
(9,757)
250
—
—
(25,670)
6,420
11,500
(11,500)
—
(3,262)
—
(121)
(4,941)
(19,528)
(419)
(21,851)
2,168
505
53,530
7,875
2
—
—
(3,836)
3,260
8,399
6,867
(393)
—
666
(8,801)
(219)
(6,439)
10,225
—
16,324
48,163
—
(13,023)
1,100
—
—
(11,923)
2,853
7,500
(7,500)
(75)
(1,880)
393
—
(1,166)
(19,315)
—
(19,190)
(1,659)
15,391
38,139
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
Cash and cash equivalents at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 54,035
$ 53,530
$ 38,139
Noncash investing and financing activities:
Issuance of common stock for acquired business . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 3,044
Purchases of property and equipment not yet paid for
. . . . . . . . . . . . . . . . . . . . . .
$ 3,514
Purchases of property and equipment paid by a third party
. . . . . . . . . . . . . . . . . . .
$ 1,640
Asset retirement obligations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$
120
$
$
$
$
44
118
92
844
$
42
$ 1,593
$ 2,785
$
—
Supplemental cash flow information:
Cash paid for taxes
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Cash paid for interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Securities received from a customer for settlement of receivable . . . . . . . . . . . . . . . .
$ 7,424
$ 6,184
$ 9,688
$
$
314
—
$
$
405
—
$
$
240
192
See accompanying notes to the consolidated financial statements.
FS-6
CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
(in thousands, except share data)
.
.
.
.
.
.
.
.
.
.
.
.
.
BALANCE AT JANUARY 3, 2015 .
.
Net income (loss) .
.
.
.
Foreign currency translation adjustment .
.
.
Issuance of common stock .
Exercise of stock options
.
.
.
Share-based compensation expense for
.
.
.
.
.
Restricted shares vesting .
.
Redemption of vested employee restricted
.
.
Tax deficit on stock option exercises,
shares for tax withholding .
employees .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
expirations and restricted share vesting .
.
.
Shares repurchased .
.
Share-based compensation expense for
.
.
.
Equity transactions of noncontrolling interest.
non-employees .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
BALANCE AT JANUARY 2, 2016 .
.
Net income .
.
.
.
.
Foreign currency translation adjustment .
.
.
Issuance of common stock .
Exercise of stock options
.
.
.
Share-based compensation expense for
.
.
.
.
.
Restricted shares vesting .
.
Redemption of vested employee restricted
.
.
Tax deficit on stock option exercises,
shares for tax withholding .
employees .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
expirations and restricted share vesting .
.
.
Shares repurchased .
.
Share-based compensation expense for
.
.
.
.
.
Accrued dividends on unvested shares .
Cash dividends paid to stockholders .
.
.
Equity transactions of noncontrolling interest.
non-employees .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
employees .
BALANCE AT DECEMBER 31, 2016 .
.
Net income .
.
.
.
.
Foreign currency translation adjustment .
.
.
Issuance of common stock .
Exercise of stock options
.
.
.
Share-based compensation expense for
.
.
.
.
.
Restricted shares vesting .
.
Redemption of vested employee restricted
.
shares for tax withholding .
.
Cumulative effect of a change in accounting
.
.
principle related to ASU 2016-09 .
Shares repurchased .
.
Share-based compensation expense for
.
.
.
Distribution to noncontrolling interest .
Accrued dividends on unvested shares .
.
Cash paid on dividend equivalents .
.
Cash dividends paid to stockholders.
non-employees .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
BALANCE AT DECEMBER 30, 2017 .
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
.
Common Stock
Accumulated
Other
Shares
Issued
Amount Earnings
Retained Comprehensive
Income (Loss)
CRA
International, Inc.
Shareholders’
Equity
. 9,228,272 $ 73,171 $147,618
.
7,657
.
.
.
1,359
29,288
42
602
.
.
.
.
.
.
5,755
106,504
(28,900)
(668)
(477,292)
(376)
(12,806)
11
. 8,859,231 $ 65,731 $155,275
.
12,888
.
.
.
1,790
124,931
44
2,853
6,716
201,905
(69,000)
(1,880)
(784,867)
(171)
(19,315)
146
.
.
.
.
.
.
.
.
(83)
(1,166)
. 8,333,990 $ 54,124 $166,914
.
7,624
.
.
.
89,312
293,439
3,044
6,420
6,489
211,320
(76,181)
(3,262)
(554,708)
(19,528)
127
.
.
.
.
.
.
.
.
.
.
48
(134)
(121)
(4,941)
$ (6,704)
(2,546)
$ (9,250)
(4,568)
$(13,818)
3,922
$214,085
7,657
(2,546)
42
602
5,755
(668)
(376)
(12,806)
11
$211,756
12,888
(4,568)
44
2,853
6,716
(1,880)
(171)
(19,315)
146
(83)
(1,166)
$207,220
7,624
3,922
3,044
6,420
6,489
(3,262)
48
(19,528)
127
(134)
(121)
(4,941)
Noncontrolling Shareholders’
Total
Interest
$
619
(1,332)
25
$ (688)
1,345
6
663
77
$
(419)
Equity
$214,704
6,325
(2,546)
42
602
5,755
(668)
(376)
(12,806)
11
25
$211,068
14,233
(4,568)
44
2,853
6,716
(1,880)
(171)
(19,315)
146
(83)
(1,166)
6
$207,883
7,701
3,922
3,044
6,420
6,489
(3,262)
48
(19,528)
127
(419)
(134)
(121)
(4,941)
. 8,297,172 $ 47,414 $169,390
$ (9,896)
206,908
$
321
$207,229
See accompanying notes to the consolidated financial statements.
FS-7
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 one business segment. 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 2017, 2016 and 2015 were 52-week years.
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 GNU123 Liquidating Corporation (‘‘GNU’’, formerly known as NeuCo, Inc). All
significant intercompany transactions and accounts have been eliminated in consolidation.
GNU Interest
CRA’s ownership interest in GNU was 55.89% for all periods presented. GNU’s financial results
have been consolidated with CRA, and the portion of GNU’s results allocable to its other owners is
shown as ‘‘noncontrolling interest.’’
GNU’s reporting schedule is based on calendar month-ends, but its fiscal year end is the last
Saturday of November. CRA’s results could include a few days reporting lag between CRA’s year end
and the most recent financial statements available from GNU. CRA does not believe that the reporting
lag will have a significant impact on CRA’s consolidated income statements or financial condition.
On January 8, 2015, GNU entered into an agreement to settle a note payable of approximately
$1.0 million in exchange for aggregate payments of $0.4 million. GNU recorded a gain on the
extinguishment of this debt in the first quarter of fiscal 2015 of approximately $0.6 million. Under the
settlement order, the scheduled payments were all made as of February 16, 2016.
On April 13, 2016, a buyer acquired substantially all of the business assets and assumed
substantially all of the liabilities of GNU for a purchase price of $1.35 million. Of this amount,
$1.1 million was received at closing, with the remaining $0.25 million payable on or after April 13,
2017, subject to contingencies, as outlined in the asset purchase agreement, which remaining amount
was paid in full on May 3, 2017. GNU recognized a gain on sale of its business assets of $0.25 million
during the second quarter of fiscal 2017, of which $0.14 million is attributed to CRA, and received
$3.8 million during the second quarter of fiscal 2016, of which $2.1 million is attributed to CRA. GNU
was dissolved on December 15, 2017. Subsequent to the dissolution, CRA received a partial distribution
of $0.6 million in accordance with the asset purchase agreement. The final distribution is expected to
be received during fiscal 2018.
GNU’s revenues, which are comprised of software sales and maintenance service revenue, included
in CRA’s consolidated statements of operations for fiscal 2016 and fiscal 2015 totaled approximately
$0.8 million and $3.8 million, respectively. GNU did not have any revenue during fiscal 2017 due to the
cessation of the business in April 2016. GNU’s total net income (loss) included in CRA’s consolidated
statements of operations for fiscal 2017, fiscal 2016, and fiscal 2015 was approximately $0.2 million,
FS-8
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
$3.0 million, and ($3.0) million, respectively. GNU’s net income, net of amounts allocable to its other
owners, included in CRA’s consolidated statements of operations for fiscal 2017, fiscal 2016, and fiscal
2015 was approximately $0.1 million, $1.7 million, and $1.3 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 fiscal 2015 it was determined that GNU’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 in that quarter.
Estimates
The preparation of financial statements in conformity with accounting principles generally accepted
in the United State of America (‘‘U.S. GAAP’’) requires management to make significant estimates and
judgments that affect the reported amounts of assets and liabilities, as well as the related 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, allowances for accounts receivable and unbilled
services, revenue recognition on fixed price contracts, depreciation of property and equipment, share-
based compensation, valuation of acquired intangible assets, impairment of long-lived assets, 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.
Within the reconciliation of CRA’s tax rates with the federal statutory rate in note 13 on this
Form 10-K, Change in Valuation Allowance was reclassed to Losses benefited/Change in valuation
allowance and Prior Period Adjustments. In addition, GNU goodwill impairment, GNU capital gain
upon distribution, and GNU tax provision (benefit) were reclassed to Other.
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.
The following discussion of CRA’s revenue recognition accounting policies is based on the
accounting principles that were used to prepare the fiscal year 2017 consolidated financial statements
included in this Annual Report on Form 10-K. On December 31, 2017, CRA adopted ASC Topic 606,
Revenue from Contracts with Customers (‘‘ASC 606’’). This standard replaces existing revenue
recognition rules with a comprehensive revenue measurement and recognition standard and expanded
disclosure requirements. Refer to Note 2, ‘‘Significant Accounting Policies,’’ of CRA’s audited
consolidated financial statements included elsewhere in this Annual Report on Form 10-K for
discussion of recently issued accounting standards.
FS-9
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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 expenses for travel and other
out-of-pocket expenses, outside consultants, and other reimbursable expenses. CRA recovers
substantially all of its out-of-pocket expenses, outside consultants, and other related expenses in
performance of its services. The following expenses are subject to reimbursement (in thousands):
Year Ended
Year Ended
Year Ended
December 30,
2017
(52 weeks)
December 31,
2016
(52 weeks)
January 2,
2016
(52 weeks)
Reimbursable expenses . . . . . . . . . . . . . . . . . . . . . . . .
$41,465
$34,482
$33,548
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. In general, project costs are classified as 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 CRA by non-employee experts.
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.
FS-10
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 money market funds with maturities of three months or less
when purchased. As of December 30, 2017, a substantial portion of CRA’s cash accounts was
concentrated at a single financial institution, which potentially exposes CRA to credit risks. The
financial institution has a short-term credit rating of A-2 by Standard & Poor’s ratings services. CRA
has not experienced any losses related to such accounts. CRA does not believe that there is significant
risk of non-performance by the financial institution, and its cash on deposit is fully liquid. CRA
continually monitors the credit ratings of the institution.
Fair Value of Financial Instruments
Accounting Standards Codification (‘‘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 December 30, 2017 and December 31,
2016 that are measured and recorded in the consolidated financial statements at fair value on a
recurring basis (in thousands):
December 30, 2017
Quoted Prices in
Active Markets
for Identical
Assets or Liabilities
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Level 1
Level 2
Level 3
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Contingent consideration liability . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,006
$5,006
$ —
$ —
$—
$—
$—
$—
$ —
$ —
$5,137
$5,137
FS-11
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
December 31, 2016
Quoted Prices in
Active Markets
for Identical
Assets or Liabilities
Significant
Other
Observable
Inputs
Significant
Unobservable
Inputs
Level 1
Level 2
Level 3
Assets:
Money market funds . . . . . . . . . . . . . . . . . . . . . .
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Liabilities:
Contingent consideration liability . . . . . . . . . . . . .
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . .
$10,024
$10,024
$ —
$ —
$—
$—
$—
$—
$ —
$ —
$549
$549
The fair values of CRA’s money market funds are based on quotes received from third-party banks.
The contingent consideration liabilities in the table above are for estimated future contingent
consideration payments related to prior acquisitions. The fair value measurement of these liabilities is
based on significant inputs not observed in the market and thus represent a Level 3 measurement. The
significant unobservable inputs used in the fair value measurements of these contingent consideration
liabilities are CRA’s measures of the estimated payouts based on internally generated financial
projections and discount rates. The fair value of the contingent consideration was determined using a
monte carlo simulation. The fair value of these contingent consideration liabilities are reassessed on a
quarterly basis by CRA using additional information as it becomes available, and any change in the fair
value estimates are recorded in the earnings of that period.
The following table summarizes the changes in the contingent consideration liabilities over the
fiscal year ended December 30, 2017 and the fiscal year ended December 31, 2016 (in thousands):
December 30,
2017
December 31,
2016
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Acquisitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Remeasurement of acquisition-related contingent consideration . . .
Accretion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Payments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of foreign currency translation . . . . . . . . . . . . . . . . . . . . . .
$ 549
2,357
1,155
1,328
(299)
47
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$5,137
$ 773
—
71
—
(292)
(3)
$ 549
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 fiscal 2017 goodwill impairment analysis, it operates under one reporting
FS-12
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
unit, which is its consulting services. Prior to April 13, 2016, CRA operated under two reporting units,
which were its consulting services and GNU.
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, prior to fiscal 2016, the estimated
fair value of GNU. 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 data from publicly available premium studies for the trailing four quarters for public company
transactions in its industry group. 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.
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 GNU’s impairment charge in the fourth quarter of fiscal 2015, was computed as the
difference between its 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 CRA’s 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 are comprised of non-competition agreements and customer relationship
intangibles, which are separable from goodwill and have determinable useful lives, are valued separately
and amortized over their estimated useful lives, based on the pattern in which the economic benefit of
the asset is expected to be consumed, if reliably determinable. Non-competition agreements are
amortized on a straight-line basis over their useful lives of five years. Customer relationship intangible
assets are amortized on a straight line basis over ten years which approximates the pattern of economic
benefit.
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.
FS-13
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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 or any dispute regarding CRA’s
services provided were to arise, resulting in an impairment of their ability or intent to make payment,
additional allowances may be required.
A rollforward of the accounts receivable allowances is as follows (in thousands):
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases to reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 4,253
6,774
(3,660)
11
$ 3,648
2,761
(2,156)
—
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 7,378
$ 4,253
Fiscal
Year
2017
Fiscal
Year
2016
FS-14
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
A rollforward of the unbilled receivables allowances is as follows (in thousands):
Fiscal
Year
2017
Fiscal
Year
2016
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Increases to reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amounts written off . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of foreign currency translation . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,720
2,255
(2,235)
6
$ 2,354
2,102
(2,736)
—
Balance at end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,746
$ 1,720
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. CRA’s
participating securities consist of unvested share-based payment awards that contain a nonforfeitable
right to receive dividends.
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 restricted stock units and awards
and recognizes the cost over the requisite service period on a straight line basis. Performance-vesting
restricted stock units are expensed using the graded acceleration method.
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.
FS-15
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
Deferred Compensation
CRA accounts for performance and service based cash awards using a prospective accrual method.
Under the requirements of ASC Topic 710, ‘‘Compensation General’’ (‘‘ASC Topic 710’’) to the extent
the terms of the contract attribute all or a portion of the expected future benefits to a period of service
greater than one year, the cost of those benefits are accrued over the period of the employee or
non-employee’s service in a systematic and rational manner. CRA has implemented a process that
requires the liability to be re-evaluated on a quarterly basis.
The required service period typically ranges from three to six years starting at the beginning of the
awards measurement period. A recipient of such an award is expected to be affiliated with CRA for the
entire measurement period. If a recipient terminates affiliation with CRA during the measurement
period, the amount paid will be determined in accordance with the recipient’s specific contract
provisions.
Business Combinations
CRA recognizes and measures identifiable assets acquired, and liabilities assumed, of its acquirees
as of the acquisition date at fair value. Fair value measurements require extensive use of estimates and
assumptions, including estimates of future cash flows to be generated by the acquired assets. CRA
recognizes and measures contingent consideration at fair value as of the acquisition date using a monte
carlo simulation. Contingent consideration obligations that are classified as liabilities are remeasured at
fair value each reporting period with the changes in fair value resulting from either the passage of time,
revised expectations of performance, or ultimate settlement to the amount or timing of the initial
measurement recognized in the consolidated statements of comprehensive income.
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
FS-16
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
rates, with adjustments recorded in the statement of operations. The effect of transaction gains and
losses recorded in income before provision for income taxes amounted to losses of $0.4 million,
$0.4 million and $0.6 million for fiscal 2017, fiscal 2016, and fiscal 2015, respectively.
Recent Accounting Standards
Revenue from Contracts with Customers
In August 2015, the Financial Accounting Standards Board (the ‘‘FASB’’) issued Accounting
Standards Update (‘‘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. 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. Companies may use either a full
retrospective or a modified retrospective approach to adopt ASU 2014-09. The standard will have an
impact on the amount and timing of revenue recognized and the related disclosures on CRA’s financial
statements. CRA will adopt ASU 2014-09 effective December 31, 2017, using the modified retrospective
approach. Upon adoption, CRA will recognize the cumulative effect of adopting this guidance as an
adjustment to its opening balance of retained earnings. Prior periods will not be retrospectively
adjusted. The cumulative effect adjustment will result in an increase to CRA’s opening balance of
retained earnings of between approximately $0.3 million to $0.7 million, net of tax.
All revenue derived from contracts with CRA’s customers are generated from its
time-and-materials or fixed-price contracts. For its time-and-materials projects, CRA will use the
right-to-invoice practical expedient when it has a right to consideration from a customer in an amount
that corresponds directly with the value of the entity’s performance completed to date. For its fixed-
price arrangements, CRA will recognize revenue as individual performance obligations are satisfied,
using a measure of progress that is based on the efforts and costs incurred (i.e. an input method
measure of progress). These methods for determining the appropriate revenue recognition under
ASU 2014-09 is consistent with CRA’s current revenue recognition policy.
Leases (Topic 842)
In February 2016, the FASB issued ASU No. 2016-02, Leases (Topic 842) (‘‘ASU 2016-02’’).
ASU 2016-02 establishes a comprehensive new lease accounting model. The 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 standard
is effective for interim and annual periods beginning after December 15, 2018. Early adoption is
permitted. The 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.
Improvements to Employee Share-Based Payment Accounting
In March 2016, the FASB issued ASU No. 2016-09, Compensation—Stock Compensation
(Topic 718): Improvements to Employee Share-Based Payment Accounting (‘‘ASU 2016-09’’).
ASU 2016-09 requires all of the tax effects related to share-based payments to be recorded through the
income statement. The pronouncement also allows for the option of estimating awards expected to vest
FS-17
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
or accounting for forfeitures when they occur. In the statement of cash flows, cash paid by employers
when withholding shares for tax withholding purposes should be classified as a financing activity
whereas cash flows resulting from excess tax benefits should be reported in operating activities. The
amendments in this update are effective for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. Accordingly, CRA adopted ASU No. 2016-09 on
January 1, 2017, resulting in the recognition of a tax benefit of $0.05 million to retained earnings as of
that date. CRA had traditionally classified employee taxes paid through employer share withholdings as
financing activities, therefore no further adjustment was necessary. CRA has classified the excess tax
benefits from share-based compensation as operating activities on a prospective basis beginning in the
quarter ended April 1, 2017. Additionally, CRA did not make any changes to its accounting for
forfeitures and continues to estimate forfeitures based on historical experience
Statement of Cash Flows (Topic 230): Restricted Cash
In November 2016, the FASB issued ASU No. 2016-18, Statement of Cash Flows (Topic 230):
Restricted Cash (‘‘ASU 2016-18’’). ASU 2016-18 amends ASC 230 to add or clarify guidance on the
classification and presentation of restricted cash in the statement of cash flows. The standard requires
cash and cash equivalents balances on the statement of cash flows to include restricted cash and cash
equivalent balances. ASU 2016-18 requires the registrant to provide appropriate disclosures about its
accounting policies pertaining to restricted cash in accordance with GAAP. Additionally, changes in
restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents,
and restricted cash and restricted cash equivalents should not be presented as cash flow activities in the
statement of cash flows. A registrant with a material balance of amounts generally described as
restricted cash and restricted cash equivalents must disclose information about the nature of the
restrictions. The standard is effective for interim and annual periods beginning after December 15,
2017. CRA believes that the adoption of ASU 2016-18 will not have a material impact on its financial
position, results of operations, cash flows, or disclosures.
Business Combinations (Topic 805): Clarifying the Definition of a Business
On January 5, 2017, the FASB issued ASU No. 2017-01, Business Combinations (Topic 805):
Clarifying the Definition of a Business (‘‘ASU 2017-01’’). ASU 2017-01 clarifies the definition of a
business with the objective of adding guidance to assist companies and other reporting organizations
with evaluating whether transactions should be accounted for as acquisitions (or disposals) of assets or
businesses. Under the amendments, a business is an integrated set of activities and assets that is
capable of being conducted and managed for the purpose of providing a return in the form of
dividends, lower costs, or other economic benefits directly to investors or other owners, members, or
participants. For public companies, ASU 2017-01 is effective for annual periods beginning after
December 15, 2017, including interim periods within those periods. Early application of the
amendments in ASU 2017-01 is allowed for transactions for which the acquisition date occurs before
the issuance date or effective date of the amendments, only when the transaction has not been
reported in financial statements that have been issued or made available for issuance; and for
transactions in which a subsidiary is deconsolidated or a group of assets is derecognized that occur
before the issuance date or effective date of the amendments, only when the transaction has not been
reported in financial statements that have been issued or made available for issuance. CRA believes
that the adoption of ASU 2017-01 will not have a material impact on its financial position, results of
operations, cash flows, or disclosures.
Intangibles—Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment
On January 26, 2017, the FASB issued a ASU No. 2017-04, Intangibles—Goodwill and Other
(Topic 350): Simplifying the Test for Goodwill Impairment (‘‘ASU 2017-04’’). ASU 2017-04 simplifies the
FS-18
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
subsequent measurement of goodwill, and eliminates Step 2 from the goodwill impairment test. Under
the amendments, an entity should perform its annual, or interim, goodwill impairment test by
comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an
impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value;
however, the loss recognized should not exceed the total amount of goodwill allocated to that reporting
unit. Additionally, an entity should consider income tax effects from any tax deductible goodwill on the
carrying amount of the reporting unit when measuring the goodwill impairment loss, if applicable. The
amendment also eliminated the requirements for any reporting unit with a zero or negative carrying
amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the
goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An
entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or
negative carrying amount of net assets. For public companies, ASU 2017-04 is effective for annual or
interim goodwill impairment tests in fiscal years beginning after December 15, 2019. Early adoption is
permitted for interim or annual goodwill impairment tests performed on testing dates after January 1,
2017. CRA has not yet determined the effects, if any, that the adoption of ASU 2017-04 may have on
its financial position, results of operations, cash flows, or disclosures.
Compensation—Stock Compensation (Topic 718): Scope of Modification Accounting
On May 10, 2017, the FASB issued ASU No. 2017-09, Compensation—Stock Compensation
(Topic 718): Scope of Modification Accounting (‘‘ASU 2017-09’’). ASU 2017-09 updates guidance about
which changes to the terms or conditions of a share-based payment award require an entity to apply
modification accounting in Topic 718. Under the amendments, an entity should account for the effects
of a modification unless all the following conditions are met. First, the fair value (or calculated value or
intrinsic value, if such an alternative measurement method is used) of the modified award is the same
as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is
used) of the original award immediately before the original award is modified. If the modification does
not affect any of the inputs to the valuation technique that the entity uses to value the award, the
entity is not required to estimate the value immediately before and after the modification. Second, the
vesting conditions of the modified award are the same as the vesting conditions of the original award
immediately before the original award is modified. Third, the classification of the modified award as an
equity instrument or a liability instrument is the same as the classification of the original award
immediately before the original award is modified. The standard is effective for annual and interim
periods beginning after December 15, 2017. Early adoption is permitted, including adoption in any
interim period, for public entities for reporting periods for which financial statements have not yet been
issued. CRA will adopt ASU 2017-09 during the first quarter of 2018. CRA has not completed its
assessment of this standard and has not yet determined whether the impact of the adoption of this
standard on its financial position, results of operations, cash flows, or disclosures will be material.
Staff Accounting Bulletin No. 118 (SAB 118)
On December 22, 2017, the SEC staff issued Staff Accounting Bulletin No. 118, ‘‘Income Tax
Accounting Implications of the Tax Cuts and Jobs Act’’ (‘‘SAB 118’’), to address the application of
US GAAP in situations when a registrant does not have the necessary information available, prepared,
or analyzed (including computations) in reasonable detail to complete the accounting for certain
income tax effects of the Tax Cuts and Jobs Act (the ‘‘Tax Act’’). SAB 118 summarizes a three-step
process to be applied at each reporting period to account for and disclose: (1) the effects of the change
in tax law for which accounting is complete; (2) provisional amounts (or adjustments to provisional
amounts) for the effects of the change in tax law where accounting is not complete, but a reasonable
estimate has been determined; and (3) current or deferred tax amounts reflected in accordance with
law prior to the enactment of the change in tax law because the accounting of the effects of the change
FS-19
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
in tax law are not complete and a reasonable estimate has not been determined, together with
qualitative disclosure of the effects of the changes in tax law for which the accounting is not compete,
the reason why the accounting is not complete, and the additional information that is needed to be
obtained, prepared or analyzed in order to complete the accounting. Since the Tax Act was passed late
in the fourth quarter of 2017, and ongoing guidance and accounting interpretation are expected over
the next 12 months, CRA considers the accounting of deferred tax remeasurements and other items to
be incomplete due to the forthcoming guidance and its ongoing analysis of final year-end data and tax
positions. Adjustments to these preliminary amounts identified during the measurement period, as
defined, will be included as an adjustment to tax expense from continuing operations in the period the
amounts are determined. CRA believes it has made a good faith effort to complete the accounting
under ASC 740 with respects to Tax Act. SAB 118 provides that the measurement period is complete
when a company’s accounting is complete and in no circumstances should the measurement period
extend beyond one year from the enactment date of the applicable change in tax law.
2.
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 rates currently 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 2017 and 2016, 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 years 2017 and 2016, no allowances or write offs of these loans were recorded.
Forgivable loan activity for fiscal years 2017 and 2016 is as follows (in thousands):
December 30,
2017
December 31,
2016
Beginning balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued Advances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Repayments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Reclassification to other assets . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Effects of foreign currency translation . . . . . . . . . . . . . . . . . . . . . .
$ 33,962
11,672
—
(2,135)
(1,100)
(14,155)
384
$ 44,685
6,949
316
(709)
—
(16,575)
(704)
Ending balance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 28,628
$ 33,962
Current portion of forgivable loans . . . . . . . . . . . . . . . . . . . . . . . .
$ 5,540
$ 5,897
Non-current portion of forgivable loans . . . . . . . . . . . . . . . . . . . . .
$ 23,088
$ 28,065
FS-20
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
At December 30, 2017 and December 31, 2016, CRA had other loans to current and former
employees, included in other assets on the consolidated balance sheet, amounting to $0.3 million and
$0.2 million, respectively, net of allowances.
3. Business Acquisitions
On January 31, 2017, CRA acquired substantially all of the assets and assumed certain liabilities of
C1 Consulting LLC, an independent consulting firm, and its wholly-owned subsidiary C1 Associates
(collectively, ‘‘C1’’) for initial consideration comprised of cash and CRA restricted common stock. The
asset purchase agreement provided for additional purchase consideration to be paid for up to four
years following the transaction in the form of an earnout, if specific performance targets are met.
These earnout payments are payable in cash and CRA restricted common stock. The fair value of this
obligation was measured as of the acquisition date and accounted for as a component of the purchase
consideration, any adjustments to this initial valuation in future accounting periods will be reported as
an adjustment to net income.
C1 provides management consulting services in the life sciences industry, and has built a reputation
for its specialty consulting services. Acquiring C1 will assist CRA in expanding its geographical presence
in the western part of the United States and Europe, servicing CRA’s existing life sciences customers
more efficiently, and providing opportunities to engage with new clients in both the United States and
European markets.
The acquisition has been accounted for under the purchase method of accounting, and C1’s results
of operations have been included in the accompanying consolidated statement of operations from the
date of acquisition. The following is the final allocation of the purchase price to the estimated fair
value of assets acquired and liabilities assumed.
The following table shows CRA’s acquired assets and liabilities assumed from the purchase of C1
Consulting (in thousands):
Assets Acquired:
Accounts receivable and unbilled receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other non-current assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Intangible assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Goodwill
$ 2,306
10
2,316
206
106
8,500
12,994
Total assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$24,122
Liabilities Assumed:
Deferred revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total current liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Contingent consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total liabilities assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 1,950
652
2,602
2,357
4,959
Net assets acquired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$19,163
The intangible assets acquired are comprised of non-competition agreements and the value of
customer relationships, the fair value of which was determined using the incremental income method
FS-21
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
and multi-period excess earnings method, respectively. The non-compete agreements are being
amortized over the stated term of five years on a straight-line basis. The customer relationships
intangible is being amortized over a ten year life on a straight-line basis, which approximates the
expected pattern of economic benefit from this asset. The fair value of the contingent consideration
was determined using a monte carlo simulation. CRA is unable to provide a range of possible outcomes
for the expected future payment of the contingent consideration due to its limited post acquisition
experience with C1 and the uncertainty of achieving revenue targets over the remaining measurement
period of this obligation. 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 will be recorded in the earnings of that period.
Transaction related costs, which are principally legal and accounting service fees, amount to
$0.9 million for the year ended December 30, 2017 and are included in selling, general and
administrative expenses on the consolidated statement of operations.
4. Goodwill and Intangible Assets
The changes in the carrying amount of goodwill for fiscal 2017 and fiscal 2016 are as follows (in
thousands):
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
Goodwill adjustment related to acquisition . . . . . . . . . . . . .
Effect of foreign currency translation . . . . . . . . . . . . . . . . .
Goodwill,
gross
$151,181
12,994
1,242
Accumulated
impairment
losses
$(76,417)
—
—
Goodwill,
net
$74,764
12,994
1,242
Balance at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . .
$165,417
$(76,417)
$89,000
Goodwill,
gross
Accumulated
impairment
losses
Goodwill,
net
Balance at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Effect of foreign currency translation . . . . . . . . . . . . . . . . .
$153,387
(2,206)
$(76,417)
—
$76,970
(2,206)
Balance at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . .
$151,181
$(76,417)
$74,764
GNU incurred an impairment loss of $4.5 million during the fourth quarter of fiscal 2015. GNU
did not incur an impairment loss in fiscal 2017 or fiscal 2016. CRA did not incur an impairment loss
during fiscal 2017, fiscal 2016 or fiscal 2015 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 of these fiscal years.
Intangible assets that are separable from goodwill and have determinable useful lives are valued
separately and amortized over their expected useful lives. There were impairment losses of $0.5 million
related to intangible assets during fiscal 2017. There were no impairment losses related to intangible
assets during fiscal 2016 or fiscal 2015.
FS-22
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The components of acquired identifiable intangible assets are as follows (in thousands):
December 30,
2017
December 31,
2016
Non-competition agreements, net of accumulated amortization of
$464 and $3,821, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 260
$
80
Customer relationships, net of accumulated amortization of $3,172
and $5,181, respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,948
2,605
Total, net of accumulated amortization of $3,636 and $9,002,
respectively . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$9,208
$2,685
Amortization of intangible assets was $1.5 million, $0.9 million, and $1.0 million in fiscal 2017,
fiscal 2016, and fiscal 2015, respectively. Amortization of intangible assets held at December 30, 2017
for the next five fiscal years and thereafter is expected to be as follows (in thousands):
Fiscal Year
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Amortization
Expense
$1,383
1,365
1,388
921
823
3,328
$9,208
5.
Property and Equipment
Property and equipment consist of the following (in thousands):
Computer, office equipment and software . . . . . . . . . . . . . . . . . . .
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Furniture . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total cost
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . .
December 30,
2017
December 31,
2016
$ 25,447
37,907
8,991
72,345
(27,702)
$ 21,779
29,425
8,679
59,883
(23,502)
$ 44,643
$ 36,381
Depreciation expense, including amounts recorded in costs of services, was $7.4 million,
$7.0 million, and $5.5 million in fiscal 2017, fiscal 2016, and fiscal 2015, respectively.
FS-23
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
6. Accrued Expenses
Accrued expenses consist of the following (in thousands):
Compensation and related expenses . . . . . . . . . . . . . . . . . . . . . . .
Income taxes payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
December 30,
2017
December 31,
2016
$80,105
153
14,315
$94,573
$67,582
534
7,165
$75,281
As of December 30, 2017 and December 31, 2016, $63.8 million and $53.9 million, respectively, of
accrued bonuses for fiscal 2017 and fiscal 2016 were included above in ‘‘Compensation and related
expenses’’. Additionally, as of December 30, 2017, ‘‘Other’’ accrued expenses includes $6.1 million of
commissions due to senior consultants, $1.3 million of direct project accruals, $4.4 million of operating
expense accruals and $2.5 million of accrued leasehold improvements. As of December 31, 2016,
‘‘Other’’ accrued expenses consisted principally of direct project accruals of $0.8 million, $0.8 million of
forgivable loan accruals and $5.6 million of operating expense accruals.
7. Credit Agreement
CRA is party to an amended and restated credit agreement that provides CRA with a
$125.0 million revolving credit facility and a $15.0 million sublimit for the issuance of letters of credit.
CRA may use the proceeds of the revolving credit facility to provide working capital and for other
general corporate purposes. CRA may repay any borrowings under the revolving credit facility at any
time, but must repay all borrowings no later than October 24, 2022. There were no borrowings
outstanding under this revolving credit facility as of December 30, 2017 or December 31, 2016.
As of December 30, 2017, the amount available under this revolving credit facility was reduced by
certain letters of credit outstanding, which amounted to $3.6 million. Borrowings under the revolving
credit facility bear interest at a rate per annum, at CRA’s election, of either (i) the adjusted base rate,
as defined in the credit agreement, plus an applicable margin, which varies between 0.25% and 1.25%
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
1.25% and 2.25% 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 0.20% and 0.35%
depending on its total leverage ratio. Borrowings under the revolving 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 $27.3 million and $22.6 million in net assets as of
December 30, 2017 and December 31, 2016, respectively.
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 revolving 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 December 30, 2017, CRA was in compliance with the covenants of its credit
agreement.
FS-24
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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. 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
$3.1 million, $2.7 million, and $2.2 million for fiscal 2017, fiscal 2016, and fiscal 2015, respectively.
9. Net Income 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 2017, fiscal 2016 or fiscal 2015.
The following table presents a reconciliation from net income to the net income available to
common shareholders (in thousands):
Net income attributable to CRA as reported . . . . . . . . . . .
Less: net income attributable to participating shares . . . . . .
Net income attributable to CRA common shareholders . . . .
Fiscal Year
2017
Fiscal Year
2016
Fiscal Year
2015
$7,624
51
$7,573
$12,888
95
$12,793
$7,657
59
$7,598
For fiscal 2017, fiscal 2016 and fiscal 2015, 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, restricted stock shares and restricted stock
Fiscal Year
2017
Fiscal Year
2016
Fiscal Year
2015
8,292
8,503
9,010
units . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
205
Diluted weighted average shares outstanding . . . . . . . . . . .
8,497
98
8,601
185
9,195
For fiscal 2017, fiscal 2016 and fiscal 2015, the following table presents net income per share
attributable to CRA:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$0.91
$0.89
$1.50
$1.49
$0.84
$0.83
Fiscal Year
2017
Fiscal Year
2016
Fiscal Year
2015
FS-25
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
For fiscal 2017, fiscal 2016 and fiscal 2015, 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 75,004, 581,546, and 522,593 shares, respectively. These share-based
awards were anti-dilutive because their exercise price exceeded the average market price over the
respective period.
10. Common Stock
Restricted Share Vesting.
In fiscal 2017, fiscal 2016, and fiscal 2015, 211,320, 201,905, and 106,504
shares of restricted stock and restricted stock units vested, respectively. CRA redeemed 76,181, 69,000,
and 28,900 of these shares from their holders in order to pay $3.3 million, $1.9 million, and
$0.7 million, respectively, of employee tax withholdings.
Common Stock Repurchases and Retirements. On March 21, 2016 and May 3, 2017, CRA
announced that its board of directors approved share repurchase programs of up to $20.0 million and
$20.0 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 2017, CRA repurchased and retired 554,708 shares under these share repurchase
programs at an aggregate price of approximately $19.5 million, resulting in approximately $9.5 million
available for future repurchases as of December 30, 2017. During fiscal 2016, CRA repurchased and
retired 783,703 shares under these share repurchase programs at an aggregate price of approximately
$19.1 million, resulting in approximately $9.0 million available for future repurchases as of
December 31, 2016. 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.
Tender Offer. During fiscal 2016, a total of 1,164 shares of common stock were tendered in
conjunction with a modified ‘‘Dutch Auction’’ self tender offer at a purchase price of $19.75 per share.
Exercise of Stock Options. During fiscal 2017, 293,439 options were exercised for $6.4 million of
proceeds. During fiscal 2016, 124,931 options were exercised for $2.9 million of proceeds. During fiscal
2015, 29,288 options were exercised for $0.6 million of proceeds.
Tax Benefits and Deficits on Stock Option Exercises and Restricted Share Vesting. During fiscal 2017,
CRA recorded a net tax benefit on stock option exercises and the vesting of shares of restricted stock
and restricted stock units through the income statement totaling $2.2 million. During fiscal 2016 and
2015, CRA recorded a net tax deficit on stock option exercises, expirations and the vesting of shares of
restricted stock and restricted stock units, as a decrease to common stock totaling $0.2 million and
$0.4 million, respectively.
11. Share-Based Compensation
CRA recorded approximately $6.5 million, $6.7 million, and $5.8 million of compensation expense
for fiscal 2017, fiscal 2016, and fiscal 2015, respectively, 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.
FS-26
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
In addition, CRA recorded $127,000, $146,000, and $11,000 of share-based compensation expense
during fiscal 2017, fiscal 2016, and fiscal 2015, respectively, for share-based awards consisting of stock
options and shares of restricted stock issued to non-employees (other than directors).
Share-based Compensation Plans. As of December 30, 2017, CRA’s active equity-based
compensation plans consist of its Amended and Restated 2006 Equity Incentive Plan, as amended (the
‘‘2006 Equity Plan’’), and its 1998 Employee Stock Purchase Plan (the ‘‘1998 ESPP’’), a tax-qualified
plan under Section 423 of the Internal Revenue Code. During fiscal 2009, CRA also implemented a
long-term incentive program, or ‘‘LTIP,’’ as a framework for grants made under the 2006 Equity Plan to
its senior corporate leaders, practice leaders and key revenue generators. Under the LTIP, participants
have received a mixture of stock options, time-vesting restricted stock units, and performance-vesting
restricted stock units in each fiscal year since 2009, except 2012. In December 2016, CRA’s board of
directors amended CRA’s Cash Incentive Plan to facilitate the grant to LTIP participants of service-
based and performance-based cash awards as a component of the LTIP. The LTIP is designed to reward
CRA’s senior corporate leaders, practice leaders and key revenue generators and provide them with the
opportunity to share in the long-term growth of CRA.
2006 Equity Plan: Maximum and Available Shares. The 2006 Equity Plan authorizes the grant of a
variety of incentive and performance awards to CRA’s directors, employees and independent
contractors, including stock options, shares of restricted stock, restricted stock units, and other equity
awards. The 2006 Equity Plan has used standard ‘‘fungibility ratios’’ to count grants of full-share awards
(such as shares of restricted stock and restricted stock units) against the maximum number shares
issuable under the plan. The current fungibility ratio, applicable to grants made on or after April 30,
2010, is 1.83. The fungibility ratio does not apply to grants of stock options. The maximum number of
shares issuable under the 2006 Equity Plan is 5,274,000, consisting of (1) 500,000 shares initially
reserved for issuance under the 2006 Equity Plan, (2) 1,000,000 shares that either remained for future
awards under CRA’s 1998 Incentive and Nonqualified Stock Option Plan (the ‘‘1998 Option Plan’’) on
April 21, 2006, the date CRA’s shareholders initially approved the 2006 Equity Plan, or were subject to
stock options issued under the 1998 Option 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, (5) 2,500,000 shares approved by CRA’s shareholders in 2012 reduced by the
800,000 shares cancelled by CRA’s board of directors on April 22, 2016, and (6) the 400,000 shares
approved by CRA’s shareholders on July 12, 2017. The shares available for grant under the 2006 Equity
Plan as of December 30, 2017 was 434,374.
1998 Option Plan. With the adoption of the 2006 Equity Incentive Plan in 2006, CRA stopped
granting awards under the 1998 Option Plan, and, as of December 30, 2017, there were no awards
outstanding under the 1998 Option Plan.
Stock Options. A summary of option activity during fiscal 2017 from the 2006 Equity Plan is as
follows. The awards granted under the 1998 Option Plan all expired prior to December 30, 2017 and,
FS-27
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
as noted above, no awards were granted under the 1998 Option Plan during fiscal 2017. Accordingly, all
of the stock options outstanding as of December 30, 2017 were granted under the 2006 Equity Plan.
Weighted Weighted Average
Average
Exercise
Price
Remaining
Contractual
Term
Options
Aggregate
Intrinsic
Value
(in thousands)
Outstanding at December 31, 2016 . . . . . . . . . . . .
Fiscal 2017:
945,083
$22.95
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Exercised . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expired . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
22,757
(293,439)
—
(8,684)
Outstanding at December 30, 2017 . . . . . . . . . . . .
665,717
44.87
21.88
—
24.58
24.14
Options exercisable at December 30, 2017 . . . . . .
456,639
$22.78
Vested or expected to vest at December 30, 2017 .
663,088
$24.13
$ 5,372
$13,851
$10,123
$13,802
4.00
3.39
4.00
The weighted average fair market value using the Black-Scholes option-pricing model of the stock
options granted under the 2006 Equity Incentive Plan in fiscal 2017, fiscal 2016 and fiscal 2015 was
$11.54, $9.93 and $7.37, 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:
2017
2016
2015
Risk-free interest rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected volatility . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Expected dividend yield . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeiture rate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Weighted average expected life (in years) . . . . . . . . . . . . . . . . . . . . . . . .
2.1% 1.3% 1.4%
32% 36% 39%
1.5% 1.5% —
0.4% 0.5% 1.1%
4.49
4.58
4.50
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 determined based on CRA’s annualized
dividend rate per share, as a percentage of average market price of the common stock, on each
dividend payment date. The forfeiture rate used was based upon historical experience. CRA believes its
historical experience is an appropriate indicator of future forfeitures.
The aggregate intrinsic value of stock options exercised in fiscal 2017, fiscal 2016, and fiscal 2015
was approximately $5.4 million, $0.7 million, and $0.1 million, respectively. The following table
summarizes stock options outstanding and stock options exercisable as of December 30, 2017:
Range of Exercise
Prices
$16.12 - 21.48 . . .
$21.49 - 26.86 . . .
$26.87 - 32.23 . . .
$42.98 - 48.35 . . .
Total . . . . . . . . .
Options Outstanding
Options Exercisable
Number
Outstanding at
December 30,
2017
Weighted-Average
Remaining
Contractual
Life (years)
Weighted-Average
Exercise
Price
Number
Exercisable
at December 30,
2017
Weighted-Average Weighted-
Average
Exercise
Price
Remaining
Contractual
Life (years)
181,630
276,737
184,593
22,757
665,717
2.89
4.07
4.25
9.97
4.00
$18.48
21.60
30.98
44.87
$24.14
FS-28
181,630
158,035
116,974
—
456,639
2.89
3.48
4.04
—
3.39
$18.48
21.66
30.98
—
$22.78
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a roll-forward of the outstanding non-vested stock options over fiscal
2017:
Options
Number of Weighted-Average
Shares
Fair Value
Non-vested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
367,120
22,757
(172,115)
(8,684)
Non-vested at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
209,078
$ 8.74
11.54
8.80
8.95
$ 8.98
The total fair value of stock options that vested during fiscal 2017, fiscal 2016, and fiscal 2015 was
$1.5 million, $1.5 million, and $1.5 million, respectively. As of December 30, 2017, there was
$1.7 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
2.0 years.
Restricted Stock. CRA grants shares of restricted stock, which are subject to the execution of a
restricted stock agreement, under its 2006 Equity Incentive Plan. Generally, shares of restricted stock
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 shares of restricted stock as of
December 30, 2017 was $0.9 million, which is expected to be recognized over a weighted-average
period of 2.7 years. The forfeiture rate of 0.9% used for shares of restricted stock was based upon
historical experience. CRA believes its historical experience is an appropriate indicator of future
forfeitures.
The following table provides a roll-forward of the shares of restricted stock under the 2006 Equity
Incentive Plan over fiscal 2017:
Shares of Restricted Stock
Number of Weighted-Average
Shares
Fair Value
Non-vested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
62,122
16,494
(25,891)
—
Non-vested at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
52,725
$23.64
36.36
22.93
—
$27.97
The total fair value of shares of restricted stock that vested during fiscal 2017, fiscal 2016, and
fiscal 2015 was $0.6 million, $0.6 million, and $0.6 million, respectively.
Time-Vesting RSUs. CRA grants time-vesting restricted stock units, which are subject to the
execution of a restricted stock unit agreement, under its 2006 Equity Incentive Plan. Generally,
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 time-vesting restricted stock units as of December 30, 2017 was $2.9 million, which is
expected to be recognized over a weighted-average period of 2.3 years. The forfeiture rate of 0.9%
used for time-vesting restricted stock units was based upon historical experience. CRA believes its
historical experience is an appropriate indicator of future forfeitures.
FS-29
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The following table provides a roll-forward of the time-vesting restricted stock units under the
2006 Equity Incentive Plan over fiscal 2017:
Time-Vesting
Restricted Stock Units
Number of Weighted-Average
Units
Fair Value
Non-vested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
184,751
25,958
(86,547)
(4,342)
Non-vested at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . .
119,820
$24.18
38.38
23.27
24.58
$27.90
The total fair value of time-vesting restricted stock units that vested during fiscal 2017, fiscal 2016,
and fiscal 2015 was $2.0 million, $1.9 million, and $1.8 million, respectively.
Performance-Vesting RSUs. CRA grants performance-vesting restricted stock units (‘‘PRSUs’’),
which are subject to the execution of a restricted stock unit agreement, under its 2006 Equity Incentive
Plan. Generally, achievement of performance measures for PRSUs are based on a two year
performance period, after which the units determined based on this achievement will vest three-fourths
in the first year following the performance period and one-fourth on the fourth anniversary of the date
of grant. The number of units determined based on the achievement of a PRSUs performance
measures generally ranges from 50% to 125% of the PRSU’s target number of units.
In accordance with ASC Topic 718, for PRSUs 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.
The following table provides a roll-forward of the performance-vesting restricted stock units under
the 2006 Equity Incentive Plan over fiscal 2015, fiscal 2016 and fiscal 2017. For purposes of this table,
granted PRSUs are counted based on the maximum number of units that could vest upon achievement
of the PRSUs’ performance conditions which, for all periods presented, equaled 125% of the PRSU’s
target number of units.
Performance-Vesting
Restricted Stock Units
Number of Units
Non-vested at January 3, 2015 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at January 2, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 31, 2016 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Granted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Vested . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Forfeited . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Non-vested at December 30, 2017 . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
365,468
204,315
—
(11,624)
558,159
26,666
(90,485)
(83,187)
411,153
32,721
(98,882)
(64,397)
280,595
FS-30
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
1998 ESPP.
In fiscal 1998, CRA adopted the 1998 ESPP, a tax-qualified plan under Section 423 of
the Internal Revenue Code. The 1998 ESPP 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 plan. In fiscal 2017,
fiscal 2016, and fiscal 2015, there were no offering periods under this plan and no shares were issued.
As of December 30, 2017, 211,777 shares are available for grant under the 1998 ESPP.
Other Equity Matters. During fiscal 2017, CRA modified certain restricted stock awards in
connection with a director’s retirement to eliminate the forfeiture of unvested shares upon his
retirement and to permit the time-based vesting to continue despite such retirement. The modification
resulted in total additional compensation cost of $0.3 million.
12. Business Segment and Geographic Information
CRA is a leading consulting firm specializing in providing economic, financial and management
consulting services. It offers consulting services in two broad areas: litigation, regulatory, and financial
consulting and management consulting. These two areas represented approximately 100% of CRA’s
consolidated revenues for fiscal 2017 and 2016. CRA manages its business on an integrated basis
through its international network of offices and areas of functional expertise. Many of CRA’s practice
areas are represented in several of its offices and are managed across geographic borders. When CRA
evaluated its business, and possible operating segments, CRA reviewed the manner in which it is
organized and managed, composition and responsibilities of its management team, the identification of
its chief operating decision maker, as well as the availability of discrete financial information for its
various business components and geographic areas. During fiscal 2017 and the majority of fiscal 2016,
CRA operated in one business segment, its consulting services business. Prior to the sale of
substantially all of GNU’s business assets on April 13, 2016, CRA operated in two operating segments.
GNU’s financial information is included below and is immaterial to the overall consolidated financial
statements. Revenue based on the physical location of the operation to which the revenues relate, are
as follows (in thousands):
Fiscal
Year
Fiscal
Year
Fiscal
Year
2017
(52 weeks)
2016
(52 weeks)
2015
(52 weeks)
Revenue:
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$295,232
53,644
21,199
$251,962
52,509
20,308
$243,261
44,248
16,050
Total foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
74,843
72,817
60,298
$370,075
$324,779
$303,559
December 30,
2017
December 31,
2016
Long-lived assets (property and equipment, net):
United States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
United Kingdom . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$37,192
5,552
1,899
Total foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
7,451
$30,735
5,253
393
5,646
$44,643
$36,381
FS-31
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
13. Income Taxes
Effects of the Tax Cuts and Jobs Act
On December 22, 2017, the Tax Cuts and Jobs Act (the ‘‘Tax Act’’) was signed into U.S. law. The
Tax Act significantly changes the Internal Revenue Code of 1986, as amended. The Tax Act, among
other things, includes changes to the U.S. corporate tax rate, expands limitations on the deductibility of
meals and entertainment, eliminates the exception to the section 162(m) limitation on the deductibility
of the compensation paid to certain executive officers for ‘‘qualified performance-based compensation,’’
allows for the expensing of capital expenditures, the migration from a ‘‘worldwide’’ system of taxation
to a territorial system, and a one-time transition tax on the mandatory deemed repatriation of
cumulative foreign earnings as of December 31, 2017. ASC Topic 740, ‘‘Accounting for Income Taxes,’’
requires companies to recognize the effect of tax law changes in the period of enactment even though
the effective date for most provisions is for tax years beginning after December 31, 2017, or in the case
of certain other provisions of the law, January 1, 2018.
Given the significance of the legislation, the U.S. Securities and Exchange Commission staff issued
Staff Accounting Bulletin No. 118 (‘‘SAB 118’’), which allows registrants to record provisional amounts
during a one year ‘‘measurement period’’ similar to that used when accounting for business
combinations. However, the measurement period is deemed to have ended earlier when the registrant
has obtained, prepared, and analyzed the information necessary to finalize its accounting. During the
measurement period, impacts of the law are expected to be recorded at the time a reasonable estimate
for all or a portion of the effects can be made, and provisional amounts can be recognized and
adjusted as information becomes available, prepared, or analyzed.
SAB 118 summarizes a three-step process to be applied at each reporting period to account for
and disclose: (1) the effects of the change in tax law for which accounting is complete; (2) provisional
amounts (or adjustments to provisional amounts) for the effects of the change in tax law where
accounting is not complete, but a reasonable estimate has been determined; and (3) current or deferred
tax amounts reflected in accordance with law prior to the enactment of the change in tax law because
the accounting of the effects of the change in tax law are not complete and a reasonable estimate has
not been determined, together with qualitative disclosure of the effects of the changes in tax law for
which the accounting is not compete, the reason why the accounting is not complete, and the additional
information that is needed to be obtained, prepared or analyzed in order to complete the accounting.
Since the Tax Act was passed late in the fourth quarter of 2017, and ongoing guidance and accounting
interpretation are expected over the next twelve months, CRA considers the accounting to be
incomplete due to the forthcoming guidance and its ongoing analysis of final year-end data and tax
positions. Adjustments to these preliminary amounts identified during the measurement period, as
defined, will be included as an adjustment to tax expense from continuing operations in the period the
amounts are determined. CRA believes it has made a good faith effort to complete the accounting
under ASC 740 with respect to the Tax Act. SAB 118 provides that the measurement period is
complete when a company’s accounting is complete and in no circumstances should the measurement
period extend beyond one year from the enactment date of the applicable change in tax law.
In connection with the Tax Act, CRA has recorded a provisional amount attributable to the
remeasurement of deferred taxes assets and liabilities from a 35 percent tax rate to the new 21 percent
tax rate. The provisional amount recorded was an increase in tax expense of $3.6 million. The Tax Act
also enhanced and extended the option to claim accelerated depreciation deductions at a rate of 100%
on qualified property placed in service after September 27, 2017, and before 2023. As such, CRA has
claimed accelerated depreciation in fiscal 2017 of $2.9 million on qualified property.
The Tax Act also includes a one-time mandatory repatriation transition tax on the net accumulated
earnings and profits of a U.S. taxpayer’s foreign subsidiaries. Based on its calculations and estimates to
FS-32
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
date, CRA does not expect to incur any transition tax liability as CRA believes it is in an accumulated
deficit position with respect to its foreign subsidiaries. As such, CRA has not recorded any income tax
expense relating to this transition tax as of December 30, 2017.
CRA is in the process of assessing other significant provisions that are not yet effective but may
impact income taxes in future years. As there is some uncertainty around the grandfathering provisions
related to performance-based executive compensation, CRA has estimated a provisional amount for
deferred tax assets related to performance-based executive compensation. In regards to the new base
erosion anti-abuse tax (‘‘BEAT’’), CRA does not currently meet certain revenue thresholds, and is
therefore not subject to the new minimum tax. CRA may be subject to the tax on the Global Intangible
Low-Taxed Income (GILTI) in future years but has not completed its analysis of the applicability of the
tax. CRA will continue to gather and evaluate information as to the impact of this tax, and therefore
will not make a policy election on how to account for GILTI (as part of deferred taxes or as a period
expense) until it has received and evaluated the necessary information. Accordingly, no amounts related
to GILTI are included within deferred taxes.
The components of income before provision for income taxes are as follows (in thousands):
2017
(52 weeks)
2016
(52 weeks)
2015
(52 weeks)
Income before provision for income taxes:
U.S.
. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$12,248
2,916
$16,905
4,984
$10,565
1,250
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$15,164
$21,889
$11,815
The provision (benefit) for income taxes consists of the following (in thousands):
Currently payable:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
State . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal
Year
Fiscal
Year
Fiscal
Year
2017
(52 weeks)
2016
(52 weeks)
2015
(52 weeks)
$4,515
493
804
5,812
1,809
(85)
(73)
$1,651
$7,463
$ (770)
664
(637)
$ 5,104
546
1,550
(743)
7,200
5,562
124
2,713
$8,399
$7,656
(799)
(307)
(604)
$(1,710)
$ 5,490
FS-33
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
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
. . . . .
Tax law changes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Share-based compensation . . . . . . . . . . . . . . . . . . . . . . . . .
Nondeductible/nontaxable items . . . . . . . . . . . . . . . . . . . . .
Foreign rate differential
. . . . . . . . . . . . . . . . . . . . . . . . . .
Losses benefited/Change in valuation allowance . . . . . . . . .
Uncertain tax positions . . . . . . . . . . . . . . . . . . . . . . . . . . .
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Fiscal Year
Fiscal Year
Fiscal Year
2017
35.0%
3.9
23.7
(15.8)
5.1
(2.8)
(0.3)
(0.1)
0.5
49.2%
2016
35.0%
6.1
(0.3)
—
3.0
(3.3)
(4.9)
(0.2)
(0.4)
35.0%
2015
35.0%
5.4
—
—
6.8
(2.7)
(6.0)
8.7
(0.7)
46.5%
In March 2016, the FASB issued ASU No. 2016-09, Compensation-Stock Compensation (Topic 718):
Improvements to Employee Share-Based Payment Accounting (‘‘ASU 2016-09’’). ASU 2016-09 requires all
of the tax effects related to share-based payments to be recorded through the income statement. The
amendments in this update are effective for annual periods beginning after December 15, 2016, and
interim periods within those annual periods. Accordingly, CRA adopted ASU No. 2016-09 on
January 1, 2017, resulting in the recognition of a tax benefit of $0.05 million to retained earnings as of
that date. As a result of the new ASU 2016-09, CRA recorded a benefit of $2.2 million related to
excess windfall tax deductions during fiscal 2017 in the consolidated statement of operations.
The components of CRA’s deferred tax assets (liabilities) are as follows (in thousands):
December 30,
2017
December 31,
2016
Deferred tax assets:
Accrued compensation and related expense . . . . . . . . . . . . . . . .
Allowance for doubtful accounts . . . . . . . . . . . . . . . . . . . . . . . .
Net operating loss carryforwards . . . . . . . . . . . . . . . . . . . . . . . .
Accrued expenses and other . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total gross deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . .
Less: valuation allowance . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Total deferred tax assets net of valuation allowance . . . . . . . . . . . .
Deferred tax liabilities:
Goodwill and other intangible asset amortization . . . . . . . . . . . .
GNU capital gain upon distribution . . . . . . . . . . . . . . . . . . . . . .
Property and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Tax basis in excess of financial basis of convertible debentures . . .
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$11,445
2,009
479
4,356
18,289
(8)
18,281
3,802
20
6,111
—
9,933
Net deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$ 8,348
$16,359
2,160
3,278
2,482
24,279
(2,689)
21,590
5,670
245
4,495
1,254
11,664
$ 9,926
The net change in the total valuation allowance for fiscal 2017 was a decrease of approximately
$2.7 million as compared to fiscal 2016. The $2.7 million net decrease is comprised primarily of the
write-off of GNU’s net operating losses now that the entity is in the liquidation process. At
December 30, 2017, CRA had foreign net operating losses of $1.4 million with an indefinite life.
FS-34
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
The aggregate changes in the balances of gross unrecognized tax benefits were as follows (in
thousands):
December 30,
2017
December 31,
2016
Balance at beginning of period . . . . . . . . . . . . . . . . . . . . . . . . . . .
Additions for tax positions taken during prior years . . . . . . . . . . . .
Reductions for tax positions taken during prior years . . . . . . . . . . .
Additions for tax positions taken during the current year . . . . . . . .
Reductions as a result of a lapse of the applicable statute of
limitations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Settlements with tax authorities . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,059
9
—
—
(37)
—
$1,265
—
(21)
82
—
(267)
Balance at end of the period . . . . . . . . . . . . . . . . . . . . . . . . . . . .
$1,031
$1,059
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 2017, CRA
had $151,000 of interest accrued on its unrecognized tax benefit balance for a total unrecognized tax
benefit balance of $1,183,000. Of the total unrecognized tax benefit balance, $61,000 is offset by a
future tax deduction when recognized. CRA reported $20,000 of interest and penalties related to
unrecognized tax benefits in income tax expense during fiscal 2017, consistent with fiscal 2016.
Settlement of any particular position could require the use of cash. Of the total $1,031,000 balance at
the end of fiscal 2017, a favorable resolution would result in $1,000,000 being recognized as a reduction
to the effective income tax rate in the period of resolution. It is reasonably likely that $289,000 of gross
unrecognized tax benefits will reverse within the next twelve months due to lapse of the applicable
statute of limitations or exam closures.
The number of years with open tax audits varies depending on the tax jurisdiction. CRA’s major
taxing jurisdiction is the United States where CRA is no longer subject to U.S. federal examinations by
the Internal Revenue Service for years before fiscal 2014. Within the significant states where CRA is
subject to income tax, CRA is no longer subject to examinations by state taxing authorities before
fiscal 2013. 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 2016. During fiscal
2016, an examination by the Internal Revenue Service for fiscal 2014 commenced, and the examination
is still ongoing in fiscal 2017. 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 and other basis differences that may exist from its foreign subsidiaries as of December 30,
2017 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 $13.2 million, $9.4 million, and $11.6 million in fiscal 2017, fiscal 2016, and
FS-35
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
fiscal 2015, 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 December 30, 2017, 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
2018 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2019 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2020 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2021 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
2022 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Thereafter . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Rental
Commitments
$ 12,340
13,652
13,578
13,432
13,590
67,136
$133,728
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 $12.1 million, $10.4 million, and
$11.6 million in fiscal 2017, fiscal 2016, and fiscal 2015, respectively.
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. 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. The performance
of CRA’s obligations under the lease is secured by a $1.6 million letter of credit.
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 six amendments with the last being signed on July 11, 2016. The amendment consists of an
additional 6,366 square feet, is set to expire on December 31, 2027, and has an annual base rent of
approximately $0.3 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 $0.5 million and a
rent abatement of approximately $0.2 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 and was set to expire on May 31, 2026. The original annual base rent was approximately
$1.8 million per annum for the first five years of the lease’s base term, and subject to a maximum
annual rent of $2.0 million. Subsequent to entering into the lease, the original lease was amended on
FS-36
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
April 21, 2017. The amendment extends the term of the previously leased space and consists of an
additional 16,587 square feet, is set to expire on April 30, 2028, and includes a base rent abatement of
approximately $1.2 million, as well as a tenant improvement allowance of approximately $1.4 million.
Following an initial rent abatement period, the annual base rent will be approximately $1.2 million per
year, subject to annual increases of approximately 8% after five years. The performance of CRA’s
obligations under the lease is secured by a $1.3 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 and was set to expire on July 31, 2018. The annual base rent was approximately
$1.0 million in fiscal year 2015 and is subject to 2.5% increases per annum. On May 8, 2017, CRA
signed a first amendment to extend the term of the previously leased space of 41,642 square feet for an
additional ten years ending on July 31, 2028. The amendment includes a base rent abatement of
approximately $0.9 million, as well as a tenant improvement allowance of approximately $2.3 million.
Following an initial rent abatement period, the annual base rent will be approximately $1.1 million per
year, subject to annual increases of approximately 2.5% per year. At the end of the lease, CRA will be
responsible to return the vacated floors to their original condition at CRA’s expense.
On May 20, 2016, CRA entered into an agreement to lease 23,035 square feet of office space in
London, UK for the 4th and ground floors. The leases for both floors was set to expire on May 19,
2031. The initial base rent for the two floors is approximately £1.6 million per year, and is subject to
increase every five years, based on rental market conditions at that time. On November 20, 2017, CRA
agreed to the head of terms to lease an additional 7,700 square feet in addition to the existing office
space, set to expire on May 19, 2031. The initial base rent for the additional space is approximately
£0.5 million per year, and is subject to increase every five years, based on rental market conditions at
that time. At the end of the leases, CRA will be responsible to return the vacated floors to original
condition at CRA’s expense.
On July 21, 2017, CRA entered into the first amendment of the San Francisco, CA lease, originally
entered into with C1, for an additional 9,206 square feet of office space and to extend the terms for an
additional eight years ending on September 30, 2025 with annual base rent of approximately
$0.9 million per year, subject to increases of 3% per annum. The amendment includes a base rent
abatement of approximately $0.4 million, as well as a tenant improvement allowance of approximately
$1.2 million. The performance of CRA’s obligations under the lease is secured by a $0.1 million letter
of credit.
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 amounting to $3.6 million as of December 30, 2017.
Contingencies
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.
FS-37
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
16. Quarterly Financial Data (Unaudited)
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income (loss) from operations . . . . . . . . . . . .
Income (loss) before provision for income
taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net income (loss) . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to
Quarter Ended
April 1,
2017
July 1,
2017
September 30,
2017
December 30,
2017
(In thousands, except per share data)
$88,171
4,911
$93,563
5,848
$91,325
5,647
$97,016
(642)
4,608
2,830
5,919
3,907
5,535
3,225
(898)
(2,261)
noncontrolling interest, net of tax . . . . . . . .
23
(94)
(11)
5
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:
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . .
Revenues . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Income from operations . . . . . . . . . . . . . . . . . . .
Income before provision for income taxes . . . . . .
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Net (income) loss attributable to noncontrolling
$ 2,853
0.34
$
0.33
$
$ 3,813
0.45
$
0.44
$
$ 3,214
0.39
$
0.38
$
$ (2,256)
$ (0.27)
$ (0.28)
8,419
8,621
8,428
8,618
8,149
8,353
8,171
8,171
Quarter Ended
April 2,
2016
July 2,
2016
October 1,
2016
December 31,
2016
(In thousands, except per share data)
$80,912
4,326
4,185
2,239
$82,607
5,680
9,269
6,767
$81,691
5,297
5,060
3,151
$79,569
3,615
3,375
2,076
interest, net of tax . . . . . . . . . . . . . . . . . . . . .
184
(1,552)
42
(18)
Net income attributable to CRA
International, Inc.
. . . . . . . . . . . . . . . . . . . . .
Basic net income per share . . . . . . . . . . . . . . . . .
Diluted net income per share . . . . . . . . . . . . . . .
Weighted average number of shares outstanding:
$ 2,423
0.27
$
0.27
$
$ 5,215
0.60
$
0.59
$
$ 3,193
$ 0.39
$ 0.38
Basic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . .
8,871
8,927
8,695
8,779
8,177
8,309
$ 2,058
0.25
$
0.24
$
8,269
8,443
On November 20, 2017, CRA entered into a transaction agreement with IQVIA Inc where CRA,
and certain former employees of IQVIA, agreed to certain terms and conditions relating to the former
employees’ employment agreements with IQVIA, and to settle certain claims among the parties to the
agreement. CRA paid IQVIA an aggregate amount of $5.7 million as consideration under the
transaction agreement. This amount has been reported as a component of selling, general and
administrative expenses for fiscal 2017.
Total net income (loss) 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 the
quarter above that includes a net loss for the quarter, the two-class method would not apply and the
treasury stock method was utilized. As such, the aggregate net income (loss) per share for fiscal 2017 as
a whole would not agree in the aggregate with the quarterly information presented above.
FS-38
CRA INTERNATIONAL, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
17. Subsequent Events
On February 1, 2018, the compensation committee of CRA’s board of directors approved CRA’s
long-term incentive program, or ‘‘LTIP,’’ for 2018, as well as grants made under the LTIP for 2018 to
certain of CRA’s senior corporate leaders, practice leaders, key revenue generators (other than its
executive officers). The 2018 LTIP provides participants with a mixture of time-vested restricted stock
units, time-vested service cash awards and/or performance-based cash awards.
On February 15, 2018, CRA announced that its board of directors authorized the repurchase of up
to $20.0 million additional shares of CRA’s common stock.
On February 15, 2018, CRA announced that its board of directors declared a quarterly cash
dividend of $0.17 per common share, payable on March 16, 2018 to shareholders of record as of
February 27, 2018.
On February 28, 2018, CRA surrendered its lease at 65 West 36th Street, New York, New York to
its Landlord for a fee of $525,000. Surrendering this lease, which was assumed as part of its acquisition
of C1 Consulting, reduces CRA’s long term lease obligations by $2.7 million over the remaining lease
term of approximately nine years.
FS-39
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 12, 2018
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 12, 2018
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 December 30, 2017, as filed with the Securities and Exchange Commission on
the date hereof (the ‘‘Report’’), each of the undersigned President and Chief Executive Officer and
Chief Financial Officer, Executive Vice President and Treasurer 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 12, 2018
Chad M. Holmes
Chief Financial Officer, Executive Vice President,
and Treasurer
Date: March 12, 2018
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Charles River Associates
Executive Officers
Paul A. Maleh
President and Chief Executive Officer
Transfer Agent
Computershare Investor Services
PO Box 505000
Louisville, KY 40233
Chad M. Holmes
Chief Financial Officer, Executive Vice President, and Treasurer
Outside Legal Counsel
Jonathan D. Yellin
Executive Vice President and General Counsel
Board of Directors
Rowland T. Moriarty
Chairman of the Board
CRA International, Inc.
Paul A. Maleh
President and Chief Executive Officer
CRA International, Inc.
Thomas A. Avery
Former Managing Director
Raymond James & Associates
William F. Concannon
Global Group President, CBRE, Inc.
CEO, Global Workplace Solutions
Nancy Hawthorne
Finance Business Leader and
Veteran Public-Company Director
Robert W. Holthausen
The Nomura Securities Company Professor
of Accounting and Finance
Wharton School of the University of Pennsylvania
Robert A. Whitman
Chairman and CEO
FranklinCovey
Independent Registered Public
Accounting Firm
Ernst & Young LLP
Foley Hoag LLP
155 Seaport Boulevard
Boston, MA 02210-2600
Stock Listing
NASDAQ Global Select Market Symbol: CRAI
Fiscal Year Ended
December 30, 2017
High
Low
January 1, 2017 – April 1, 2017
$40.00
$31.91
April 2, 2017 – July 1, 2017
$39.52
$31.77
July 2, 2017 – September 30, 2017
$41.79
$34.49
October 1, 2017 – December 30, 2017
$47.30
$40.86
Stock Price History by Quarter
The preceding table sets forth the high and low sale prices of CRA’s Common Stock
as reported on the NASDAQ Global Select Market from January 1, 2017 to December
30, 2017. CRA had approximately 101 holders of record of its common stock as of
April 23, 2018. This number does not include stockholders for whom shares were held
in a “nominee” or “street” name. CRA initiated the payment of a quarterly dividend in
October 2016. CRA expects to continue paying quarterly dividends, the declaration,
timing and amounts of which remain subject to the discretion of CRA’s Board of
Directors.
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
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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
Cambridge
Wellington House, East Road
Cambridge CB1 1BH
United Kingdom
+44-1223-78-3900 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
London
8 Finsbury Circus
London, EC2M 7EA
UK
+44-20-7664-3700 tel
Los Angeles
633 West Fifth Street
Suite 5880
Los Angeles, CA 90071
USA
+1-213-330-4001 tel
Lucerne
Habsburgerstrasse 12
6003 Lucerne
Switzerland
+41-41-220-80-20 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
San Francisco
221 Main Street
Suite 1650
San Francisco, CA 94105
+1-415-490-2750 tel
Summit
129 Summit Avenue
Suite 200
Summit, NJ 07901
+1-908-665-2082 tel
Sydney
Level 22, Tower 2
101 Grafton Street
Bondi Junction
NSW, 2022
Australia
+61-406-820-214
Tallahassee
1545 Raymond Diehl Road
Suite 210
Tallahassee, FL 32308
USA
+1-850-402-4200 tel
Toronto
401 Bay Street
Suite 600, PO Box 46
Toronto, ON M5H 2Y4
Canada
+1-416-413-4070 tel
Washington, DC
1201 F Street, NW
Suite 800
Washington, DC 20004-1229
USA
+1-202-662-3800 tel
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World Headquarters
200 Clarendon Street
Boston, Massachusetts 02116-5092
+1-617-425-3000 tel
www.crai.com
CRA’s 2017 Incoming Analyst & Associate Class
2017 Annual Report