CRA INTERNATIONAL, INC. 10-K

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, intercompany loans 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 between functional currency exchange rates and those in which we transact business. Holding all other variables constant, a hypothetical 10% movement in foreign exchange rates on January 2, 2021 would have affected our income before provision for income taxes for fiscal 2020 by approximately $3.1 million. However, actual gains and losses in the future could differ materially from this analysis based on the timing and amount of both foreign currency exchange rate movements and our actual exposure. Additionally, Brexit could adversely affect UK, European and worldwide economic market conditions and could contribute to instability in global financial and foreign exchange markets, including volatility in the value of the British Pound and Euro. The UK officially left the EU on January 31, 2020, and the TCA was ratified by the UK Parliament on December 31, 2020. We recognize that there remains significant uncertainties surrounding the impact of the TCA and other ongoing Brexit negotiations, and will continue to monitor any changes that may arise and assess their potential impact on our business. 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 were gains of $3.3 million, gains of $0.8 million, and losses of $2.7 million for fiscal 2020, fiscal 2019, and fiscal 2018, respectively. These translation gains and losses are reflected in shareholders' equity as a component of accumulated other comprehensive income (loss). 31 Table of Contents Interest Rate Risk Our primary exposure to interest rate risk is associated with our revolving credit facility, which has variable interest rates for our borrowings based on our leverage ratio and certain reference rates, at our election, permitted under the terms of the credit agreement. We had no outstanding borrowings under our revolving credit facility as of January 2, 2021. A hypothetical change in the interest rate of 10% would not have a material impact to our net income. We maintain an investment portfolio consisting mainly of money market mutual funds, which may be withdrawn upon request. These money market mutual funds are subject to interest rate risk. However, a hypothetical change in the interest rates of 10% would not have a material impact to the fair values of these securities at January 2, 2021. Item 8 —Financial Statements and Supplementary Data We have included our consolidated financial statements in this annual report on pages FS-5 - FS-31. 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