What changed in this filing

/stocks — the workspaceLOADING

Item 1. Financial Statements

2021-05-06 compared with 2020-10-29 · 139 added, 303 removed, 279 unchanged (61% of the section changed)

3 unchanged sentences

(in thousands, except per share data)

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

Revenues $ 146,518 $ 126,158

18 unchanged sentences

(in thousands)

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

Net income $ 10,501 $ 6,468

6 unchanged sentences

(in thousands, except share data)

September 26,

2020 December 28,

2021 January 2,

Current assets:

Cash and cash equivalents $ 31,629 $ 45,677

Accounts receivable, net of allowances of $ 3,126 at September 26, 2020 and $ 3,838 at December 28, 2019

Accounts receivable, net of allowances of $ 3,789 at April 3, 2021 and $ 3,595 at January 2, 2021

91,690 111,595

Unbilled services, net of allowances of $ 942 at September 26, 2020 and $ 1,503 at December 28, 2019

Unbilled services, net of allowances of $ 1,227 at April 3, 2021 and $ 1,000 at January 2, 2021

63,985 40,881

32 unchanged sentences

25,000,000 shares authorized;

7,739,550 and 7,814,797 shares issued and outstanding at September 26, 2020 and December 28, 2019, respectively

7,627,591 and 7,693,497 shares issued and outstanding at April 3, 2021 and January 2, 2021, respectively

Retained earnings 219,922 216,999

6 unchanged sentences

(in thousands)

Fiscal Year-to-Date

September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

OPERATING ACTIVITIES:

7 unchanged sentences

Accounts receivable allowances 182 62

Unrealized foreign currency remeasurement losses, net 129 —

Unrealized foreign currency remeasurement gains, net ( 284 ) ( 398 )

Changes in operating assets and liabilities:

15 unchanged sentences

Tax withholding payments reimbursed by shares ( 588 ) ( 390 )

Cash paid for contingent consideration ( 2,357 ) —

Cash paid on dividend equivalents ( 79 ) ( 40 )

8 unchanged sentences

Purchases of property and equipment not yet paid for $ 294 $ 370

Purchases of property and equipment paid by a third party $ — $ 126

Asset retirement obligations $ — $ 155

Right-of-use assets obtained in exchange for lease obligations $ 1,070 $ —

Right-of-use assets related to the adoption of ASC 842 $ — $ 82,329

Lease liabilities related to the adoption of ASC 842 $ — $ 106,765

Restricted common stock issued for contingent consideration $ 2,250 $ —

Supplemental cash flow information:

5 unchanged sentences

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED SEPTEMBER 26, 2020 (unaudited)

FOR THE FISCAL QUARTER ENDED APRIL 3, 2021 (unaudited)

(in thousands, except share data)

4 unchanged sentences

Issued Amount

BALANCE AT DECEMBER 28, 2019 7,814,797 $ 9,265 $ 200,249 $ ( 11,763 ) $ 197,751

Balance at December 29, 2019, as previously reported 7,814,797 $ 9,265 $ 200,249 $ ( 11,763 ) $ 197,751

Cumulative effect of a change in accounting principle related to ASC 326 — — ( 203 ) — ( 203 )

Balance at December 29, 2019, as adjusted 7,814,797 $ 9,265 $ 200,046 $ ( 11,763 ) $ 197,548

BALANCE AT JANUARY 2, 2021 7,693,497 $ 503 $ 216,999 $ ( 8,483 ) $ 209,019

Net income — — 10,501 — 10,501

Foreign currency translation adjustment — — — ( 111 ) ( 111 )

Issuance of restricted common stock for contingent consideration 40,039 2,250 — — 2,250

Exercise of stock options 41,008 1,113 — — 1,113

7 unchanged sentences

— — ( 1,982 ) — ( 1,982 )

BALANCE AT MARCH 28, 2020 7,756,425 $ 5,871 $ 204,679 $ ( 14,190 ) $ 196,360

Net income — — 5,931 — 5,931

Foreign currency translation adjustment — — — 536 536

Exercise of stock options 22,611 418 — — 418

Share-based compensation expense — 796 — — 796

Restricted shares vestings 513 — — — —

Accrued dividends on unvested shares — — ( 38 ) — ( 38 )

Cash dividends paid to shareholders ($ 0.23 per share)

— — ( 1,788 ) — ( 1,788 )

BALANCE AT JUNE 27, 2020 7,779,549 $ 7,085 $ 208,784 $ ( 13,654 ) $ 202,215

Net income — — 5,403 — 5,403

Foreign currency translation adjustment — — — 1,589 1,589

Exercise of stock options 57,219 1,098 — — 1,098

Share-based compensation expense — 906 — — 906

Restricted shares vestings 12,936 — — — —

Shares repurchased ( 110,154 ) ( 4,997 ) — — ( 4,997 )

Accrued dividends on unvested shares — — ( 31 ) — ( 31 )

Cash dividends paid to shareholders ($ 0.23 per share)

— — ( 1,788 ) — ( 1,788 )

BALANCE AT SEPTEMBER 26, 2020 7,739,550 $ 4,092 $ 212,368 $ ( 12,065 ) $ 204,395

BALANCE AT APRIL 3, 2021 7,627,591 $ — $ 219,922 $ ( 8,594 ) $ 211,328

See accompanying notes to the condensed consolidated financial statements.

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS’ EQUITY

FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED SEPTEMBER 28, 2019 (unaudited)

FOR THE FISCAL QUARTER ENDED MARCH 28, 2020 (unaudited)

(in thousands, except share data)

5 unchanged sentences

BALANCE AT DECEMBER 28, 2019 7,814,797 $ 9,265 $ 200,249 $ ( 11,763 ) $ 197,751

Balance at December 29, 2019, as previously reported 7,814,797 $ 9,265 $ 200,249 ( 11,763 ) $ 197,751

Cumulative effect of a change in accounting principle related to ASC 326 — — ( 203 ) — ( 203 )

Balance at December 29, 2019, as adjusted 7,814,797 $ 9,265 $ 200,046 ( 11,763 ) $ 197,548

Net income — — 6,468 — 6,468

7 unchanged sentences

Cash paid on dividend equivalents — — ( 40 ) — ( 40 )

Cash dividends paid to shareholder ($ 0.20 per share)

— — ( 1,616 ) — ( 1,616 )

BALANCE AT MARCH 30, 2019 8,005,898 $ 20,537 $ 189,235 $ ( 11,882 ) $ 197,890

Net income — — 5,580 — 5,580

Foreign currency translation adjustment — — — ( 653 ) ( 653 )

Share-based compensation expense — 848 — — 848

Restricted shares vestings 513 — — — —

Shares repurchased ( 177,101 ) ( 7,161 ) — — ( 7,161 )

Accrued dividends on unvested shares — — ( 44 ) — ( 44 )

Cash dividends paid to shareholders ($ 0.23 per share)

— — ( 1,796 ) — ( 1,796 )

BALANCE AT JUNE 29, 2019 7,829,310 $ 14,224 $ 193,191 $ ( 12,535 ) $ 194,880

Net income — — 5,739 — 5,739

Foreign currency translation adjustment — — — ( 1,488 ) ( 1,488 )

Exercise of stock options 21,224 480 — — 480

Share-based compensation expense — 882 — — 882

Restricted shares vestings 14,754 — — — —

Shares repurchased ( 157,402 ) ( 6,558 ) — — ( 6,558 )

Accrued dividends on unvested shares — — ( 37 ) — ( 37 )

Cash dividends paid to shareholders ($ 0.20 per share)

— — ( 1,546 ) — ( 1,546 )

BALANCE AT SEPTEMBER 28, 2019 7,707,886 $ 9,028 $ 197,347 $ ( 14,023 ) $ 192,352

BALANCE AT MARCH 28, 2020 7,756,425 $ 5,871 $ 204,679 $ ( 14,190 ) $ 196,360

See accompanying notes to the condensed consolidated financial statements.

17 unchanged sentences

Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 28, 2019 included in CRA’s Annual Report on Form 10-K filed with the SEC on February 27, 2020 (the “2019 Form 10-K”).

Certain prior year amounts have been reclassified to conform to current year presentation.

These reclassifications had no effect on previously reported results of operations, financial position, or cash flows.

These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended January 2, 2021 included in CRA’s Annual Report on Form 10-K filed with the SEC on March 4, 2021 (the “2020 Form 10-K”).

The preparation of financial statements in conformity with 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 condensed consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed price contracts, variable consideration to be included in the transaction price of revenue contracts, depreciation of property and equipment, measurement of operating lease right-of-use (“ROU”) assets and liabilities, share-based compensation, valuation of contingent consideration liabilities, valuation of acquired intangible assets, impairment of long-lived assets and goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued incentive compensation, and certain other accrued expenses.

These items are monitored and analyzed by CRA for changes in facts and circumstances.

Material changes in these estimates could occur in the future.

Estimates in these condensed consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed price contracts, variable consideration to be included in the transaction price of revenue contracts, depreciation of property and equipment, measurement of operating lease right-of-use (“ROU”) assets and liabilities, share-based compensation, valuation of contingent consideration liabilities, valuation of acquired intangible assets, impairment of long-lived assets, goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued incentive compensation, and certain 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.

3 unchanged sentences

Equity transactions consist primarily of the repurchase by CRA of its common stock under its share repurchase program and the recognition of compensation expense and issuance of common stock under CRA’s 2006 Equity Incentive Plan.

Under CRA’s share repurchase program, the Company repurchases its common stock in open market purchases (including through any Rule 10b5-1 plan adopted by CRA) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations.

The purchase price is first charged against available paid-in capital (“PIC”) until PIC is exhausted, wherein purchases will be charged to retained earnings.

CRA’s common stock has no par value.

All shares repurchased have been retired.

The Company repurchases its common stock under its share repurchase program in open market purchases (including through any Rule 10b5-1 plan adopted by CRA) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations.

On March 8, 2021, CRA commenced a modified "Dutch auction" self-tender offer to purchase up to $ 25.0 million in value of shares of its common stock, as further described in Note 11.

The purchase price of repurchases is first charged against available paid-in capital (“PIC”) until PIC is exhausted, wherein purchases will be charged

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

to retained earnings.

As of April 3, 2021, PIC was exhausted.

CRA’s common stock has no par value.

All shares repurchased have been retired.

Recent Accounting Standards Adopted

Leases (Topic 842)

CRA adopted Accounting Standards Codification (“ASC”) Topic 842, Leases (“ASC 842”), which supersedes ASC Topic 840, Leases (“ASC 840”), on December 30, 2018, using the modified retrospective transition method.

The cumulative effect of the transition adjustments was recognized as of the date of adoption.

CRA elected the package of practical expedients provided by ASC 842, which allowed CRA to forgo reassessing the following upon adoption of the new standard:

(1) whether contracts contain leases for any expired or existing contracts, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing or expired leases.

In addition, CRA elected an accounting policy to exclude from the consolidated balance sheets the ROU assets and lease liabilities related to short-term leases, which are those leases with an initial lease term of twelve months or less that do not include an option to purchase the underlying asset that CRA is reasonably certain to exercise.

As a result of adopting the new standard, CRA recognized ROU assets of $ 82.3 million and lease liabilities of $ 106.8 million on December 30, 2018.

The difference between the amount of ROU assets and lease liabilities recognized was an adjustment to deferred rent.

There was no change to net deferred tax assets as a result of CRA’s adoption of ASC 842.

The adoption of ASC 842 did not have a material impact on CRA’s results of operations or cash flows, nor did it have an impact on any of CRA’s existing debt covenants.

Compensation – Stock Compensation (Topic 718):

Improvements to Nonemployee Share-Based Payment Accounting

CRA adopted Accounting Standards Update (“ASU”) No.

2018-7, Compensation–Stock Compensation:

Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) (“ASU 2018-7”) on December 30, 2018.

ASU 2018-7 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees.

The amendments in this update specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards.

The amendments also clarify that Topic 718 does not apply to share-based payments used effectively to provide financing to the issuer or awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers .

The new guidance requires a remeasurement of nonemployee awards at fair value as of the adoption date.

The adoption of ASU 2018-7 did not have a material impact on CRA’s financial position, results of operations, cash flows, or disclosures.

Financial Instruments—Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments

CRA adopted ASU No.

2016-13, Financial Instruments – Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments (“ASC 326”) on December 29, 2019.

ASC 326 replaces the methodology that recognizes impairment of financial instruments when losses have been incurred with a methodology that recognizes impairment of financial instruments when losses are expected.

The amendment requires entities to use a forward-looking “expected loss” model for most financial instruments, including accounts receivable, unbilled services, and loans, that is based on historical information, current information, and reasonable and supportable forecasts.

As a result of adopting the new standard, CRA recognized a cumulative increase to allowances for accounts receivable and unbilled services and a reduction to the fiscal 2020 opening balance of retained earnings of $ 0.2 million.

Comparative periods prior to the adoption of ASC 326 and their respective disclosures have not been adjusted.

The adoption of ASC 326 did not have a material impact on CRA’s results of operations or cash flows on the date of transition.

Fair Value Measurements (Topic 820)

CRA adopted ASU No.

2018-13, Fair Value Measurement (Topic 820):

Disclosure Framework – Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No.

2018-13”) on December 29, 2019.

The ASU eliminates,

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

adds, and modifies certain disclosure requirements for fair value measurements from ASC 820.

Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurement.

The adoption of the new standard did not have a material impact on CRA’s financial position, results of operations, cash flows, or disclosures on the date of transition.

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement

CRA adopted ASU No.

2018-15, Intangibles — Goodwill and Other — Internal-Use Software (Subtopic 350-40):

Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”) on December 29, 2019.

ASU 2018-15 clarifies the accounting for implementation costs in a cloud computing arrangement that is a service contract and aligns the requirements for capitalizing those costs with the capitalization requirements for costs incurred to develop or obtain internal-use software.

CRA adopted the ASU using the prospective transition approach, as permitted under the new guidance.

The adoption of the new standard did not have a material impact on CRA’s financial position, results of operations, cash flows, or disclosures on the date of transition.

Recent Accounting Standards Not Yet Adopted

Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes

In December 2019, the FASB issued ASU No.

CRA adopted Accounting Standards Update ("ASU") No.

2019-12, Income Taxes (Topic 740):

Simplifying the Accounting for Income Taxes (“ASU 2019-12”).

ASU 2019-12 simplifies or clarifies accounting for income taxes by changing the following current guidance:

accounting for year-to-date losses in interim periods, accounting for tax law changes in interim periods, determining when a deferred tax liability is recognized for foreign subsidiaries that transition to or from being accounted for as equity method investments, application of income tax guidance to franchise taxes that are partially based on income, and making an intra-period allocation in situations where there is a loss in continuing operations and income or gain from other items.

Simplifying the Accounting for Income Taxes (“ASU 2019-12”) on the first day of fiscal 2021.

ASU 2019-12 simplifies or clarifies accounting for income taxes by changing prior guidance related to accounting for year-to-date losses in interim periods, accounting for tax law changes in interim periods, determining when a deferred tax liability is recognized for foreign subsidiaries that transition to or from being accounted for as equity method investments, application of income tax guidance to franchise taxes that are partially based on income, and making an intra-period allocation in situations where there is a loss in continuing operations and income or gain from other items.

ASU 2019-12 also introduces new guidance to evaluate whether a step up in the tax basis of goodwill relates to a business combination or a separate transaction and provides a policy election to not allocate consolidated income taxes when a member of a consolidated tax return is not subject to income tax.

ASU 2019-12 is effective for CRA for interim and annual periods beginning after December 15, 2020.

Early adoption is permitted.

CRA is in the process of determining the effects, if any, the adoption of the ASU may have on its financial position, results of operations, cash flows, or disclosures.

CRA plans to adopt the amendments during the first fiscal quarter of 2021.

Fair Value of Financial Instruments

The following tables show CRA’s financial instruments as of September 26, 2020 and December 28, 2019 that are measured and recorded in the condensed consolidated financial statements at fair value on a recurring basis (in thousands):

September 26, 2020

Quoted Prices in Active

Markets for Identical

Assets or Liabilities Significant Other

Observable Inputs Significant Unobservable

Level 1 Level 2 Level 3

Money market mutual funds $ 150 $ — $ —

Total Assets $ 150 $ — $ —

Contingent consideration liability $ — $ — $ 13,480

Total Liabilities $ — $ — $ 13,480

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

December 28, 2019

Quoted Prices in Active

Markets for Identical

Assets or Liabilities Significant Other

Observable Inputs Significant Unobservable

Level 1 Level 2 Level 3

Money market mutual funds $ 150 $ — $ —

Total Assets $ 150 $ — $ —

Contingent consideration liability $ — $ — $ 11,579

Total Liabilities $ — $ — $ 11,579

The fair value of CRA’s money market mutual fund share holdings is $ 1.00 per share.

The contingent consideration liability in the table above is for estimated future contingent consideration payments related to the acquisition of C1 Consulting, LLC, an independent consulting firm, and its wholly-owned subsidiary C1 Associates (collectively, “C1”).

The fair value measurement of the liability is based on significant inputs not observed in the market and thus represents a Level 3 measurement.

The significant unobservable inputs used in the fair value measurement of the contingent consideration liability are CRA’s measures of the estimated payouts based on internally generated revenue projections, expected volatility of the revenue projections, and discount rates.

The fair value of the contingent consideration liability had been determined using a Monte Carlo simulation in prior fiscal quarters.

In the current fiscal quarter, the fair value was estimated using an accrual method that approximates the fair value, as the end of the measurement period occurs during the first quarter of fiscal 2021.

The fair value of the contingent consideration liability is 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 costs of services (exclusive of depreciation and amortization) on the condensed consolidated statements of operations.

The contingent consideration is required to be paid prior to the end of the second quarter of fiscal 2021.

The following table summarizes the changes in the contingent consideration liabilities (in thousands):

Fiscal Year-to-Date

Period Ended Fiscal Year Ended

September 26, 2020 December 28, 2019

Beginning balance $ 11,579 $ 6,197

Remeasurement of acquisition-related contingent consideration 921 3,285

Accretion 980 2,097

Ending balance $ 13,480 $ 11,579

The adoption of the new standard did not have a material impact on CRA's financial position, results of operations, cash flows, or disclosures on the date of transition.

Revenue Recognition

2 unchanged sentences

In general, project costs are classified in costs of services and are based on the direct salary of CRA’s employee consultants on the engagement, plus all direct expenses incurred to complete the project, including any amounts billed to CRA by its non-employee experts.

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Disaggregation of Revenue

The following tables disaggregate CRA’s revenue by type of contract and geographic location (in thousands):

Fiscal Quarter Ended Fiscal Year-to-Date

Type of Contract September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

Type of Contract April 3,

2021 March 28,

Consulting services revenues

2 unchanged sentences

Total $ 146,518 $ 126,158

Fiscal Quarter Ended Fiscal Year-to-Date

Geographic Breakdown September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

Geographic Breakdown April 3,

2021 March 28,

Consulting services revenues

5 unchanged sentences

Revenues from CRA's consulting services are recorded at the net transaction price, which includes estimates of variable consideration for which reserves are established.

Variable consideration reserves are based on actual price concessions and those expected to be extended to CRA customers estimated by CRA's historical realization rates.

Reserves for variable consideration are recorded as a component of the allowances for accounts receivable and unbilled services on the condensed consolidated balance sheets.

CRA’s accounts receivable and unbilled services consist of receivables from a broad range of clients in a variety of industries located throughout the U.S.

and 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 adopted ASC 326 on December 29, 2019, which changed the method CRA utilizes to estimate reserves related to credit risk.

As a result of the adoption, CRA recognized a cumulative-effect adjustment of $ 0.2 million to retained earnings and allowances for accounts receivable and unbilled services.

Comparative periods and their respective disclosures prior to the adoption of ASC 326 have not been adjusted.

Under ASC 326, CRA maintains allowances for accounts receivable and unbilled services for estimated losses resulting from clients’ failure to make required payments.

CRA estimates these allowances based on historical charge-off rates, adjusted for days of sales outstanding and expected changes to clients’ financial conditions during the anticipated collection period.

CRA writes off allowances when management determines the balance is uncollectible and all efforts of collection have been exhausted.

Bad debt expense, net of recoveries of previously written off allowances, is reported as a component of selling, general and administrative expenses on the condensed consolidated statements of operations.

Prior to adopting ASC 326 in fiscal 2020, CRA determined allowances for accounts receivable and unbilled services for specific customer accounts based on the financial condition of the customer and related facts and circumstances.

Expenses associated with these allowances were reported as a component of selling, general and administrative expenses on the condensed consolidated statements of operations.

Variable consideration reserves are based on specific price concessions and

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Adjustments to the allowances for accounts receivable and unbilled services related to reserves for credit risk are as follows (in thousands):

Fiscal Year-to-Date

Period Ended Fiscal Year Ended

September 26, 2020 December 28, 2019

Beginning balance $ 370 $ 639

Cumulative effect of a change in accounting principle related to ASC 326 203 —

Provision for credit loss expense, net of recoveries 228 173

Amounts written off ( 128 ) ( 442 )

Ending balance $ 673 $ 370

those expected to be extended to CRA customers estimated by CRA's historical realization rates.

Reserves for variable consideration are recorded as a component of the allowances for accounts receivable and unbilled services on the condensed consolidated balance sheets.

Adjustments to the reserves for variable consideration are included in revenues on the condensed consolidated statements of operations.

CRA also maintains allowances for accounts receivable and unbilled services for estimated losses resulting from clients’ failure to make required payments.

CRA adopted ASU No.

2016-13, Financial Instruments — Credit Losses (Topic 326):

Measurement of Credit Losses on Financial Instruments ("ASC 326") on the first day of fiscal 2020, which changed the method CRA utilizes to estimate reserves related to credit risk.

As a result of the adoption, CRA recognized a $ 0.2 million cumulative-effect increase to allowances for accounts receivable and unbilled services and a reduction to the fiscal 2020 opening balance of retained earnings.

The following table presents CRA's bad debt expense, net of recoveries of previously written off allowances (in thousands):

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

Bad debt expense (recovery), net $ ( 13 ) $ 59

3 unchanged sentences

The following expenses are subject to reimbursement (in thousands):

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

Reimbursable expenses $ 16,479 $ 16,430

1 unchanged sentence

CRA defines contract assets as assets for which it has recorded revenue because it determines that it is probable that it will earn a performance-based or contingent fee but is not yet entitled to receive a fee because certain events, such as completion of the measurement period or client approval, must occur.

The contract assets balance was immaterial as of September 26, 2020 and December 28, 2019.

The timing of revenue recognition, billings, and cash collections results in billed receivables, unbilled services and contract liabilities on the condensed consolidated balance sheet.

CRA defines contract liabilities as advance payments from or billings to its clients for services that have not yet been performed or earned and retainers.

These liabilities are recorded within deferred revenues and are recognized as services are provided.

The contract assets balance was immaterial as of April 3, 2021 and January 2, 2021.

When consideration is received, or such consideration is unconditionally due from a customer prior to transferring consulting services to the customer under the terms of a contract, a contract liability is recorded.

Contract liabilities are recognized as revenue after performance obligations have been satisfied and all revenue recognition criteria have been met.

Contract liabilities are included in deferred revenue and other liabilities on the condensed consolidated balance sheet.

The following table presents the closing balances of CRA's contract liabilities (in thousands):

September 26, 2020 December 28, 2019

Balance at the end of the period $ 2,201 $ 4,007

2021 January 2,

Contract liabilities $ 2,941 $ 5,527

CRA INTERNATIONAL, INC.

1 unchanged sentence

CRA recognized the following revenue that was included in the contract liabilities balance as of the opening of the respective period or for performance obligations satisfied in previous periods (in thousands):

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Revenue recognized for amounts included in contract liabilities at the beginning of the period $ 1,766 $ 2,405 $ 3,262 $ 4,900

Revenue recognized for performance obligations satisfied in previous periods $ 3,987 $ 3,395 $ 4,363 $ 3,606

Fiscal Quarter Ended

2021 March 28,

Amounts included in contract liabilities at the beginning of the period $ 4,355 $ 2,906

Performance obligations satisfied in previous periods $ 2,183 $ 3,257

Forgivable Loans

Forgivable loan activity for the fiscal year-to-date period ended September 26, 2020 and the fiscal year ended December 28, 2019 is as follows (in thousands):

Fiscal Year-to-Date

Period Ended Fiscal Year Ended

September 26, 2020 December 28, 2019

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 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.

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.

The following table presents forgivable loan activity for the respective periods (in thousands):

Fiscal Quarter Ended Fiscal Year Ended

2021 January 2,

Beginning balance $ 61,613 $ 55,141

Advances 2,153 42,418

Repayments — ( 1,173 )

Reclassification from accrued expenses / to other assets (1) — ( 9,713 )

4 unchanged sentences

Non-current portion of forgivable loans $ 44,363 $ 46,864

At September 26, 2020 and December 28, 2019, CRA had no other loans to current or former employees included in other assets on the condensed consolidated balance sheet.

The principal amount of forgivable loans and accrued interest is forgiven by CRA over the term of the loans, provided that the employee or non-employee expert continues employment or affiliation with CRA and complies with certain contractual requirements.

CRA maintains an allowance for doubtful accounts for amounts not expected to be collected, which is initially assessed when the employee or non-employee fails to comply with contractual requirements or ceases employment or affiliation with CRA.

The allowances are determined per specific borrower and are based on their financial condition and related facts and circumstances, including consideration of collateral.

For the fiscal year-to-date period ended September 26, 2020 and the fiscal year ended December 28, 2019, no allowances or write-offs of these loans were recorded.

_______________________________

(1) Relates to the reclassification of performance awards previously recorded as accrued expenses or forgivable loans that have been reclassified to other receivables.

Goodwill and Intangible Assets

The changes in the carrying amount of goodwill during the fiscal year ended December 28, 2019 and the fiscal year- to-date period ended September 26, 2020, are as follows (in thousands):

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Balance at December 28, 2019

The changes in the carrying amount of goodwill for the fiscal quarter ended April 3, 2021 are summarized as follows (in thousands):

Goodwill $ 161,080

Accumulated goodwill impairment ( 71,893 )

Goodwill, net at December 28, 2019 88,504

Foreign currency translation adjustment and other (1) ( 214 )

Goodwill, net at September 26, 2020 (2) $ 88,290

Goodwill, net at January 2, 2021 89,187

Foreign currency translation adjustment 91

Goodwill, net at April 3, 2021 (1) $ 89,278

_______________________________

(1) During the fiscal quarter ended March 28, 2020, goodwill and accumulated goodwill impairment were reduced by $ 4.5 million as a result of the dissolution and final liquidation of GNU123 Liquidating Corporation.

(2) Goodwill, net at September 26, 2020, is comprised of goodwill of $ 160.2 million and accumulated impairment of $ 71.9 million.

(1) Goodwill, net at April 3, 2021, is comprised of goodwill of $ 161.2 million and accumulated impairment of $ 71.9 million.

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and amortized over their expected useful lives.

There were no impairment losses related to intangible assets during the fiscal year-to-date periods ended September 26, 2020 or September 28, 2019.

There were no impairment losses related to intangible assets during the fiscal quarter ended April 3, 2021 or during the fiscal year ended January 2, 2021.

The components of acquired identifiable intangible assets are as follows (in thousands):

September 26, 2020 December 28, 2019

2021 January 2,

Non-competition agreements $ 280 $ 280

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Accrued expenses consist of the following (in thousands):

September 26, 2020 December 28, 2019

2021 January 2,

Compensation and related expenses $ 85,209 $ 123,540

Income taxes payable 5,251 1,927

Commissions due to non-employee experts 1,808 9,961

Performance awards 2,376 2,176

Other professional fees 1,635 1,541

3 unchanged sentences

Total accrued expenses $ 100,758 $ 136,376

As of September 26, 2020, and December 28, 2019, approximately $ 71.3 million and $ 81.2 million, respectively, of accrued bonuses were included above in “Compensation and related expenses.”

For the fiscal quarters ended September 26, 2020 and September 28, 2019, CRA’s effective income tax rate (“ETR”) was 28.2 % and 14.2 %, respectively.

The difference in the ETR for the third quarter of fiscal 2020 from CRA's annual ETR for the fiscal year ended December 28, 2019, was primarily due to remeasuring the U.S.

deferred tax assets and liabilities based on

As of April 3, 2021, and January 2, 2021, approximately $ 50.3 million and $ 102.6 million, respectively, of accrued bonuses were included above in “Compensation and related expenses.”

For the fiscal quarters ended April 3, 2021 and March 28, 2020, CRA’s effective income tax rate (“ETR”) was 24.4 % and 29.4 %, respectively.

The ETR for the first quarter of fiscal 2021 was lower than the prior year due to an increase in the tax benefit related to the accounting for stock-based compensation as well as the impact of higher pre-tax earnings in the first quarter of fiscal 2021, which diluted the permanent unfavorable differences, primarily related to the impact of the deductibility of compensation paid to executive officers, with respect to the full-year estimated ETR.

During the fourth quarter of fiscal 2020, CRA considered the operating needs of the United Kingdom ("U.K.") subsidiary, as well as the tax implications of no longer asserting indefinite reinvestment with respect to the U.K.

As a result of both a qualitative and quantitative analysis, previously taxed and untaxed post fiscal 2018 U.K.

earnings were no longer considered permanently reinvested.

Deferred taxes that are a consequence of foreign exchange translation resulting from earnings that are no longer considered permanently reinvested are recorded as a component of foreign currency translation adjustments on the condensed consolidated statements of comprehensive income.

For the fiscal quarter ended April 3, 2021, CRA’s U.K.

subsidiary distributed approximately £ 12.0 million of both previously taxed and untaxed earnings to CRA’s U.S.

parent entity, the foreign currency translation impact of which was immaterial.

Deferred income taxes or foreign withholding taxes, estimated to be $ 0.4 million, have not been recorded for other jurisdictions as those earnings are considered to be permanently reinvested.

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

expected fiscal 2020 state apportionment, as well as the release of tax reserves recorded in the prior year that were nonrecurring in the current year.

Partially offsetting this increase was a decrease in non-deductible meals and entertainment and a larger tax benefit related to the accounting for stock-based compensation.

For the fiscal year-to-date periods ended September 26, 2020 and September 28, 2019, CRA’s ETR was 27.5 % and 22.9 %, respectively.

The difference in the ETR for fiscal year-to-date period ended September 26, 2020 from CRA's annual ETR for the fiscal year ended December 28, 2019, was primarily due to remeasuring the U.S.

deferred tax assets and liabilities based on expected fiscal 2020 state apportionment, as well as the release of tax reserves recorded in the prior year that were nonrecurring in the current year-to-date period.

As of September 26, 2020, 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 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.

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 calculates basic earnings per share using the two-class method.

CRA calculates diluted earnings per share using the more dilutive of either the two-class method or treasury stock method.

The two-class method was more dilutive for the fiscal quarters ended April 3, 2021 and March 28, 2020.

Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all 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 outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards.

Net earnings allocable to these participating securities were not material for the fiscal quarters and fiscal year-to-date periods ended September 26, 2020 and September 28, 2019.

Net earnings allocable to these participating securities were not material for the fiscal quarters ended April 3, 2021 and March 28, 2020.

The following table presents a reconciliation from net income to the net income available to common shareholders (in thousands):

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

Net income, as reported $ 10,501 $ 6,468

2 unchanged sentences

The following table presents a reconciliation of basic to diluted weighted average shares of common stock outstanding (in thousands):

Fiscal Quarter Ended Fiscal Year-to-Date

September 26,

2020 September 28,

2019 September 26,

2020 September 28,

Fiscal Quarter Ended

2021 March 28,

Basic weighted average shares outstanding 7,626 7,805

1 unchanged sentence

Diluted weighted average shares outstanding 7,831 8,037

For the fiscal quarters ended April 3, 2021 and March 28, 2020, 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 13,826 and 73,647 shares, respectively.

These share-based awards each period were anti-dilutive because their exercise price exceeded the average market price over the respective period.

Fair Value of Financial Instruments

As of April 3, 2021, CRA did no t have any financial instruments measured at fair value on a recurring basis.

The following table presents CRA’s financial instruments recorded in the condensed consolidated financial statements at January 2, 2021, which are measured at fair value on a recurring basis by level within the fair value hierarchy (in thousands):

January 2, 2021

Level 1 Level 2 Level 3

Money market mutual funds $ 150 $ — $ —

Total Assets $ 150 $ — $ —

Contingent consideration liability $ — $ — $ 14,620

Total Liabilities $ — $ — $ 14,620

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

For the fiscal quarter and fiscal year-to-date periods ended September 26, 2020, 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 76,399 and 62,808 shares, respectively.

For the fiscal quarter and fiscal year-to-date periods ended September 28, 2019, 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 63,164 and 47,169 shares, respectively.

These share-based awards each period were anti-dilutive because their exercise price exceeded the average market price over the respective period.

The fair value of CRA’s money market mutual fund share holdings was $ 1.00 per share.

The contingent consideration liability pertained to estimated future contingent consideration payments related to the acquisition of C1 Consulting, LLC, an independent consulting firm, and its wholly-owned subsidiary C1 Associates (collectively, “C1”).

The following table summarizes the changes in the contingent consideration liabilities (in thousands):

Fiscal Quarter Ended Fiscal Year Ended

April 3, 2021 January 2, 2021

Beginning balance $ 14,620 $ 11,579

Remeasurement of acquisition-related contingent consideration — 1,156

Accretion 380 1,885

Payment of contingent consideration ( 15,000 ) —

Ending balance $ — $ 14,620

Credit Agreement

CRA is party to a 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 is party to an amended and restated credit agreement that provides the Company with a $ 175.0 million revolving credit facility, which reflects an increase to the capacity by $ 50.0 million per an amendment to the credit agreement on January 12, 2021, and includes 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 any borrowings must be repaid no later than October 24, 2022.

There were $ 38.0 million in borrowings outstanding under this revolving credit facility as of September 26, 2020.

There were no outstanding borrowings under this facility as of December 28, 2019.

As of September 26, 2020, the amount available under this revolving credit facility was reduced by certain letters of credit outstanding, which amounted to $ 4.7 million.

There was $ 40.0 million in borrowings outstanding under this revolving credit facility as of April 3, 2021.

There were no borrowings outstanding under this facility as of January 2, 2021.

As of April 3, 2021, the amount available under this revolving credit facility was reduced by certain letters of credit outstanding, which amounted to $ 4.7 million.

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.

As of September 26, 2020 and December 28, 2019, CRA was in compliance with the covenants of its credit agreement.

As of April 3, 2021, CRA was in compliance with the covenants of its credit agreement.

Commitments and Contingencies

As described in Note 9, CRA is party to standby letters of credit with its bank in support of minimum future lease payments under leases for permanent office space.

As described in the previous note, CRA is party to standby letters of credit with its bank in support of minimum future lease payments under leases for permanent office space.

CRA is subject to legal actions arising in the ordinary course of business.

In management’s opinion, based on current knowledge, CRA has adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions.

In management’s opinion, based on current knowledge, CRA believes it has adequate legal defenses or insurance coverage, or both, 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 .

However, the outcome of such legal actions is inherently unpredictable and subject to inherent uncertainties.

While CRA has not experienced a material adverse impact to its business, financial condition or results of operations from the COVID-19 pandemic to date, there continues to be uncertainty about client demand for the Company’s services and the worldwide economy.

Consequently, the financial results for the current fiscal quarter and fiscal year-to-date periods ended September 26, 2020, may not be indicative of the results to be expected for the full fiscal year.

The timing of ongoing projects and new project originations may be delayed or otherwise disrupted due to the length and severity of current business closures and other restrictions implemented in response to COVID-19, which may impact the timing and amount of future revenues.

The magnitude of any impact on CRA's business and its duration is uncertain and cannot be reasonably estimated at this time.

CRA is not aware of any specific events or circumstances that would require an update to its estimates or adjustments to the carrying value of its assets and liabilities as of October 29, 2020, the issuance date of this Quarterly Report on Form 10-Q.

Self- Tender Offer

On March 8, 2021, CRA commenced a modified "Dutch auction" self-tender offer to purchase up to $ 25.0 million in value of shares of its common stock at a price of not less than $ 66.25 per share nor greater than $ 76.00 per share.

The self-tender offer expired on April 5, 2021.

On April 8, 2021, CRA paid $ 25.0 million to repurchase 337,837 shares at a purchase price of $ 74.00 per share.

The purchase price and transaction costs were funded from the revolving credit facility and cash on hand.

The repurchased shares were retired.

CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)

Subsequent Events

On October 29, 2020, CRA announced that its Board of Directors declared a quarterly cash dividend of $ 0.26 per common share, payable on December 11, 2020 to shareholders of record as of November 24, 2020.

On May 6, 2021, CRA announced that its Board of Directors declared a quarterly cash dividend of $ 0.26 per common share, payable on June 11, 2021 to shareholders of record as of May 25, 2021.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements