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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended January 2, 2021
or
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                        to                         
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)
200 Clarendon Street, Boston, MA
(Address of principal executive offices)
04-2372210
(I.R.S. Employer Identification No.)
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 Trading Symbol(s) Name of Each Exchange on Which Registered
Common Stock, no par value CRAI 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 ¨ No 
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 ¨ No
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 No ¨
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted 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 such files). Yes No ¨
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 filerAccelerated filerNon-accelerated filerSmaller reporting company
 Emerging growth company
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. ¨
Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C.7262(b)) by the registered public accounting firm that prepared or issued its audit report. 
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes  No 
The aggregate market value of the stock held by non-affiliates of the registrant as of June 26, 2020, the last business day of the registrant's most recently completed second fiscal quarter, based on the closing sale price of $36.95 as quoted on the NASDAQ Global Select Market as of such date, was approximately $276.8 million. Outstanding shares of common stock beneficially owned by executive officers and directors of the registrant and certain related entities have been excluded from this computation because these persons may be deemed to be affiliates. The fact that these persons have been deemed affiliates for purposes of this computation should not be considered a conclusive determination for any other purpose.
As of February 26, 2021, CRA had outstanding 7,645,430 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 2020 annual meeting of its shareholders to be filed with the Securities and Exchange Commission within 120 days after the end of the registrant's fiscal year ended January 2, 2021.


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CRA INTERNATIONAL, INC.
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED JANUARY 2, 2021
TABLE OF CONTENTS
 Page
 
 
 
 


Table of Contents
PART I
Item 1—Business
Forward-Looking Statements
This annual report contains forward-looking statements, within the meaning of the Private Securities Litigation Reform Act of 1995, that involve risks and uncertainties. Forward-looking statements provide current expectations of future events based on certain assumptions and include any statement that does not directly relate to any historical or current fact. These statements are inherently uncertain, and actual events could differ materially from our predictions. Forward-looking statements can also be identified by words such as "future," "anticipates," "believes," "estimates," "expects," "intends," "plans," "predicts," "will," "would," "could," "can," "may," and similar terms. Forward-looking statements are not guarantees of future performance and the Company's actual results may differ significantly from the results discussed in the forward-looking statements. 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
CRA International, Inc. ("CRA", "the Company", "us", "we", or "our") was incorporated as a Massachusetts corporation in 1965. 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. 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.
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.
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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, Europe, and Australia.
Industry Overview
Businesses are operating in an increasingly complex economic, legal, and regulatory environment that create both challenges and opportunities. 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 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 evolving regulatory posture in the U.S. have led to frequent litigation and interaction with government agencies, as our clients 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 rely 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 also rely on economic and finance theory to measure the effects of anticompetitive activity, evaluate mergers and acquisitions, change regulations, implement auctions to allocate resources, and establish transfer pricing rules. Finally, litigants and law firms are using economic and finance theory to help determine liability and to calculate damages in complex and high-stakes litigation. As the need for complex economic and financial analysis becomes more widespread, companies and governments are turning to outside consulting firms, such as ours, for access to the independent 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
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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 January 2, 2021, we employed 831 consultants, which consisted of 137 officers, 471 senior staff and 223 junior staff. Approximately 80% of our senior staff have advanced degrees, with 41% having doctorate degrees. 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 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 operate throughout multiple 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 extensive 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, Boston University, Northwestern University, the University of Pennsylvania, Harvard University, Texas A&M University, 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.
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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 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 ExpertiseDescription of Area of Service
Antitrust & CompetitionAntitrust litigation, including economic analysis of the competitive effects of alleged collusion and cartels, monopolization, abuse of dominance, monopsony, and vertical restrictions.
Damages & ValuationDisputes 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 & ValuationCommercial and shareholder disputes; corporate finance damages; corporate investigations; due diligence; financial accounting; valuation and litigation support and expert testimony, including both liability and damages.
Financial EconomicsMatters 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.
Forensic & Cyber InvestigationsForensic 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 EconomicsMatters pertaining to advising insurers, regulators, and legislators with respect to management, insurance products, and litigation and regulation.
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Areas of Functional ExpertiseDescription of Area of Service
Intellectual PropertyMatters pertaining to all types of intellectual property assets including valuation, litigation, transaction and strategic advisory services, patents, trade secrets, copyrights, and trademarks as well as economic damages in intellectual property litigation, valuations of intellectual property assets for strategic and regulatory purposes, and transactional advisory services for licensing and other intellectual property-rich transactions.
International ArbitrationInternational 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. 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.
Labor & EmploymentAll 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 & AcquisitionsAssistance for 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.
Risk, Investigations & AnalyticsAssistance for clients facing complex legal and business challenges using a multi-disciplinary approach to collect, process, and analyze information, including large and complex data sets from internal and external sources, electronic communications and transactions, insights from public records, social media, and human intelligence. Services include investigative due diligence; independent monitoring; anti-money laundering and financial crimes advisory; litigation support; corporate intelligence; fraud and corruption investigations; asset tracking; social media analytics; account remediation; compliance assessment; and systems investigations.
Securities & Financial MarketsApplication 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 PricingAll 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.
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Additionally, we challenge clients to develop fresh approaches by sharing industry insights, focusing on facts, and questioning tradition. We support clients in implementation by setting priorities, focusing resources, and aligning operations, and we get results by helping clients make distinctive, substantial improvements in their organizations' performance.
The following is a summary of the areas of functional expertise that we offer in management consulting.
Areas of Functional ExpertiseDescription of Area of Service
Auctions & Competitive BiddingProviding 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 StrategyAdvising 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 ManagementAdvising large financial institutions and corporations in areas of governance and strategy, process analytics, and technology related to risk management.
Environmental & Energy StrategyAdvising 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 ServicesAdvising business leaders, including buyers and sellers, in the areas of due diligence, mergers and acquisitions, private equity, and valuation.
Industry Expertise
We believe our ability to combine expertise in advanced economic and financial methods with in-depth knowledge of particular industries is one of our key competitive strengths. By maintaining expertise in certain industries, we provide clients practical advice tailored to their specific markets. This industry expertise, which we developed over decades of providing sophisticated consulting services to a diverse group of clients in many industries, differentiates us from many of our competitors. We believe that we have developed a strong reputation and substantial name recognition within specific industries, which has led to repeat business and new engagements from clients in those markets. While we provide services to clients in a wide variety of industries, we have particular expertise in the following industries:
Agriculture
Banking & Capital Markets
Chemicals
Communications & Media
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Consumer Products
Energy
Entertainment
Financial Services
Health Care
Insurance
Life Sciences
Manufacturing
Metals, Mining, & Materials
Oil & Gas
Real Estate
Retail
Sports
Telecommunications
Transportation
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 2020, fiscal 2019, or fiscal 2018.
We derived approximately 24%, 24%, and 23% of consolidated revenues from fixed-price contracts in fiscal 2020, fiscal 2019, and fiscal 2018, respectively. These contracts are more common in our management consulting area, and would likely grow in number with expansion of that area.
Human Capital
As of January 2, 2021, we employed 831 consultants, consisting of 137 officers, 471 senior staff and 223 junior staff. Approximately 80% of our senior staff have advanced degrees, with 41% having doctorate degrees, 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, computer science, 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 emphasis on accurate, rigorous analytics and high quality work; our culture that values intellectual curiosity, initiative, and resourcefulness; and our collegial, inclusive, and multi-disciplinary approach to complex client needs. We use a decentralized, team hiring approach. Our training and career development programs for our employee consultants focus on providing multi-dimensional technical, foundational, and consulting skills. This framework is designed to complement on-the-job experience and an employee's pursuit of his or her own career development. Employee consultants participate in structured programs focused on managing teams, technical and empirical knowledge, and building client relationships. Through our ongoing internally-led workshops, speakers deliver presentations and conduct discussions with our employee consultants on various topics ranging from analytical tools to thought leadership material and service capabilities. We also provide scheduled courses designed to improve an employee's professional skills, such as written and oral presentation, marketing techniques, feedback discussions, and business development. Additionally, we encourage our employee consultants
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to pursue their academic interests through self-directed training modules, our on-demand library of software webinars, and external professional development opportunities.
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 incentive-based programs that provide for 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 allow grants of service- and performance-based cash awards in lieu of, or in addition to, equity awards to our senior corporate 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 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
Our business development and marketing activities, led by our employee consultants and our Marketing, Business Development and Coaching group, emphasize building and maintaining relationships, cultivating brand awareness, and generating leads for new work. 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. 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 focus 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 diverse business development and marketing activities, including virtual and in-person seminars and presentations, speaking at and attending relevant conferences, social networking events, social media, and extensive thought leadership that we publish in industry, business, economic, legal, or scientific journals. 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. Our corporate website is another means of marketing our consultants and capabilities as it houses information about our business development activities, engagements, and biographies of our employee consultants and academic affiliates. 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.
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We derive the majority of our revenues from new engagements with existing clients. We have worked with leading law firms across the globe and believe we have developed a reputation among law firms as a preferred source of sophisticated economic advice for litigation and regulatory work. For our management consulting services, we also rely on referrals from existing clients, and supplement referrals with a significant amount of direct marketing to new clients through conferences, seminars, publications, presentations, and direct solicitations.
It is important to us that we conduct business ethically and in accordance with industry standards and our own rigorous professional standards. We carefully consider the pursuit of each specific market, client, and engagement in light of these standards.
Competition
The market for economic and management consulting services is intensely competitive, highly fragmented, and subject to rapid change. In general, there are few barriers to entry into our markets, and we expect to face additional competition from new entrants into the economic and management consulting industries. In the litigation, regulatory, and financial consulting markets, we compete primarily with other economic consulting firms and individual academics. We believe the principal competitive factors in this market are reputation, analytical ability, industry expertise, size, and service. In the management consulting market, we compete primarily with other business and management 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.
Risks Related to Our People
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. These competing employers may be able to offer potential employees greater compensation and benefits or more attractive lifestyle choices, career paths, or geographic locations than we can. Competition for these employee consultants has increased our labor costs, and a continuation of this trend could adversely affect our margins and results of operations.
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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 revenues from new engagements with 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.
Additional hiring and business acquisitions could disrupt our operations, increase our costs, or adversely affect our results.
Our business strategy is dependent, in part, upon our ability to grow by hiring consultant employees or groups of consultant employees, and we regularly evaluate opportunities to acquire other businesses. We may not, however, be able to identify, hire, acquire, or successfully integrate new employees and acquired businesses without substantial expense, delay, or other operational or financial obstacles. From time to time, we will evaluate the total mix of our services and we may conclude that acquired businesses may not achieve the results we previously expected. Competition for future hiring and acquisition opportunities in our markets could increase the compensation we offer to potential employees or the prices we pay for businesses we wish to acquire. In addition, we may be unable to achieve the financial, operational, and other benefits we anticipate from any hiring or acquisition, including those we have completed. New acquisitions could also negatively impact existing practices. Hiring additional employees or acquiring businesses could also involve a number of additional risks, including:
the diversion of management's time, attention, and resources from managing and marketing our existing business;
the failure to retain key acquired personnel or retain existing personnel who may view the acquisition unfavorably;
additional conflicts of interest due to the acquired businesses that could impact our ability to secure new engagements;
the need to compensate new employees while they wait for their restrictive covenants with other institutions to expire;
the potential need to raise significant amounts of capital to finance a transaction or the potential issuance of equity securities that could be dilutive to our existing stockholders;
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increased costs to improve or coordinate managerial, operational, financial, and administrative systems, including compliance with the Sarbanes-Oxley Act of 2002;
the potential assumption of legal liabilities;
the inability to attain the expected synergies with an acquired business;
the impact of earn-outs based on the future performance of our acquired businesses that may deter the acquired company from fully integrating into our existing business; and
potential difficulties in integrating new employees with diverse backgrounds and experiences with our existing employee consultants.
Our acquisitions have been accounted for as purchases, some of which involved purchase prices in excess of tangible asset values, resulting in the creation of goodwill and other intangible assets. Under generally accepted accounting principles, we do not amortize goodwill or intangible assets acquired in a business combination that are determined to have indefinite useful lives, but instead review them annually (or more frequently if impairment indicators arise) for impairment. To the extent that we determine that such an asset has been impaired, we will write down its carrying value on our consolidated balance sheet and book a non-cash impairment charge in our consolidated statement of operations. If, as a result of acquisitions or otherwise, the amount of intangible assets being amortized increases, so will our amortization charges in future periods.
Risks Related to Our Client Relationships
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 our 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 strict general data privacy regulation (GDPR) in the European Union, laws that adopt the GDPR as a model (such as Brazil's comprehensive data protection law, the LGPD), and the U.S. state and federal laws such as the California Consumer Protection Act (CCPA), 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
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in the loss or misuse of this information. Any such loss or misuse could result in our suffering claims, fines, damages, losses or reputational damage, any of which could have a material adverse effect on our business and results of operations.
Potential conflicts of interests may preclude us from accepting some engagements
We provide our services primarily in connection with significant or complex transactions, disputes, or other matters that are usually adversarial or that involve sensitive client information. Our engagement by a client may preclude us from accepting engagements with the client's competitors or adversaries because of conflicts between their business interests or positions on disputed issues or other reasons. Accordingly, the nature of our business limits the number of both potential clients and 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 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. Clients who have paid sizable invoices may later declare bankruptcy, and a court may determine that we are not properly entitled to any of those payments consequently requiring a 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.
Risks Related to Our Operations
Changes in global economic, business, health and political conditions could have a material adverse impact on our revenues, results of operations, and financial condition
Overall global economic, business, health 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, global health crises and pandemics, 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.
The June 2016 referendum where voters in the United Kingdom ("UK") approved an exit from the European Union ("EU"), commonly referred to as "Brexit," created political, economic, and regulatory uncertainty in the UK, where our European operations are headquartered. The impact of Brexit depends on the terms of the UK's withdrawal from the EU. The
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UK formally left the EU on January 31, 2020. The UK and EU announced, on December 24, 2020, that they reached agreement on a new Trade and Cooperation Agreement (the “TCA”) which addresses a range of aspects of the future relationship between the parties. The TCA was ratified by the UK Parliament on December 31, 2020. The TCA addresses, for example, trade in goods and the ability of UK nationals to travel to the EU on business but defers other issues. While the TCA includes a commitment by the UK and the EU to keep their markets open for persons wishing to provide financial services through a permanent establishment, it does not address substantive future cooperation in the sphere of financial services or reciprocal market access into the EU by UK firms under so-called “equivalence” arrangements. While the TCA provides clarity in some areas, there also remains substantial political, economic, and regulatory uncertainty that may not be fully realized for several years or more. This uncertainty may result in new regulatory, tax, operations, and cost challenges to our UK, European and global operations. Such uncertainties may significantly impact our business, as customers of UK-based operations evaluate their business needs in consideration of changing economic conditions or increased international regulatory complexities. Currency fluctuations caused by or relating to Brexit could adversely affect our financial position. Such uncertainties may significantly impact our business, as customers of our UK-based operations evaluate their business needs in consideration of changing economic conditions or increased international regulatory complexities.
In March 2020, the World Health Organization declared the COVID-19 outbreak a pandemic, and the United States and other governments' imposed travel restrictions on travel between the United States, Europe and other countries. Within the U.S., several states have imposed restrictions on interstate travel. In addition, stay-at-home orders have been issued by several countries, states, and cities in which our offices are located. Many businesses, including those of our clients, have responded with their own work-from-home policies and procedures.
We intend to continue to provide our services to our clients for the duration of these orders and closures. However, the timing of projects may be delayed or otherwise disrupted due to the length and severity of the current closures and any other restrictions or limitations implemented in the future. The COVID-19 virus poses the risk that our employees, our non-employee experts, governmental agencies, clients, and parties otherwise engaged in the delivery of our services may be prevented from conducting business activities in the ordinary course for an indefinite period. Extended shutdowns or other restrictions could also adversely limit our business operations or increase costs.
The spread of COVID-19, which has caused a broad impact globally, may materially affect us economically. While the potential economic impact brought by the duration of COVID-19 is difficult to assess or predict, a pandemic could result in significant disruption of global financial markets, reducing our ability to access capital, which could in the future negatively affect our liquidity. In addition, a recession or market correction resulting from the spread of COVID-19 could materially affect our business and value of our common stock.
The global pandemic of COVID-19 continues to evolve rapidly. The ultimate impact of COVID-19 or a similar health epidemic or pandemic is highly uncertain and subject to change. We do not yet know the full extent of potential delays or impacts on our business or the global economy. As a result, the COVID-19 pandemic may affect our operating and financial results in a manner that is not presently known to us.
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:
Our clients' perceptions of our ability to add value through our services;
The market demand for our services;
Our competitors' pricing of services and compensation levels;
The market rate for consultant compensation;
Our ability to redeploy consultants from completed client engagements to new client engagements; and
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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 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.
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:
our ability to implement billing rate increases or maintain billing rates;
the number, scope, and timing of ongoing client engagements;
the extent to which we can reassign our employee consultants efficiently from one engagement to the next;
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;
employee hiring and attrition;
the extent of revenue realization or cost overruns;
fluctuations in our provision for income taxes due to changes in income arising in various tax jurisdictions, statutory tax rates, valuation allowances, non-deductible expenses, and changes in estimates of our uncertain tax positions;
fluctuations in interest rates;
currency fluctuations; and
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.
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
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practices may require us to enhance our internal accounting systems and processes, as well as our internal control over financial reporting.
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.
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 our business and results of operations.
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 is 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 goodwill impairment testing and measurement process, we compare the estimated fair value of our reporting unit 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. 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, an impairment charge would be recorded in our consolidated statement of operations.
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 for such period.
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:
variations in our quarterly results of operations;
changes in quarterly dividends;
the extent of any repurchases of shares of our common stock;
the hiring or departure of key personnel or non-employee experts;
changes in our professional reputation;
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the introduction of new services by us or our competitors;
acquisitions or strategic alliances involving us or our competitors;
changes in accounting principles or methods or issues with our internal control over financial reporting;
changes in estimates of our performance or recommendations by securities analysts;
future sales of shares of common stock in the public market; and
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 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. Revenues generated from fixed-price contracts was approximately 24% of our total revenues for the year ended January 2, 2021.
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 2020. 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 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 our stock repurchase programs could cause a decrease in the market price of our common stock, 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.
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We previously identified material weaknesses in our internal control over financial reporting, which have now been remediated. If we fail to maintain an effective system of internal controls over financial reporting, we may not be able to report our financial results timely and accurately, which could adversely affect investor confidence in the Company, and in turn, our results of operations and our stock price.
We previously disclosed in our Annual Reports on Form 10-K, material weaknesses in our internal control over financial reporting primarily related to control deficiencies within various aspects of its control environment. As a result of these control deficiencies, we concluded that our internal control over financial reporting was not effective for the fiscal years ended December 28, 2013 through December 28, 2019. During fiscal 2020, we completed a series of actions and measures that effectively remediated the previously disclosed material weakness and concluded that as of January 2, 2021 our internal control over financial reporting was effective. See Item 9A. – “Controls and Procedures” of this Form 10-K for the fiscal year ended January 2, 2021. We cannot provide assurances that material weaknesses or significant deficiencies will not occur in the future and that we will be able to remediate such weaknesses or deficiencies in a timely manner, which could have a material adverse effect on our business, prospects, results of operations, financial condition and/or cash flows.
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 insurance with a licensed insurance carrier 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.
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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.
Risks Related to Competition
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 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.
Risks Related to Our International Operations
Our international operations create risks
Our international operations carry financial and business risks, including:
currency fluctuations that could adversely affect our financial position and operating results;
unexpected changes in trading policies, regulatory requirements, tariffs, and other barriers;
continued uncertainty around how Brexit will impact the UK generally, including its impact on the regulatory environment, currency, tax, and operations that could disrupt trade, the sale of our services, the movement of our people between the UK, EU, and other locations, and the global economy;
restrictions on the repatriation of earnings;
potentially adverse tax consequences, such as changes in tax laws and statutory tax rates;
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;
less stable political and economic environments; and
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.
Fluctuations in currency exchange rates could adversely affect our operations
We conduct our business in North America, Europe, and Australia, and the global scope of our business exposes us to risk of fluctuations in foreign currency markets. Specifically, our results of operations are subject to fluctuations primarily in the British Pound and Euro against the U.S. Dollar as well as the Euro against the British Pound. The fluctuation in foreign currency markets can both increase and decrease our overall revenue and expenses for any fiscal period, and therefore has a resulting negative impact on our reported results of operations and on our ability to predict our future results and earnings accurately. Additionally, global economic events, including Brexit, have caused and may continue to cause significant volatility in currency exchange rate fluctuations. The impact of Brexit on currency exchange rates and the significance of the resulting fluctuations in the exchange rate of the British Pound may not be fully realized for several years or more. Revenue generated
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from our UK-based operations was approximately 16% (which includes currency exchange effects) of our total revenues for the year ended January 2, 2021. We currently do not hedge our exposure to current foreign currency exchange risks by engaging in foreign exchange hedging transactions, though we may do so in the future.
Risks Related to Our Indebtedness
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. Following an amendment to our credit agreement in January 2021, we have a revolving line of credit with our bank for up to $175.0 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 February 26, 2021, we had no borrowings outstanding under the credit agreement and approximately $170.3 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.
Our debt obligations may adversely impact our financial performance
At present LIBOR is expected to be published only on a limited basis after 2021. Our credit agreement does not specify a particular replacement index rate (or related margin) when LIBOR becomes unavailable and permits the administrative agent in its sole and reasonable discretion to use an alternative method to choose a rate that is selected in accordance with and applied in a manner consistent with general market practice. We expect to amend our credit facility to provide a market-based replacement index rate and margin prior to the time when LIBOR is no longer available. Any replacement rate could result in an increase in our interest expense.
Item 1B—Unresolved Staff Comments
Not applicable.
Item 2—Properties
In the aggregate, as of January 2, 2021, we leased approximately 370,000 square feet of office space in locations around the world, including Boston, San Francisco, Oakland, New York, Chicago, London, and Washington, D.C.
All of our offices are electronically linked and have access to our core consulting tools. We believe our existing office space is adequate to meet our current requirements and that suitable space will be available as needed.
Item 3—Legal Proceedings
None.
Item 4—Mine Safety Disclosures
Not applicable.
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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.
Shareholders. We had approximately 78 holders of record of our common stock as of February 26, 2021. This number does not include shareholders for whom shares were held in a "nominee" or "street" name.
Repurchases of Equity Securities.    The following table provides information about our repurchases of shares of our common stock during the fiscal quarter ended January 2, 2021. 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 six weeks, respectively, to coincide with our reporting periods during the fourth quarter of fiscal 2020.
Issuer Purchases of Equity Securities
Period(a)
Total Number
of Shares
Purchased(1)
(b)
Average Price
Paid per Share(1)
(c)
Total Number of Shares
Purchased as Part of
Publicly Announced
Plans or Programs
(d)
Maximum Number
(or Approximate
Dollar Value) of
Shares that May Yet
Be Purchased
Under the Plans
or Programs(2)
September 27, 2020 to October 24, 2020— $— — $14,699,626 
October 25, 2020 to November 21, 20204,057 $44.46 — $14,699,626 
November 22, 2020 to January 2, 202196,870 $50.16 91,075 $10,132,825 
_________________________
(1)During the four weeks ended November 21, 2020, we accepted 4,057 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 $44.46. During the five weeks ended January 2, 2021, we accepted 5,795 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 $50.36.
(2)On each of February 4, 2021 and February 7, 2020 our Board of Directors authorized an expansion to our existing share repurchase program of an additional $40.0 million and $20.0 million, respectively, of outstanding shares of our common stock. We may repurchase shares under this program 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 $10.1 million and $42.1 million was available for future repurchases under this program as of January 2, 2021 and February 26, 2021 respectively. We expect to continue to repurchase shares under this program.
Shareholder Return Performance Graph.(1)    The graph below compares the cumulative 5-year total return of holders of our common stock with the cumulative total returns of the NASDAQ Composite index and a customized peer group of three companies consisting of Exponent Inc., FTI Consulting Inc. and Huron Consulting Group 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 January 2, 2016 to January 2, 2021. We initiated a quarterly dividend in the fourth quarter of fiscal 2016 and continued to pay quarterly dividends throughout fiscal 2020. 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
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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.
COMPARISON OF 5 YEAR CUMULATIVE TOTAL RETURN*
Among CRA International, Inc., the NASDAQ Composite Index,
and a Peer Group
crai-20210102_g1.jpg
_______________________________________
*    $100 invested on 1/2/16 in stock or 12/31/15 in index, including reinvestment of dividends. Indexes calculated on month-end basis.
1/2/1612/31/1612/30/1712/29/1812/28/191/2/21
CRA International, Inc
100.00 197.13 245.89 226.89 302.53 293.92 
NASDAQ Composite100.00 108.87 141.13 137.12 187.44 271.64 
Peer Group100.00 112.78 112.50 158.71 241.91 266.29 
_______________________________________
(1)This performance graph shall not be deemed to be "soliciting material" or to be "filed" with the SEC for purposes of Section 18 of the Securities and Exchange Act of 1934, as amended, or otherwise subject to the liabilities under that Section, and shall not be deemed incorporated by reference into any filing of CRA International, Inc. under the Securities Act of 1933, as amended.
The stock price performance included in this graph is not necessarily indicative of future stock price performance.
Item 6—Selected Financial Data
Pursuant to the early adoption of SEC Final Rule Release No. 33-10890, Management’s Discussion and Analysis, Selected Financial Data, and Supplementary Financial Information, we have elected to omit Item 6. Selected Financial Data.
Item 7—Management's Discussion and Analysis of Financial Condition and Results of Operations
This section of the Form 10-K does not address certain items regarding the year ended December 29, 2018. Discussion and analysis of fiscal 2018 and year-to-year comparisons between fiscal 2019 and fiscal 2018 not included in this Form 10-K
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can be found in "Item 7. Management's Discussion and Analysis of Financial Conditions and Results of Operations" of our Annual Report on Form 10-K for the year ended December 28, 2019.
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 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 for costs we incur in fulfilling our performance obligations, including travel and other out-of-pocket expenses, fees for outside consultants and other reimbursable expenses.
Our costs of services include the salaries, bonuses, share-based compensation expense, forgivable loan amortization, 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 outside consultants 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.
While the COVID-19 pandemic did not materially adversely affect our financial results and business operations during fiscal 2020, the COVID-19 pandemic may continue to pose risks to our business. The public health actions being undertaken to reduce the spread of the virus may create significant disruptions with respect to the demand for our services and impact our ability to conduct business activities in the ordinary course for an indefinite period. Since March 16, 2020, when we implemented our stay-at-home policy and successfully transitioned to a virtual work environment, we have been closely monitoring the COVID-19 pandemic and its impacts and potential impacts on our business. Due to the above circumstances and as described generally in this Form 10-K, our results of operations for fiscal 2020 are not necessarily indicative of the results to be expected for future fiscal years.
We have implemented enhanced safety procedures and enhanced cleaning protocols at our facilities to protect the health of our colleagues. Although our offices remain open and capable of hosting our colleagues, we have invited them to work wherever they feel most comfortable. See Item 1A in this annual report on Form 10-K for an additional discussion of risks and potential risks of the COVID-19 pandemic on our business, financial condition and results of operations.
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 69%, 75%, and 76% for fiscal 2020, fiscal 2019, and fiscal 2018, respectively.
We experience certain seasonal effects that impact our revenue. Concurrent vacations or holidays taken by a large number of consultants can adversely impact our revenue. For example, we usually 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. In addition, much of our junior staff hiring occurs in our fiscal third quarter during which our new colleagues receive training and become acclimated to the organization. As a result, utilization may be impacted for the latter half of the year.
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International Operations
Revenues outside of the U.S. accounted for approximately 20%, 21%, and 21% of our total revenues in fiscal 2020, fiscal 2019, and fiscal 2018, respectively. Revenue by country is detailed in Note 2 to our Notes to Consolidated Financial Statements.
Noncontrolling Interest
Please refer to the section captioned "Basis of Presentation" in Note 1 of our Notes to Consolidated Financial Statements contained in this Form 10-K.
Critical Accounting Policies and Estimates
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. These estimates 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.
Our significant accounting policies are discussed in Note 1 in our Notes to Consolidated Financial Statements. A summary of the accounting policies that we believe are most critical to understanding and evaluating our financial results is set forth below. We believe the following accounting policies involve our more subjective and complex judgments that have the most significant potential impact to the presentation of our financial statements. 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.    We adopted ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") on December 31, 2017 using the modified retrospective method for all contracts not completed as of the date of adoption. Revenue is recognized under ASC 606 when we satisfy a performance obligation by transferring services promised in a contract to a client in an amount that reflects the consideration that we expect to receive in exchange for those services. Performance obligations in our contracts represent distinct or separate service streams that we provide to our clients.
We evaluate our revenue contracts with clients based on the five-step model under ASC 606: (1) identify the contract with the customer; (2) identify the performance obligations in the contract; (3) determine the transaction price; (4) allocate the transaction price to separate performance obligations; and (5) recognize revenues when (or as) each performance obligation is satisfied. If, at the outset of an arrangement, we determine that an enforceable contract does not exist, revenues are deferred until all criteria for an enforceable contract are met.
We derive substantially all of our revenues from the performance of professional services for our clients. The contracts that we enter into and operate under specify whether the engagement will be billed on a time-and-materials basis or a fixed-price basis. These engagements generally last three to six months, although some of our engagements can be much longer in duration.
Time-and-materials arrangements require the client to pay us based on the number of hours worked at contractually agreed-upon hourly rates. We recognize revenues from these arrangements based on hours incurred and contracted rates based on a right-to-payment for services completed to date. When a time-and-materials arrangement has a "cap" or "limit" amount, we recognize revenue up to the cap or limit amount specified by the client, based on the efforts or hours incurred and expenses incurred. Thereafter, revenue is reserved pending an amendment of the cap or limit.
Fixed-price arrangements require the client to pay a contractually agreed-upon fee in exchange for a pre-established set of professional services. We base our fees on our estimates of the costs and timing for completing a performance obligation. We generally recognize revenues under fixed-price arrangements using a proportional performance method, which is based on the ratio of costs incurred to the total estimated costs for completing a performance obligation. Our fixed-price arrangements generally have a single performance obligation. For arrangements that
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contain multiple performance obligations, the fixed price is allocated based on the estimated relative standalone selling prices of the promised services underlying each performance obligation.
Variable consideration to be included in the transaction price is estimated using either the expected value method or the most likely method based on facts and circumstances. Variable consideration is included in the transaction price if it is probable that a significant future reversal of cumulative revenue under the contract will not occur. We base our estimate of variable consideration on historical realization rates.
Reimbursable expenses, including those relating to travel, out-of-pocket expenses, outside consultants and other outside service costs, are generally included in revenues, and an equivalent amount of reimbursable expenses is included in costs of services in the period in which the expense is incurred.
Differences between the timing of billing and the recognition of revenue are recognized as either unbilled services or deferred revenues in the accompanying consolidated balance sheets. Revenues recognized for services performed but not yet billed to clients are recorded as unbilled services. Client prepayments and retainers are classified as deferred revenues and recognized over future periods as earned in accordance with the applicable retention agreement.
Deferred Compensation.    We account for performance-based and service-based cash awards using an accrual method where changes in estimates are accounted for prospectively over the remaining service period. To the extent the terms of an award attribute all or a portion of the expected future benefits to a period of service greater than one year, the cost of those benefits is accrued over the employee's or non-employee's requisite service period in a systematic and rational manner, usually on a straight-line basis.
The requisite service period typically ranges from three to six years starting with the employee's employment date or non-employee's affiliation date. For an employee or non-employee consultant currently affiliated with us, the requisite service period generally begins at the start of the award's measurement period. A recipient of such an award is expected to be employed by or affiliated with us for the entire measurement period. If the recipient's employment or affiliation with us terminates during the measurement period, the amount paid will be determined in accordance with the recipient's specific contract provisions.
The terms of award agreements may include the achievement of minimum required financial targets over the award's measurement period. These financial targets may include a measure of revenue generation, profitability or both. The amount of the liability of the award agreements is estimated based on internally generated financial projections. The process of projecting these financial targets over the measurement period is highly subjective and requires significant judgment and estimates. There can be no assurance that the estimates and assumptions used in preparing these projections will prove to be accurate.
Valuation of the Contingent Consideration Liability.    In prior periods, we had accounted for our contingent consideration liability by remeasuring the obligation to fair value each reporting period, estimated based on a Monte Carlo simulation. The fair value measurement of these liabilities was based on significant inputs not observed in the market. The significant unobservable inputs used in the fair value measurements of these contingent consideration liabilities were our measures of the estimated payouts based on internally generated revenue projections, expected volatility of the revenue projections, and discount rates. The process of developing financial projections is highly subjective and requires significant judgment and estimates. There can be no assurance that the estimates and assumptions used in preparing these projections will prove to be accurate. We reassess the fair value of these contingent consideration liabilities on a quarterly basis using additional information as it becomes available. Any change in the fair value estimates are recorded in the earnings of that period. As of the current fiscal year end, the liability was estimated using an accrual method that approximates the fair value, as the end of the measurement period occurs in January 2021.
Accounting for Income Taxes.    We record income taxes using the asset and liability method. Deferred tax assets and liabilities are recognized based on estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases. We include in our estimate of deferred tax assets and liabilities an estimate of the realizable benefits from 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 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; expenses by jurisdiction; and results of acquisitions or dispositions.
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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. 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.
Recent Accounting Standards Adopted and Not Yet Adopted
Please refer to the sections captioned "Recent Accounting Standards Adopted" and "Recent Accounting Standards Not Yet Adopted" in Note 1 of our Notes to Consolidated Financial Statements contained in this Form 10-K.
Results of Operations
The following table provides operating information as a percentage of revenues for the periods indicated:
 Fiscal Year Ended
 
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
Revenues100.0 %100.0 %100.0 %
Costs of services (exclusive of depreciation and amortization)72.9 70.4 69.2 
Selling, general and administrative expenses17.7 20.7 21.5 
Depreciation and amortization2.5 2.4 2.4 
Income from operations6.8 6.5 6.9 
GNU gain on liquidation— — 0.1 
Interest expense, net(0.2)(0.3)(0.2)
Foreign currency gains (losses), net (1)— (0.3)0.1 
Income before provision for income taxes6.6 5.9 6.9 
Provision for income taxes1.8 1.3 1.5 
Net income4.8 4.6 5.4 
Net loss attributable to noncontrolling interest, net of tax (2)— — — 
Net income attributable to CRA International, Inc.4.8 %4.6 %5.4 %
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(1)Percentage calculates to less than 0.1% for fiscal 2020.
(2)Percentage calculates to less than 0.1% for fiscal 2018.
Fiscal 2020 Compared to 2019
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 2020 was a 53-week year, and fiscal 2019 was a 52-week year.
Revenues.    Revenues increased by $57.0 million, or 12.6%, to $508.4 million for fiscal 2020 from $451.4 million for fiscal 2019. The increase in net revenue was a result of an increase in gross revenues of $56.0 million as compared to fiscal 2019, coupled with a decrease in write-offs and reserves of $1.0 million as compared to fiscal 2019. The increase in net revenue is also attributable to the inclusion of 53 weeks in fiscal 2020 as compared to 52 weeks in fiscal 2019. Utilization decreased to 69% for fiscal 2020 from 75% for fiscal 2019, while consultant headcount increased by 52 consultants during fiscal 2020. Billable hours increased by 9.4% for fiscal 2020 when compared to fiscal 2019. Included in revenues are the effect of changes in currency exchange rates resulting in an increase to revenue of $0.5 million for fiscal 2020 and a decrease of $3.9 million for fiscal 2019.
Overall, revenues outside of the U.S. represented approximately 20% and 21% of total revenues for fiscal 2020 and fiscal 2019, respectively. Revenues derived from fixed-price engagements remained flat at 24% of total revenues for fiscal 2020 and fiscal 2019. Revenues derived from time-and-materials engagements also remained flat at 76% of total revenues for fiscal 2020 and fiscal 2019. The percentages of revenue derived from fixed-price engagements depends 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.
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Costs of Services (exclusive of depreciation and amortization).    Costs of services (exclusive of depreciation and amortization) increased by $52.9 million, or 16.7%, to $370.7 million for fiscal 2020 from $317.8 million for fiscal 2019. The increase in costs of services was due primarily to an increase of $23.1 million in employee compensation and fringe benefit costs attributable to salaries and benefits associated with our increased consulting headcount, an increase in forgivable loan amortization of $4.2 million, an increase in incentive and retention compensation costs of $20.2 million, and an increase in other compensation of $1.8 million. Additionally, client reimbursable expenses increased by $6.8 million in fiscal 2020 compared to fiscal 2019. The increase in costs of services is also attributable to the inclusion of 53 weeks in fiscal 2020 as compared to 52 weeks in fiscal 2019. These increases were partially offset by a decrease in stock compensation expense of $0.8 million and a decrease in expense related to contingent consideration of $2.4 million. As a percentage of net revenue, costs of services increased to 72.9% for fiscal 2020 as compared to 70.4% for fiscal 2019.
Selling, General and Administrative Expenses.    Selling, general and administrative expenses decreased by $3.6 million, or 3.8%, to $90.0 million for fiscal 2020 from $93.6 million for fiscal 2019. This decrease was due primarily to a decrease in travel and entertainment expenses of $7.0 million, a decrease in legal and professional services of $2.4 million, a decrease in training and marketing expenses of $0.9 million, and a $0.2 million decrease in other operating expenses. These decreases were partially offset by a $3.7 million increase in rent expense due to a full year of rent for additional leased space in our Boston, New York, and Oakland offices in fiscal 2020, an increase in software subscription and data services of $1.3 million, and a $2.1 million increase to employee and incentive compensation. Commissions to our non-employee experts experienced a decrease of $0.2 million. The decrease in selling, general and administrative expenses was partially offset by the inclusion of 53 weeks in fiscal 2020 as compared to 52 weeks in 2019.
As a percentage of revenues, selling, general and administrative expenses decreased to 17.7% for fiscal 2020 from 20.7% for fiscal 2019 due primarily to the increase in revenues and reduction in travel and entertainment costs. Commissions to non-employee experts decreased to 2.5% of revenue in fiscal 2020 compared to 2.8% of revenue in fiscal 2019.
Provision for Income Taxes.    For fiscal 2020, our income tax provision was $9.1 million and the effective tax rate ("ETR") was 27.1%, as compared to a provision of $6.1 million and an effective tax rate of 22.6% for fiscal 2019. The effective tax rate for fiscal 2020 was higher than the prior year due to a decrease in the tax benefit related to share-based compensation and the release of tax reserves recorded in the prior year that did not recur in the current year. Partially offsetting this increase was a decrease in non-deductible meals and entertainment. The ETR for fiscal 2020 was comparable to our combined federal and state statutory rate but included offsets of non-deductible compensation paid to executive officers and the tax benefit related to shared based compensation. The ETR for fiscal 2019 was lower than our combined federal and state statutory rate primarily due to the tax benefit on share-based compensation and the reversal of tax reserves as a result of expiration of statutes of limitation. This was partially offset by non-deductible items resulting from limitations on the deductibility of compensation paid to executive officers and the deductibility of meals and entertainment.
Net Income Attributable to CRA International, Inc.    Net income attributable to CRA International, Inc. increased by $3.8 million to net income of $24.5 million for fiscal 2020 from net income of $20.7 million for fiscal 2019.
The diluted net income per share was $3.07 per share for fiscal 2020, compared to diluted net income per share of $2.53 per share for fiscal 2019. Diluted weighted average shares outstanding decreased by approximately 219,000 shares to approximately 7,948,000 shares for fiscal 2020 from approximately 8,167,000 shares for fiscal 2019. The decrease in diluted weighted average shares outstanding was primarily due to the repurchase of shares of our common stock since December 28, 2019, offset in part by the issuance or vesting of shares of restricted stock and time-vesting restricted stock units, and the exercise of stock options.
Liquidity and Capital Resources
We believe that current cash, cash equivalents, cash generated from operations, and amounts available under our revolving credit facility will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months. As of January 2, 2021, we have $45.7 million of cash and cash equivalents and $120.3 million of borrowing capacity under our revolving credit facility. We believe our cash and cash equivalents and borrowing capacity, when combined with our ongoing operating cash flows, is sufficient to meet our operating needs over the next twelve months and to support our long-term liquidity needs as well.
General.    In fiscal 2020, our cash and cash equivalents increased by $20.1 million, completing the year with cash and cash equivalents of $45.7 million. The principal drivers of the increase of cash were strong collections of accounts receivable and reduced selling, general and administrative expenses.
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During fiscal 2020, working capital (defined as current assets less current liabilities) increased by $7.1 million to end fiscal 2020 at $19.8 million. The increase in working capital was principally due to an increase in cash and cash equivalents of $20.1 million, an increase in accounts receivable and unbilled services of $8.1 million, an increase in the current portion of forgivable loans of $7.9 million, and a decrease in accounts payable of $6.7 million. Partially offsetting these increases in working capital was an increase in accrued expenses of $15.1 million, an increase in deferred revenue and other liabilities of $3.2 million, and the reclassification to a current liability of our contingent consideration liability of $14.6 million, which is included in deferred compensation on our consolidated balance sheets. At the conclusion of the measurement period in January 2021, the contingent consideration obligation was $15.0 million. In February 2021, we paid the contingent consideration.
At January 2, 2021, $11.5 million of our cash and cash equivalents were 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. operations without the need to repatriate funds from our foreign subsidiaries. As of January 2, 2021, CRA's cash accounts were concentrated at two financial institutions, which potentially exposes CRA to credit risks. The financial institutions both have short-term credit ratings 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 institutions, and its cash on deposit is fully liquid. From time to time, CRA also makes investments in treasury money market mutual fund shares with a credit rating of AAA by Moody's. CRA continually monitors the credit ratings of these institutions.
Sources and Uses of Cash. During fiscal 2020, net cash provided by operations was $54.7 million. Net income was $24.5 million for fiscal 2020. Cash provided by operations includes the non-cash items of depreciation and amortization expense of $12.8 million, share-based compensation expenses of $3.2 million, deferred income taxes of $1.1 million, and right-of-use asset amortization of $12.0 million. Sources of cash were an increase in accounts payable, accrued expenses, and other liabilities of $25.3 million, a decrease in prepaid expenses and other current assets of $1.4 million, and an increase in incentive cash awards of $6.6 million. Offsetting these sources of cash were an increase in accounts receivable of $2.4 million, an increase of unbilled services of $3.9 million, a decrease in lease liabilities of $10.5 million, and an increase in forgivable loans of $15.9 million. The change in forgivable loans was primarily driven by $42.4 million of forgivable loan issuances, net of repayments, offset by $26.5 million of forgivable loan amortization netted with the effects of foreign currency translation.
During fiscal 2020, net cash used in investing activities was $17.1 million for capital expenditures, which were primarily used to build out our Oakland, New York, and Toronto office spaces.
We used $19.5 million of net cash in financing activities during fiscal 2020, primarily as a result of $13.4 million of repurchases of our common stock, payment of $7.4 million of cash dividends to shareholders, and tax withholding payments reimbursed by restricted shares of $0.9 million. Offsetting these uses in cash was $2.2 million received upon the issuance of shares of common stock related to the exercise of stock options.
Lease Commitments
We are a lessee under certain operating leases for office space and equipment, which have remaining lease terms between one and approximately eleven years, many of which include one or more options to extend the term for periods up to five years for each option. The maturities of lease liabilities, as of January 2, 2021, related to office space and equipment are discussed in Note 4 in our Notes to Consolidated Financial Statements. We have no additional operating leases we have committed to that have not yet commenced.
Certain of our operating leases have terms that impose asset retirement obligations due to office modifications or the periodic redecoration of the premises, which are included in facility-related liabilities on our consolidated balance sheets and are recorded at a value based on their estimated discounted cash flows. Redecoration costs under these lease obligations are estimated to be approximately $0.3 million over the next twelve months. The remainder of our asset retirement obligations and redecoration obligations are approximately $3.5 million and are expected to be settled between fiscal 2026 and fiscal 2031 when the underlying leases terminate. We expect to satisfy these lease and related obligations, as they become due, from cash generated from operations.
Indebtedness
We are party to a $175.0 million revolving credit facility, which reflects an increase on January 12, 2021 to the capacity of the revolving credit facility by $50.0 million and includes a $15.0 million sublimit for the issuance of letters of credit. We may use the proceeds of the revolving credit facility for working capital and other general corporate purposes. Generally, we may repay 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 January 2, 2021.
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The amount available under this revolving credit facility was reduced by $4.7 million of letters of credit outstanding as of January 2, 2021. 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 $39.4 million in net assets as of January 2, 2021.
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. At January 2, 2021 and currently, we are in compliance with all such tests under the credit agreement.
Forgivable 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 by key person life insurance. The forgivable loans have terms that are generally between one 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 compensation arrangements for the payment of performance awards to certain of our non-employee experts and employees that are payable if specific performance targets are met. These financial targets may include a measure of revenue generation, profitability, or both. The amounts of the awards to be paid under these compensation arrangements could fluctuate depending on future performance during the applicable measurement periods. Changes in the estimated awards are expensed prospectively over the remaining service period. We believe that we will have sufficient funds to satisfy any cash obligations related to the performance awards. We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings on our revolving credit facility.
We have an active equity incentive plan. 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 non-employee experts, including stock options, shares of restricted stock, restricted stock units, and other equity awards.
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 long-term incentive program, or "LTIP," to allow grants of service- and performance-based cash awards in lieu of, or in addition to, equity awards to our senior corporate leaders, practice leaders, and key revenue generators. The compensation committee of our Board of Directors is responsible for approving all cash and equity awards under the LTIP. Under our cash incentive plan, we expect to pay LTIP cash awards of approximately $6.8 million over the next twelve months and $13.3 million between fiscal 2022 and fiscal 2025. We expect to fund any cash payments from existing cash resources, cash generated from operations, or borrowings on our revolving credit facility.
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
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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 credit agreement, will depend on several factors, including our future profitability, the levels of our debt and equity, restrictions under our existing revolving line of credit with our bank, and the overall credit and equity market environments.
Share Repurchases
In February 2021 and February 2020, our Board of Directors authorized an expansion to our existing share repurchase program, authorizing the purchase of an additional $40.0 million and $20.0 million, respectively, of our common stock. We may repurchase shares under this program in open market purchases (including through any Rule 10b5-1 plan adopted by us) or in privately negotiated transactions in accordance with applicable insider trading and other securities laws and regulations. During fiscal 2020, we repurchased and retired 283,842 shares, under our share repurchase program at an average price per share of $47.14. We had approximately $10.1 million available for future repurchases under our share repurchase program as of January 2, 2021. As of February 26, 2021, we had approximately $42.1 million available for future repurchases under our share repurchase program. We plan to finance future repurchases with available cash, cash from future operations and funds from our revolving credit facility. We expect to continue to repurchase shares under our share repurchase program.
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 borrowings 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 any such dividends remain subject to the discretion of our Board of Directors. During the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, we paid dividends of $7.5 million, $6.8 million, and $6.0 million, respectively.
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:
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;
the hiring of individuals to replenish and expand our employee base;
capital expenditures, primarily for information technology equipment, office furniture and leasehold improvements;
debt service and repayments, including interest payments on borrowings from our revolving credit facility;
share repurchases, under programs that we may have in effect from time to time;
dividends to shareholders;
potential acquisitions of businesses that would allow us to diversify or expand our service offerings;
contingent obligations related to our acquisitions; and
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 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.
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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:
our future profitability;
the quality of our accounts receivable;
our relative levels of debt and equity;
the volatility and overall condition of the capital markets; and
the market prices of our securities.
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, 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).
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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
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 ("the Exchange Act"), 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 effective as of January 2, 2021.
(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 effective to provide reasonable assurance regarding the reliability of our financial reporting and the preparation of our financial statements for external purposes in accordance with U.S. generally accepted accounting principles as of January 2, 2021.
Our independent registered public accounting firm, Grant Thornton LLP, has issued an audit report on their assessment of our internal control over financial reporting. The audit report is included herein.
Remediation of Material Weaknesses
We previously reported material weaknesses that were identified as of December 28, 2019 regarding the design and operating effectiveness of our internal control over financial reporting relating to: 1) our incentive-based compensation liabilities as it relates to the review of the completeness and accuracy of key inputs into the computation of these liabilities; 2) certain aspects of accounting for revenue and related accounts; and 3) the completeness of certain accounts payable and expense accruals. With input and oversight from the Audit Committee, we took actions as outlined in the remediation plan detailed in our Form 10-K for the fiscal year ended December 28, 2019, to remediate these material weaknesses. Our efforts focused on strengthening our finance organization and implementing a suite of enhanced controls during fiscal 2020. More specifically in the following areas, we:
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Incentive-based Compensation Liabilities
Enhanced our business processes, internal control design and source data validation procedures, over the execution, review and accounting for incentive-based compensation accruals; and
Provided additional training to our key stakeholders over roles and responsibilities, documentation standards, and expectations over retaining evidence that impact the determination of our financial accruals.
Revenue
Enhanced the design and operation of our internal controls related to revenue accounting for client contracts, including the implementation of enhanced revenue assessment procedures;
Enhanced our management review controls over revenue forecasts and related assumptions used in the computation of incentive-based compensation;
Provided additional training on the importance of timely, accurate and complete financial information effecting the status of client projects; and
Implemented technological improvements, to ensure the timeliness, completeness and accuracy of our accounting records and enhanced reporting.
Accounts Payable and Expense Accruals
Enhanced the design and operation of our internal controls related to accounts payable and certain accrued expenses;
Implemented measures to enhance the transparency, timeliness, and reporting of expense data; and
Enhanced our analytic procedures over the estimation and monitoring of our accrued expenses.
As a result of the remediation activities and controls in place as of January 2, 2021 described above, we have remediated all material weaknesses that were disclosed and included in our Form 10-K for the fiscal year ended December 28, 2019.
(c)Evaluation of Changes in Internal Control over Financial Reporting
Under the supervision and with the participation of our management, including our President and Chief Executive Officer and Chief Financial Officer, we evaluated whether there were any changes in our internal control over financial reporting during the fourth quarter of fiscal 2020, including any changes related to COVID-19. Except for the remediation activities noted in Section (b) that were implemented throughout fiscal 2020, our 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 2020 that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.
(d)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
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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
CRA International, Inc.
Opinion on internal control over financial reporting
We have audited the internal control over financial reporting of CRA International, Inc. (a Massachusetts corporation) and subsidiaries (the “Company”) as of January 2, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of January 2, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by COSO.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (“PCAOB”), the consolidated financial statements of the Company as of and for the year ended January 2, 2021, and our report dated March 4, 2021 expressed an unqualified opinion on those financial statements.
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. 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 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.
/s/ GRANT THORNTON LLP
Boston, Massachusetts
March 4, 2021
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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 2021 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 2020. We incorporate that information in this annual report by reference to the proxy statement to be filed in connection with the 2021 annual meeting of our shareholders, which we will refer to herein as our "2021 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 "Delinquent Section 16(a) Reports" in our 2021 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 2021 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 2021 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 2021 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 2021 annual proxy statement.
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PART IV
Item 15—Exhibits and Financial Statement Schedules
(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.
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EXHIBIT INDEX
   Incorporated by Reference
Exhibit No.DescriptionFiled with
this
Form 10-K
FormFiling DateExhibit No.
3.110-KFebruary 27, 20203.1
3.2 8-KJanuary 31, 20113.2
4.1 S-8April 21, 20064.4
4.210-KFebruary 27, 20204.2
10.1* S-1/AApril 3, 199810.2
10.2* DEF 14AApril 27, 2018Annex A
10.3* 8-KApril 27, 200610.2
10.4* 10-KFebruary 12, 200910.9
10.5* 10-KMarch 2, 201210.11
10.6* 10-KMarch 15, 201710.9
10.7* 10-KMarch 12, 201810.7
10.8* 10-QAugust 2, 201810.3
10.9* 8-KApril 27, 200610.3
10.10* 10-KFebruary 12, 200910.11
10.11* 10-KMarch 2, 201210.14
10.12* 10-QAugust 2, 201810.4
10.13* 10-KFebruary 8, 200710.10
10.14* 10-KMarch 2, 201210.16
10.15* 10-KMarch 15, 201710.12
10.16* 10-KMarch 12, 201810.14
10.17* 10-KJanuary 29, 201010.14
10.18* 10-KMarch 2, 201210.18
10.19* 10-KMarch 15, 201710.15
10.20* 10-KMarch 12, 201810.18
10.21* 10-KJanuary 29, 201010.15
10.22* 10-KMarch 2, 201210.20
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   Incorporated by Reference
Exhibit No.DescriptionFiled with
this
Form 10-K
FormFiling DateExhibit No.
10.23* 10-KMarch 15, 201710.18
10.24* 10-KMarch 12, 201810.22
10.25* DEF 14AApril 28, 2017Annex B
10.26* 8-KDecember 12, 201610.2
10.27* 8-KDecember 12, 201610.3
10.28*10-KFebruary 27, 202010.28
10.29 8-KFebruary 27, 201410.1
10.30 8-KMarch 2, 201510.1
10.31 10-QAugust 2, 201810.1
10.32 10-QAugust 2, 201810.2
10.33 10-KFebruary 23, 200110.9
10.34 10-KMarch 17, 201510.35
10.35 8-KDecember 30, 201410.1
10.36 10-KMarch 4, 201610.28
10.37 10-QOctober 31, 201710.3
10.38 8-KMay 25, 201610.1
10.39 8-KMay 25, 201610.2
10.40 8-KMay 25, 201610.3
10.41 8-KMay 25, 201610.4
10.42 8-KMay 25, 201610.5
10.43 8-KMay 25, 201610.6
10.44 8-KNovember 27, 201710.1
10.45 10-QMay 8, 201810.2
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   Incorporated by Reference
Exhibit No.DescriptionFiled with
this
Form 10-K
FormFiling DateExhibit No.
10.46 10-KFebruary 28, 201910.46
10.47 10-KFebruary 28, 201910.47
10.48 10-KFebruary 28, 201910.48
10.49 8-KJuly 21, 201510.1
10.50 8-KMay 5, 201710.1
10.51 10-QMay 8, 201810.1
10.52 10-QMay 11, 201710.2
10.53 10-QOctober 31, 201710.2
10.54 S-1/AApril 3, 199810.8
10.55 8-KOctober 26, 201710.1
10.56 8-KOctober 26, 201710.2
10.57 8-KNovember 27, 201710.2
10.58 8-KJune 24, 201910.1
10.59 10-QOctober 31, 201910.1
10.60*8-KMarch 20, 202010.1
10.61*8-KMarch 20, 202010.2
10.62*8-KMarch 20, 202010.3
10.63*8-KMarch 20, 202010.4
10.64*8-KMarch 20, 202010.5
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   Incorporated by Reference
Exhibit No.DescriptionFiled with
this
Form 10-K
FormFiling DateExhibit No.
21.1X   
23.1X   
23.2X
31.1X   
31.2X   
32.1X   
32.2X
101The following financial statements from CRA International, Inc.'s Annual Report on Form 10-K for the fiscal year ended January 2, 2021, formatted in Inline XBRL (eXtensible Business Reporting Language), as follows: (i) Consolidated Statements of Operations for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, (ii) Consolidated Statements of Comprehensive Income (Loss) for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018, (iii) Consolidated Balance Sheets as at January 2, 2021 and December 28, 2019, (iv) Consolidated Statements of Cash Flows for the fiscal years ended January 2, 2021, December 28, 2019, and December 29,2018, (v) Consolidated Statements of Shareholders' Equity for the fiscal years ended January 2, 2021, December 28, 2019, and December 29, 2018 and (vi) Notes to Consolidated Financial Statements.X   
104Cover Page Interactive Data File (formatted as Inline XBRL and contained in Exhibit 101).
* Management contract or compensatory plan, contract or arrangement.
Item 16—Form 10-K Summary
None.
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SIGNATURES
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.
CRA INTERNATIONAL, INC.
 
 By:/s/ PAUL A. MALEH
Paul A. Maleh
President, Chief Executive Officer and Director
Date: March 4, 2021
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.
SignatureTitleDate
   
/s/ PAUL A. MALEHPresident, Chief Executive Officer, and Chairman of the Board (principal executive officer)March 4, 2021
Paul A. Maleh
/s/ DANIEL K. MAHONEYChief Financial Officer, Executive Vice President, and Treasurer (principal financial officer and principal accounting officer)March 4, 2021
Daniel K. Mahoney
/s/ RICHARD D. BOOTHDirectorMarch 4, 2021
Richard D. Booth
/s/ THOMAS A. AVERYDirectorMarch 4, 2021
Thomas A. Avery
/s/ WILLIAM F. CONCANNONDirectorMarch 4, 2021
William F. Concannon
/s/ NANCY HAWTHORNEDirectorMarch 4, 2021
Nancy Hawthorne
/s/ ROBERT W. HOLTHAUSENDirectorMarch 4, 2021
Robert W. Holthausen
/s/ CHRISTINE R. DETRICKDirectorMarch 4, 2021
Christine R. Detrick
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CRA INTERNATIONAL, INC.
INDEX TO
CONSOLIDATED FINANCIAL STATEMENTS
FS-2
FS-5
FS-6
FS-7
FS-8
FS-9
FS-10
FS-1

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Report of Independent Registered Public Accounting Firm
Board of Directors and Shareholders
CRA International, Inc.
Opinion on the financial statements
We have audited the accompanying consolidated balance sheet of CRA International, Inc. (a Massachusetts corporation) and subsidiaries (the Company) as of January 2, 2021, the related consolidated statements of operations, comprehensive income, shareholders’ equity, and cash flows for the year ended January 2, 2021, and the related notes (collectively referred to as the “financial statements”). In our opinion, the financial statements present fairly, in all material respects, the financial position of the Company as of January 2, 2021, and the results of its operations and its cash flows for the year ended January 2, 2021, in conformity with accounting principles generally accepted in the United States of America.
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 January 2, 2021, based on criteria established in the 2013 Internal Control—Integrated Framework issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”), and our report dated March 4, 2021 expressed an unqualified opinion.
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.
Critical audit matters
The critical audit matters communicated below are matters arising from the current period audit of the financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.
Fixed-Price Revenue Recognition – Estimates of total costs to complete a performance obligation
As described further in Notes 1 and 2 to the consolidated financial statements, the Company recognizes revenue from fixed-price arrangements using the ratio of costs incurred to total estimated costs for completing a performance obligation. We identified the Company’s estimates of total costs to complete a performance obligation in a fixed-price contract as a critical audit matter.
The principal considerations for our determination that the Company’s estimates of total costs to complete a performance obligation in a fixed-price arrangement is a critical audit matter are the significant management judgement in estimating forecasted direct labor, subcontract labor and other direct costs remaining to complete a performance obligation and to determine the related revenue recognized. Significant management estimates are subject to estimation uncertainty and require significant auditor subjectivity in evaluating the results of our procedures and the reasonableness of those estimates.
FS-2

Table of Contents
Our audit procedures related to the estimates of total costs to complete a performance obligation included the following, among others.
We tested the design and operating effectiveness of internal controls relating to management’s estimates of total costs to complete a performance obligation in a fixed-price arrangement.
We evaluated management’s historical ability to estimate total costs to complete a performance obligation in a fixed-price arrangement.
For a sample of fixed-price arrangements, we obtained subsequent actual costs incurred and subsequent estimates of total cost to complete and compared to the Company's estimate.
Deferred Compensation - Performance-Based Awards
As described further in Note 1 to the consolidated financial statements, the Company provides performance-based awards where the amount to be paid depends upon achievement of minimum required financial targets over the award’s measurement period. These financial targets may include a measure of revenue generation, profitability, or both. We identified the estimation uncertainty related to the achievement of the financial targets used in the calculation of the performance-based awards deferred compensation liability as a critical audit matter.
The principal consideration for our determination that the achievement of the financial targets is a critical audit matter is that it requires management judgement in estimating forecasted future revenues for the remaining measurement period. This requires management to evaluate historical results and expectations of future performance based on available information, including each recipient’s specific performance. Significant management estimates are subject to estimation uncertainty and require significant auditor subjectivity in evaluating the results of our procedures and the reasonableness of those estimates.
Our audit procedures related to this matter included the following, among others.
We tested the design and operating effectiveness of internal controls over management’s estimates related to forecasted future revenues for the remaining measurement period.
We evaluated management’s historical ability to estimate revenues.
We obtained and tested the Company’s key inputs and assumptions used to estimate the forecasted future revenues for the remaining measurement period. Our testing included evaluating key inputs and assumptions by comparing them to historical results and performing sensitivity analysis.
/s/ GRANT THORNTON LLP
We have served as the Company's auditor since 2020.
Boston, Massachusetts
March 4, 2021
FS-3

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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 sheet of CRA International, Inc. (the Company) as of December 28, 2019, the related consolidated statements of operations and comprehensive income, shareholders’ equity and cash flows for each of the two years in the period ended December 28, 2019, and the related notes (collectively referred to as the “consolidated financial statements”). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company at December 28, 2019, and the results of its operations and its cash flows for each of the two years in the period ended December 28, 2019, in conformity with U.S. generally accepted accounting principles.
Adoption of ASU No. 2016-02
As discussed in Note 1 to the consolidated financial statements, the Company changed its method for accounting for leases in fiscal year 2019 due to the adoption of ASU No. 2016-02, Leases, and associated amendments (Topic 842), using the modified retrospective method.
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 Public Company Accounting Oversight Board (United States) (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 served as the Company's auditor from 2014 to 2020.
Boston, Massachusetts
February 27, 2020
FS-4

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CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
Year EndedYear EndedYear Ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
(in thousands, except per share data)
Revenues$508,373 $451,370 $417,648 
Costs of services (exclusive of depreciation and amortization)370,709 317,761 289,185 
Selling, general and administrative expenses90,028 93,613 89,533 
Depreciation and amortization12,840 10,648 9,995 
Income from operations34,796 29,348 28,935 
GNU gain on liquidation  258 
Interest expense, net(1,216)(1,254)(647)
Foreign currency gains (losses), net42 (1,297)387 
Income before provision for income taxes33,622 26,797 28,933 
Provision for income taxes9,115 6,050 6,461 
Net income24,507 20,747 22,472 
Net loss attributable to noncontrolling interest, net of tax  20 
Net income attributable to CRA International, Inc. $24,507 $20,747 $22,492 
Net income per share attributable to CRA International, Inc.:
Basic$3.14 $2.63 $2.76 
Diluted$3.07 $2.53 $2.61 
Weighted average number of shares outstanding:
Basic7,768 7,866 8,107 
Diluted7,948 8,167 8,570 
See accompanying notes to the consolidated financial statements.
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CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
Year EndedYear EndedYear Ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
(in thousands)
Net income$24,507 $20,747 $22,472 
Other comprehensive income (loss)
Foreign currency translation adjustments3,280 831 (2,698)
Comprehensive income27,787 21,578 19,774 
Comprehensive loss attributable to noncontrolling interest  20 
Comprehensive income attributable to CRA International, Inc.$27,787 $21,578 $19,794 
See accompanying notes to the consolidated financial statements.
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CRA INTERNATIONAL, INC.
CONSOLIDATED BALANCE SHEETS
January 2,
2021
December 28,
2019
(in thousands, except
share data)
ASSETS
Current assets:
Cash and cash equivalents$45,677 $25,639 
Accounts receivable, net of allowances of $3,595 at January 2, 2021 and $3,838 at December 28, 2019
111,595 107,841 
Unbilled services, net of allowances of $1,000 at January 2, 2021 and $1,503 at December 28, 2019
40,881 36,569 
Prepaid expenses and other current assets7,068 7,277 
Forgivable loans14,749 6,751 
Total current assets219,970 184,077 
Property and equipment, net62,878 61,295 
Goodwill89,187 88,504 
Intangible assets, net5,108 6,476 
Right-of-use assets122,144 130,173 
Deferred income taxes9,667 10,670 
Forgivable loans, net of current portion46,864 48,390 
Other assets2,692 3,658 
Total assets$558,510 $533,243 
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable$19,430 $26,069 
Accrued expenses136,376 121,301 
Deferred revenue and other liabilities9,866 6,723 
Current portion of lease liabilities13,557 12,847 
Current portion of deferred compensation20,902 4,470 
Total current liabilities200,131 171,410 
Non-current liabilities:
Deferred compensation and other non-current liabilities7,075 15,071 
Facility-related non-current liabilities2,113 1,956 
Non-current portion of lease liabilities139,447 146,551 
Deferred income taxes725 504 
Total non-current liabilities149,360 164,082 
Commitments and contingencies (Note 16)
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; 7,693,497 and 7,814,797 shares issued and outstanding at January 2, 2021 and December 28, 2019, respectively
503 9,265 
Retained earnings216,999 200,249 
Accumulated other comprehensive loss(8,483)(11,763)
Total shareholders’ equity209,019 197,751 
Total liabilities and shareholders’ equity$558,510 $533,243 
See accompanying notes to the consolidated financial statements.
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CRA INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
Year EndedYear EndedYear Ended
January 2,
2021
(53 weeks)
December 28,
2019
(52 weeks)
December 29,
2018
(52 weeks)
(in thousands)
OPERATING ACTIVITIES:
Net income$24,507 $20,747 $22,472 
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization12,840 10,648 9,996 
GNU gain on liquidation   (258)
Deferred rent and facility-related liabilities142 117 3,596 
Right-of-use asset amortization12,037 10,662  
Deferred income taxes1,114 (1,159)(829)
Share-based compensation expenses3,235 3,461 4,819 
Accounts receivable allowances(479)47 (1,410)
Unrealized foreign currency remeasurement losses, net247   
Changes in operating assets and liabilities:
Accounts receivable(1,948)(12,759)(14,427)
Unbilled services, net(3,940)(352)(2,987)
Prepaid expenses and other current assets, and other assets1,377 (2,120)5,502 
Forgivable loans(15,868)(16,331)(12,277)
Incentive cash awards6,602 4,839 3,206 
Accounts payable, accrued expenses, and other liabilities25,336 16,194 18,786 
Lease liabilities(10,539)(6,162) 
Net cash provided by operating activities54,663 27,832 36,189 
INVESTING ACTIVITIES:
Purchases of property and equipment(17,094)(16,693)(15,447)
Net cash used in investing activities(17,094)(16,693)(15,447)
FINANCING ACTIVITIES:
Issuance of common stock, principally stock options exercises2,236 3,211 2,166 
Borrowings under revolving line of credit77,000 54,000 30,161 
Repayments under revolving line of credit(77,000)(54,000)(30,161)
Tax withholding payments reimbursed by shares(862)(2,176)(3,946)
Cash paid on dividend equivalents(108)(246)(256)
Cash dividends paid to shareholders(7,395)(6,539)(5,784)
Repurchase of common stock(13,371)(18,068)(27,884)
Distribution to noncontrolling interest   (43)
Net cash used in financing activities(19,500)(23,818)(35,747)
Effect of foreign exchange rates on cash and cash equivalents1,969 290 (1,002)
Net increase (decrease) in cash and cash equivalents20,038 (12,389)(16,007)
Cash and cash equivalents at beginning of period25,639 38,028 54,035 
Cash and cash equivalents at end of period$45,677 $25,639 $38,028 
Noncash investing and financing activities:
Purchases of property and equipment not yet paid for$4,749 $4,914 $303 
Purchases of property and equipment paid by a third party$ $156 $133 
Asset retirement obligations$155 $428 $223 
Right-of-use assets obtained in exchange for lease obligations$2,640 $57,827 $ 
Right-of-use assets related to the adoption of ASC 842$ $82,329 $ 
Lease liabilities related to the adoption of ASC 842$ $106,765 $