11. Revenue Recognition

CRA offers consulting services in two broad lines: (1) litigation, regulatory, and financial consulting; and (2) management consulting. Together, these two service lines comprised all of CRA's consolidated revenues during the fiscal year ended December 29, 2018. CRA recognizes all project revenue on a gross basis based on consideration of the criteria set forth in ASC Topic 606-10-55, Principal versus Agent Considerations. For the fiscal year ended December 29, 2018, items in the consolidated statements of operations, consolidated statements of comprehensive income, and consolidated statements of cash flows recognized under ASC 606 are not materially different from what would have been recognized under ASC 605. In addition, balances as of December 29, 2018 on the consolidated balance sheets as measured under ASC 606 are not materially different from balances if measured under ASC 605.

CRA evaluates its revenue contracts with customers 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 revenue when (or as) each performance obligation is satisfied. CRA evaluates its contracts for legal enforceability at contract inception and subsequently throughout CRA’s relationship with its customers. If legal enforceability with regard to the rights and obligations exist for both CRA and the customer, then CRA has an enforceable contract and revenue recognition is permitted subject to the satisfaction of the other criteria. If, at the outset of an arrangement, CRA determines that a contract with enforceable rights and obligations does not exist, revenues are deferred until all criteria for an enforceable contract are met.

Revenue is recognized when, or as, obligations under the terms of a contract are satisfied, which occurs when control of the promised consulting services are transferred to customers. Revenue is measured as the amount of consideration CRA expects to receive in exchange for transferring consulting services to a customer (the “transaction price”). To the extent the transaction price includes variable consideration, CRA estimates the amount of variable consideration that should be included in the transaction price utilizing the most likely amount to which it expects to be entitled. Variable consideration is included in the transaction price if, in CRA’s judgment, it is probable that a significant future reversal of cumulative revenue under the contract will not occur. Estimates of variable consideration and determination of whether to include estimated amounts in the transaction price are based largely on an assessment of CRA’s anticipated performance and all information (historical, current and forecasted) that is reasonably available. The transaction price also includes reimbursable expenses. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue. CRA usually issues invoices to its customers on a monthly basis, and payment is due upon receipt of the invoice.

When determining the transaction price of a contract, an adjustment is made if payment from a customer occurs either significantly before or significantly after performance, resulting in a significant financing component. Applying the practical expedient in ASC 606, CRA does not assess whether a significant financing component exists if the period between when it performs its obligations under the contract and when the customer pays is one year or less. None of CRA’s contracts contained a significant financing component as of December 29, 2018.

If the contract contains a single performance obligation, the entire transaction price is allocated to the single performance obligation. Contracts that contain multiple performance obligations require an allocation of the transaction price based on the estimated relative standalone selling prices of each of the performance obligations. CRA determines standalone selling prices based on the price at which the performance obligation is sold separately. If the standalone selling price is not observable through past transactions, CRA estimates the standalone selling price considering all available information such as market conditions and internally approved pricing guidelines related to the performance obligations.

Contracts are often modified to account for changes in project scope. Contract modifications exist when there is a change in the scope or price (or both) of a contract that is approved by the parties to the contract. Generally, contract modifications for consulting services are not distinct from the existing contract as the modification expands CRA’s consulting services, contemplated by the existing contract and thus are accounted for as if they were part of that existing contract. The effect of a contract modification on the transaction price and measure of progress for the performance obligation to which it relates is recognized as an adjustment to revenue on a cumulative catch-up basis.

Consulting services revenue is generally recognized over time as the services are delivered to the customer based on the extent of progress towards completion of the performance obligation. The selection of the method to measure progress towards completion requires judgment and is based on the nature of the consulting services to be provided. CRA generally measures its progress on time and materials projects based on the hours incurred and the stated rates outlined in our retention letters with our customers. For fixed price projects, progress is measured on a proportional performance basis. CRA uses the proportional performance measure of progress when it best depicts the transfer of value to the customer which occurs as it incurs costs on its contract. Under the proportional performance measure of progress, the extent of progress towards completion is measured based on the ratio of costs incurred to date to the total estimated costs at completion of the performance obligation. Revenues are recorded proportionally as costs are incurred.

Consulting Services Revenues

The contracts CRA enters into and operates under specify whether the engagements are billed on a time-and-materials or a fixed-price basis. Most of CRA's revenue is derived from time-and-materials service contracts. Revenues from time-and-materials service contracts are recognized as services are provided based upon hours worked and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked. Revenues from a majority of CRA's fixed-price engagements are recognized on a proportional performance method based on the ratio of costs incurred (input method), substantially all of which are labor-related, to the total estimated project costs. In general, project costs are classified in costs of services and are based on the direct salary of CRA’s employee consultants on the engagement plus all direct expenses incurred to complete the engagement, including any amounts billed to CRA by its non-employee experts.

Disaggregation of Revenue

The following table disaggregates CRA’s revenue by major business line and timing of transfer of its consulting services.


	Year Ended		Year Ended		Year Ended
Type of Contract	December 29,		December 30,		December 31,
	2018		2017		2016
	(52 weeks)		(52 weeks) (1)		(52 weeks) (1) (2)
Consulting services revenues
Fixed Price	$	95,096	$	93,570	$	55,100
Time-and-materials		322,552		276,505		268,853
Other		—		—		826
Total	$	417,648	$	370,075	$	324,779


	Year Ended		Year Ended		Year Ended
Geographic Breakdown	December 29,		December 30,		December 31,
	2018		2017		2016
	(52 weeks)		(52 weeks) (1)		(52 weeks) (1) (2)
Consulting services revenues
United States	$	329,678	$	295,232	$	251,962
United Kingdom		65,874		53,644		52,509
Other		22,096		21,199		20,308
Total	$	417,648	$	370,075	$	324,779

(1)

As noted above, prior period amounts have not been adjusted under the modified retrospective method.

(2)

GNU's financial information is included above and is immaterial to the overall consolidated financial statements. GNU’s revenues for fiscal 2016 were $0.8 million. Within the “Type of Contract” table, these revenues are presented within the “Other” category. Within the “Geographic Breakdown” table, these revenues are presented within the “United States” category. As previously disclosed, no revenues were recorded for GNU in fiscal 2018 or fiscal 2017.

Reserves for Variable Consideration and Credit Risk

Revenues from CRA’s consulting services are recorded at the net transaction price, which includes estimates of variable consideration for which reserves are established. These variable consideration reserves, which are based on actual price concessions and those expected to be extended to CRA customers, are classified as reductions of accounts receivable and unbilled services. These calculated estimates take into consideration CRA’s historical experiences of prior period revenues that were subsequently reversed due to these price concessions. Overall, these reserves reflect CRA’s best estimates of the amount of consideration to which it is entitled based on the terms of its contracts with its customers. The amount of variable consideration that is included in the transaction price may be constrained, and is included in the net transaction price only to the extent that it is probable that a significant reversal in the amount of the cumulative revenue recognized will not occur in a future period. Specific reserves for accounts receivable and unbilled services are a component of variable consideration. Actual amounts of consideration ultimately received may differ from CRA’s estimates. If actual results in the future vary from its estimates, CRA adjusts these estimates, which would affect net revenue and earnings in the period such variances become known.

CRA's accounts receivable and unbilled services consist of receivables from a broad range of clients in a variety of industries located throughout the U.S. and in other countries. CRA performs a credit evaluation of its clients to minimize its collectability risk. Periodically, CRA will require advance payment from certain clients. However, CRA does not require collateral or other security. CRA maintains accounts receivable allowances for estimated losses resulting from clients' failures to make required payments. CRA bases its estimates on historical collection experience, current trends, and credit policy. In determining these estimates, CRA examines historical write‑offs of its receivables and reviews client accounts to identify any specific customer collection issues. If the financial condition of any of CRA’s customers were to deteriorate, resulting in an impairment of their ability or intent to make payment, additional allowances may be required. Expenses associated with these allowances are reported as a component of Selling, general and administrative expenses.

A rollforward of the variable consideration and allowances for accounts receivable, which includes an allowance for doubtful accounts of $0.7 million at the end of the year, is as follows (in thousands):


	Fiscal		Fiscal
	Year		Year
	2018		2017 (1)
Balance at beginning of year	$	5,252	$	3,454
Increases to reserves		3,675		5,447
Amounts written off		(5,173)		(3,660)
Effects of foreign currency translation		10		11
Balance at end of year	$	3,764	$	5,252

(1)

The allowances for fiscal 2017 were determined under ASC 605.

A rollforward of the variable consideration and allowances for unbilled services is as follows (in thousands):


	Fiscal		Fiscal
	Year		Year
	2018		2017 (1)
Balance at beginning of year	$	704	$	474
Increases to reserves		4,755		2,459
Amounts written off		(5,042)		(2,235)
Effects of foreign currency translation		(2)		6
Balance at end of year	$	415	$	704

(1) The allowances for fiscal 2017 were determined under ASC 605.

During fiscal 2018 and fiscal 2016, bad debt expense of $1.2 million and $1.1 million, respectively, was reported as a component of selling, general and administrative expenses related to credit-related losses. No bad debt expense was reported during fiscal 2017.

Revenues also include reimbursements for costs incurred by CRA in fulfilling its performance obligations, including travel and other out-of-pocket expenses, fees for outside consultants and other reimbursable expenses. CRA recovers substantially all of these costs. The following expenses are subject to reimbursement (in thousands):


	Year Ended		Year Ended		Year Ended
	December 29,		December 30,		December 31,
	2018		2017		2016
	(52 weeks)		(52 weeks)		(52 weeks)
Reimbursable expenses	$	48,817	$	41,465	$	34,482

Transaction Price Allocated to Future Performance Obligations

ASC 606 requires that CRA disclose the aggregate amount of transaction price that is allocated to performance obligations that have not yet been satisfied as of December 29, 2018. The guidance provides certain practical expedients that limit this requirement for (1) contracts with an original expected length of one year or less and (2) contracts for which revenue is recognized at the amount to which CRA has the right to invoice for consulting services performed. Given the nature of its business, CRA does not disclose the value of unsatisfied performance obligations as the practical expedients apply to its unsatisfied performance obligations as of December 29, 2018.

Contract Balances from Contracts with Customers

CRA defines contract assets as assets for which it has recorded revenue because it determines that it is probable that it will earn a performance based or contingent fee, but is not yet entitled to receive a fee, because certain events, such as completion of the measurement period or client approval, must occur. These contract assets are included in accounts receivable, net and unbilled services, net within the consolidated balance sheets. The contract assets balance was immaterial as of December 29, 2018 and December 30, 2017.

CRA defines contract liabilities as advance payments from or billings to its clients for services that have not yet been performed or earned and retainers. These liabilities are recorded within deferred revenues and are recognized as services are provided. When consideration is received, or such consideration is unconditionally due from a customer prior to transferring consulting services to the customer under the terms of a contract, a contract liability is recorded. Contract liabilities are recognized as revenue after control of the consulting services are transferred to the customer and all revenue recognition criteria have been met.

During the year ended December 29, 2018, CRA recognized the following revenue as a result of changes in the contract liability balance (in thousands):


	Year Ended
	December 29,
	2018
Revenue recognized from:	(52 weeks)
Amounts included in contract liabilities at the beginning of the year	$	3,149
Performance obligations satisfied in previous years	$	3,346

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

Costs to Obtain or Fulfill a Customer Contract

Prior to the adoption of ASC 606, CRA expensed bonuses paid to its employees. Under ASC 606, bonuses are not linked or paid based on specific contract billings or revenues and therefore do not represent incremental costs of obtaining a contract with a customer. Furthermore, even if the bonuses paid were incremental, the practical expedient in ASC 340 would apply, allowing for incremental costs of obtaining contracts to be expensed as incurred if the amortization period of the assets that it otherwise would have recognized is one year or less. As such, these costs are included in both costs of services and selling, general, and administrative expenses.