1. Summary of Significant Accounting Policies

Description of Business

CRA International, Inc. (“CRA or the “Company”) is a worldwide leading consulting services firm that applies advanced analytic techniques and in‑depth industry knowledge to complex engagements for a broad range of clients. CRA offers services in two broad areas: litigation, regulatory, and financial consulting and management consulting. CRA operates in one business segment. CRA operates its business under its registered trade name, Charles River Associates.

Fiscal Year

CRA’s fiscal year end is the Saturday nearest December 31 of each year. CRA’s fiscal years periodically contain 53 weeks rather than 52 weeks. Fiscal 2018, 2017 and 2016 were 52-week years.

Principles of Consolidation

The consolidated financial statements include the accounts of CRA and its wholly owned subsidiaries. In addition, as more fully explained below, the consolidated financial statements include CRA’s interest in GNU123 Liquidating Corporation (“GNU”, formerly known as NeuCo, Inc.). All significant intercompany transactions and accounts have been eliminated in consolidation.

GNU Interest

Prior to liquidation of GNU on December 18, 2018, CRA’s ownership interest in GNU was 55.89%. GNU's financial results have been consolidated with CRA, and the portion of GNU's results allocable to its other owners is shown as “noncontrolling interest.”

GNU's reporting schedule is based on calendar month-ends, but its fiscal year end is the last Saturday of November. CRA's results could include a few days reporting lag between CRA's year end and the most recent financial statements available from GNU. CRA does not believe that the reporting lag will have a significant impact on CRA's consolidated statements of operations or financial condition.

On April 13, 2016, a buyer acquired substantially all of the business assets and assumed substantially all of the liabilities of GNU for a cash purchase price of $1.4 million. Of this amount, $1.1 million was received at closing, with the remaining $0.3 million payable on or after April 13, 2017, subject to contingencies, as outlined in the asset purchase agreement, which remaining amount was paid in full on May 3, 2017. GNU recognized a gain on sale of its business assets of $0.3 million during the second quarter of fiscal 2017, of which $0.2 million is attributed to CRA, and recognized a gain on sale of $3.8 million during the second quarter of fiscal 2016, of which $2.1 million is attributed to CRA. GNU was dissolved on December 15, 2017. Subsequent to the dissolution, CRA received a partial distribution of $0.6 million in accordance with the asset purchase agreement. CRA received the final distributions from GNU, which were immaterial, in 2018. Upon liquidation of GNU during fiscal 2018, CRA recognized a gain of $0.3 million.

GNU’s revenues, which are comprised of software sales and maintenance service revenue, included in CRA’s consolidated statement of operations for fiscal 2016 totaled approximately $0.8 million. GNU did not have any revenue during fiscal 2018 or fiscal 2017 due to the cessation of the business in April 2016. GNU’s total net income included in CRA’s consolidated statements of operations for fiscal 2017 and fiscal 2016 was approximately $0.2 million, and $3.0 million, respectively. GNU’s net income, net of amounts allocable to its other owners, included in CRA’s consolidated statements of operations for fiscal 2017 and fiscal 2016 was approximately $0.1 million and $1.7 million, respectively.

Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United State of America (“U.S. GAAP”) requires management to make significant estimates and judgments that affect the reported amounts of assets and liabilities, as well as the related disclosure of contingent assets and liabilities, at the date of the financial statements, and the reported amounts of consolidated revenues and expenses during the reporting period. Estimates in these consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed price contracts, variable consideration to be included in the transaction price of revenue contracts, depreciation of property and equipment, share-based compensation, valuation of the contingent consideration liabilities, valuation of acquired intangible assets, impairment of long-lived assets, goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued compensation, accrued exit costs, and other accrued expenses. These items are monitored and analyzed by CRA for changes in facts and circumstances, and material changes in these estimates could occur in the future. Changes in estimates are recorded in the period in which they become known. CRA bases its estimates on historical experience and various other assumptions that CRA believes to be reasonable under the circumstances. Actual results may differ from those estimates if CRA’s assumptions based on past experience or other assumptions do not turn out to be substantially accurate.

Revenue Recognition

CRA derives substantially all of its revenues from the performance of professional services. The contracts that CRA enters into and operates under specify whether the engagement will be billed on a time‑and‑materials or a fixed‑price basis. These engagements generally last three to six months, although some of CRA’s engagements can be much longer in duration.

Prior to adopting ASC Topic 606, Revenue from Contracts with Customers ("ASC 606") on December 31, 2017, as discussed below, CRA followed the revenue recognition guidance as issued in ASC Topic 605, Revenue Recognition ("ASC 605"). Under this guidance, CRA would recognize substantially all of its revenues under written service contracts when the fee was fixed and determinable, as the services were provided, and only in those situations where collection from the client was reasonably assured. In certain cases CRA provided services to its clients without sufficient contractual documentation, or fees were tied to performance-based criteria, which required the Company to defer revenue in accordance with ASC 605. In these cases, these amounts were fully reserved, and the reserve was reduced as cash was received.

CRA recognized all project revenue on a gross basis based on the consideration of the criteria set forth in Accounting Standards Codification ("ASC") Topic 605-45, Principal Agent Considerations. In general, project costs were classified in costs of services and were based on the direct salary of the consultants on the engagement plus all direct expenses incurred to complete the engagement, including any amounts billed to the Company by its non-employee experts.

Revenues from time-and-materials service contracts were recognized as the services were provided based upon hours worked and contractually agreed-upon hourly rates, as well as indirect fees based upon hours worked.

Under ASC 605, revenues from a majority of CRA's fixed-price engagements were recognized on a proportional performance method based on the ratio of costs incurred, substantially all of which were labor-related, to the total estimated project costs. The proportional performance method was used for fixed-price contracts because reasonably dependable estimates of the revenues and costs applicable to various stages of a contract could be made, based on historical experience and the terms set forth in the contract, and were indicative of the level of benefit provided to CRA's clients. CRA's management maintained contact with project managers to discuss the status of the projects and, for fixed-price engagements, management was updated on the budgeted costs and resources required to complete the project. These budgets were then used to calculate proportional performance ratios and to estimate the anticipated income or loss on the project. Provisions for estimated losses on contracts were made during the period in which such losses become probable and could be reasonably estimated.

Revenues also include reimbursements for costs incurred by the Company in fulfilling its performance obligations, including travel and other out-of-pocket expenses, fees for outside consultants and other reimbursable expenses.

The following discussion of CRA’s revenue recognition accounting policies is based on the accounting principles that were used to prepare the fiscal year 2018 consolidated financial statements included in this Annual Report on Form 10-K. On December 31, 2017, CRA adopted ASC 606. This standard replaces existing revenue recognition rules with a comprehensive revenue measurement and recognition standard and expanded disclosure requirements. Please refer to the section captioned “Recent Accounting Standards Adopted" below for further discussion of recently issued accounting standards.

CRA evaluates its revenue contracts with customers based on the five-step model under ASC 606. Revenues are recognized, subject to the satisfaction of other criteria as described in ASC 606, for enforceable contracts. Revenues are deferred until all criteria for an enforceable contract are met.

For enforceable contracts, 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”). Variable consideration to be included in the transaction price is estimated based on the most likely amount to which CRA expects to be entitled if it is probable that a significant future reversal of cumulative revenue under the contract will not occur. For contracts that contain multiple performance obligations, the transaction price is allocated based on estimated relative standalone selling prices of the promised consulting services underlying each performance obligation. The transaction price also includes reimbursable expenses. Sales, value add, and other taxes collected on behalf of third parties are excluded from revenue.

CRA maintains accounts receivable allowances for estimated losses resulting from clients’ failure to make required payments. These allowances are determined for specific customer accounts and are based on the financial condition of CRA’s customer and related facts and circumstances. Expenses associated with these allowances are reported as a component of Selling, general and administrative expenses.

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. See note 11 of our Notes to Consolidated Financial Statements for further details on revenue recognition.

Cash and Cash Equivalents

Cash equivalents consist principally of money market funds with maturities of three months or less when purchased. As of December 29, 2018, 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. CRA continually monitors the credit ratings of the institutions.

Fair Value of Financial Instruments

ASC Topic 820, Fair Value Measurements and Disclosures, establishes a fair value hierarchy that prioritizes the inputs used to measure fair value. The hierarchy gives the highest priority to quoted prices in active markets for identical assets or liabilities (Level 1 measurement), then priority to quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active and model-based valuation techniques for which all significant assumptions are observable in the market (Level 2 measurement), then the lowest priority to unobservable inputs (Level 3 measurement).

The following table shows CRA’s financial instruments as of December 29, 2018 and December 30, 2017 that are measured and recorded in the consolidated financial statements at fair value on a recurring basis (in thousands):


	December 29, 2018
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets or Liabilities		Inputs		Inputs
	Level 1		Level 2		Level 3
Assets:
Money market mutual funds	$	18,029	$	—	$	—
Total Assets	$	18,029	$	—	$	—
Liabilities:
Contingent consideration liability	$	—	$	—	$	6,197
Total Liabilities	$	—	$	—	$	6,197


	December 30, 2017
	Quoted Prices in		Significant
	Active Markets		Other		Significant
	for Identical		Observable		Unobservable
	Assets or Liabilities		Inputs		Inputs
	Level 1		Level 2		Level 3
Assets:
Money market mutual funds	$	5,006	$	—	$	—
Total Assets	$	5,006	$	—	$	—
Liabilities:
Contingent consideration liability	$	—	$	—	$	5,137
Total Liabilities	$	—	$	—	$	5,137

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

The contingent consideration liabilities in the table above are for estimated future contingent consideration payments related to prior acquisitions. The fair value measurement of these liabilities is based on significant inputs not observed in the market and thus represent a Level 3 measurement. The significant unobservable inputs used in the fair value measurements of these contingent consideration liabilities are CRA’s measures of the estimated payouts based on internally generated financial projections and discount rates. The fair value of the contingent consideration was determined using a Monte Carlo simulation. The fair value of these contingent consideration liabilities are reassessed on a quarterly basis by CRA using additional information as it becomes available, and any change in the fair value estimates are recorded in costs of services (exclusive of depreciation and amortization) on the consolidated statements of operations.

The following table summarizes the changes in the contingent consideration liabilities over the fiscal year ended December 29, 2018 and the fiscal year ended December 30, 2017 (in thousands):


	December 29,		December 30,
	2018		2017
Beginning balance	$	5,137	$	549
Acquisitions		—		2,357
Remeasurement of acquisition-related contingent consideration		(244)		1,155
Accretion		1,304		1,328
Payments		—		(299)
Effects of foreign currency translation		—		47
Ending balance	$	6,197	$	5,137

CRA’s financial instruments, including cash, accounts receivable, loans and advances to employees and non‑employee experts, accounts payable, and accrued expenses, are carried at cost, which approximates their fair value because of the short‑term maturity of these instruments or because their stated interest rates are indicative of market interest rates.

Goodwill

In accordance with ASC Topic 350, “Intangibles—Goodwill and Other” (“ASC Topic 350”), goodwill and intangible assets with indefinite lives are not subject to amortization, but are monitored annually as of October 15th for impairment, or more frequently, as necessary, if events or circumstances exist that would more likely than not reduce the fair value of the reporting unit below its carrying amount. For CRA's fiscal 2018 goodwill impairment analysis, it operates under one reporting unit, which is its consulting services. Prior to April 13, 2016, CRA operated under two reporting units, which were its consulting services and GNU.

Under ASC Topic 350, in performing the goodwill impairment testing and measurement process, CRA compares the estimated value of each of its reporting units to its net book value to identify potential impairment. CRA estimates the fair value of its consulting business reporting unit utilizing its market capitalization, plus an appropriate control premium. Market capitalization is determined by multiplying CRA’s shares outstanding on the test date by the market price of its common stock on that date. CRA determines the control premium utilizing data from publicly available premium studies for the trailing four quarters for public company transactions in its industry group. If the estimated fair value of a reporting unit is less than its net book value, an impairment charge would be recorded in CRA’s consolidated statement of operations.

Intangible Assets

Intangible assets are comprised of non-competition agreements and customer relationship intangibles, which are separable from goodwill and have determinable useful lives, are valued separately and amortized over their estimated useful lives, based on the pattern in which the economic benefit of the asset is expected to be consumed, if reliably determinable. Non-competition agreements are amortized on a straight‑line basis over their useful lives of five years. Customer relationship intangible assets are amortized on a straight line basis over ten years which approximates the pattern of economic benefit.

Property and Equipment

Property and equipment are recorded at cost. Depreciation is calculated using the straight‑line method based on the estimated useful lives of three years for computer equipment, three to ten years for computer software, and ten years for furniture and fixtures. Amortization of leasehold improvements is calculated using the straight‑line method over the shorter of the lease term or the estimated useful life of the leasehold improvements. Expenditures for maintenance and repairs are expensed as incurred. Expenditures for renewals and betterments are capitalized.

Leases and Deferred Rent

CRA leases all of its office space. Leases are evaluated and classified as operating or capital leases for financial reporting purposes. For leases that contain rent escalations and rent holidays, CRA records the total rent payable during the lease term on a straight‑line basis over the term of the lease and records the difference between the rents paid and the straight‑line rent as deferred rent. Additionally, any tenant improvement allowances received from the lessor are recorded as a reduction to rent expense.

Impairment of Long‑Lived Assets

CRA reviews the carrying value of its long‑lived assets (primarily property and equipment and intangible assets) to assess the recoverability of these assets whenever events or circumstances indicate that impairment may have occurred. Factors CRA considers important that could trigger an impairment review include the following:

a significant underperformance relative to expected historical or projected future operating results;

a significant change in the manner of CRA’s use of the acquired asset or the strategy for CRA’s overall business; and

a significant negative industry or economic trend.

If CRA determines that an impairment review is required, CRA would review the expected future undiscounted cash flows to be generated by the assets or asset groups. If CRA determines that the carrying value of long‑lived assets or asset groups may not be recoverable, CRA would measure any impairment based on a projected discounted cash flow method using a discount rate determined by CRA to be commensurate with the risk inherent in CRA’s current business model. If impairment is indicated through this review, the carrying amount of the assets would be reduced to their estimated fair value.

Net Income (Loss) Per Share

CRA computes basic net income or loss per share by dividing net income or loss by the weighted-average number of shares outstanding. CRA computes diluted net income or loss per share by dividing net income or loss by the sum of the weighted-average number of shares determined from the basic earnings per common share computation and the number of common stock equivalents that would have a dilutive effect. To the extent that there is a net loss, CRA assumes all common stock equivalents to be anti-dilutive, and they are excluded from diluted weighted-average shares outstanding. CRA determines common stock equivalent shares outstanding in accordance with the treasury stock method. In those years in which CRA has both net income and participating securities, CRA computes basic net income per share utilizing the two-class method earnings allocation formula to determine earnings per share for each class of stock according to dividends and participation rights in undistributed earnings. Under the two-class method, basic earnings per common share is computed by dividing net earnings allocated to common stock by the weighted-average number of common shares outstanding. CRA's participating securities consist of unvested share-based payment awards that contain a nonforfeitable right to receive dividends.

Share‑Based Compensation

CRA accounts for equity-based compensation using a fair value based recognition method. Under the fair value recognition requirements of ASC Topic 718, “Compensation-Stock Compensation” (“ASC Topic 718”), share-based compensation cost is estimated at the grant date based on the fair value of the award and is recognized as expense over the requisite service period of the award. For those awards that are deemed probable of vesting, CRA recognizes the estimated fair value as expense over the requisite service period of the award. The amount of share-based compensation expense recognized at any date must at least equal the portion of grant date value of the award that is vested at that date. In accordance with ASC Topic 718, for time-vesting restricted stock units awarded to employees, CRA estimates share-based compensation cost at the grant date based on the fair value of the restricted stock units and awards and recognizes the cost for awards that are probable of vesting over the requisite service period on a straight line basis. Performance-vesting restricted stock units are expensed using the graded acceleration method.

For share‑based awards granted to non‑employee experts, CRA accounts for the compensation under variable accounting in accordance with ASC Topic 718 and ASC Topic 505‑50, “Equity‑Based Payments to Non‑Employees” (formerly Emerging Issues Task Force 96‑18, “Accounting for Equity Instruments That Are Issued to Other Than Employees for Acquiring, or in Conjunction with Selling, Goods or Services”), and recognizes the cost over the related vesting period.

Deferred Compensation

CRA accounts for performance and service based cash awards using a prospective accrual method. Under the requirements of ASC Topic 710, “Compensation General” (“ASC Topic 710”) to the extent the terms of the contract attribute all or a portion of the expected future benefits to a period of service greater than one year, the cost of those benefits are accrued over the period of the employee or non-employee's service in a systematic and rational manner. CRA has implemented a process that requires the liability to be re-evaluated on a quarterly basis.

The required service period typically ranges from three to six years starting at the beginning of the awards measurement period. A recipient of such an award is expected to be affiliated with CRA for the entire measurement period. If a recipient terminates affiliation with CRA during the measurement period, the amount paid will be determined in accordance with the recipient’s specific contract provisions.

Business Combinations

CRA recognizes and measures identifiable assets acquired, and liabilities assumed, of its acquirees as of the acquisition date at fair value. Fair value measurements require extensive use of estimates and assumptions, including estimates of future cash flows to be generated by the acquired assets. CRA recognizes and measures contingent consideration at fair value as of the acquisition date using a Monte Carlo simulation. Contingent consideration obligations that are classified as liabilities are remeasured at fair value each reporting period with the changes in fair value resulting from the passage of time, revised expectations of performance, or changes in the timing or amount of ultimate settlement from the initial measurement recognized in the consolidated statements of operations.

Income Taxes

CRA accounts for income taxes using the asset and liability method of accounting for income taxes. Deferred tax assets and liabilities are recognized based upon anticipated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective income tax bases, and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.

In addition, the calculation of CRA’s tax liabilities involves dealing with uncertainties in the application of complex tax regulations in several different tax jurisdictions. CRA records liabilities for estimated tax obligations resulting in a provision for taxes that may become payable in the future in accordance with ASC Topic 740‑10, “Income Taxes,” which prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return and also provides guidance on derecognition, classification, interest and penalties, accounting in interim periods, and disclosure. CRA includes accrued interest and penalties, if any, related to uncertain tax positions in income tax expense.

Foreign Currency Translation

Balance sheet accounts of CRA’s foreign subsidiaries are translated into U.S. dollars at year‑end exchange rates and operating accounts are translated at average exchange rates for each year. The resulting translation adjustments are recorded in shareholders’ equity as a component of accumulated other comprehensive income (loss). Foreign currency transactions are translated at current exchanges rates, with adjustments recorded in the statement of operations. The effect of transaction gains and losses recorded in income before provision for income taxes amounted to gains of $0.4 million for fiscal 2018, and losses of $0.4 million and $0.4 million for fiscal 2017, and fiscal 2016, respectively.

Recent Accounting Standards Adopted

Revenue from Contracts with Customers

CRA adopted Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers (Topic 606) (“ASC 606”), which established ASC Topic 606, on December 31, 2017, using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for fiscal 2018 reflect the application of ASC 606 guidance, while the reported results for fiscal 2017 were prepared under the guidance of ASC 605, Revenue Recognition (“ASC 605”). The cumulative effect of applying ASC 606 to all contracts with customers that were not completed as of December 30, 2017 amounted to $0.4 million. The cumulative effect adjustment resulted in an increase to CRA's fiscal 2018 opening balance of retained earnings of $0.4 million, net of tax. Prior periods were not retrospectively adjusted.

Improvements to Employee Share-Based Payment Accounting

CRA adopted ASU No. 2016-09, Compensation—Stock Compensation (Topic 718): Improvements to Employee Share-Based Payment Accounting (“ASU 2016-09”) on January 1, 2017. ASU 2016-09 requires all of the tax effects related to share-based payments to be recorded through the income statement. The pronouncement also allows for the option of estimating awards expected to vest or accounting for forfeitures when they occur. In the statement of cash flows, cash paid by employers when withholding shares for tax withholding purposes should be classified as a financing activity whereas cash flows resulting from excess tax benefits should be reported in operating activities. The adoption of ASU 2016-09 resulted in the recognition of an immaterial tax benefit to retained earnings as of that date. CRA had traditionally classified employee taxes paid through employer share withholdings as financing activities, therefore no further adjustment was necessary. CRA has classified the excess tax benefits from share-based compensation as operating activities on a prospective basis beginning in the quarter ended April 1, 2017. Additionally, CRA did not make any changes to its accounting for forfeitures and continues to estimate forfeitures based on historical experience.

Statement of Cash Flows (Topic 230): Restricted Cash

CRA adopted ASU No. 2016-18, Statement of Cash Flows (Topic 230): Restricted Cash (“ASU 2016-18”), on December 31, 2017. ASU 2016-18 amends ASC 230 to add or clarify guidance on the classification and presentation of restricted cash in the statement of cash flows. The new standard requires cash and cash equivalents balances on the statement of cash flows to include restricted cash and cash equivalent balances. ASU 2016-18 requires a company to provide appropriate disclosures about its accounting policies pertaining to restricted cash in accordance with GAAP. Additionally, changes in restricted cash and restricted cash equivalents that result from transfers between cash, cash equivalents, and restricted cash and restricted cash equivalents are not to be presented as cash flow activities in the statement of cash flows. The adoption of ASU 2016-18 did not have a material impact on CRA’s financial position, results of operations, cash flows, or disclosures.

Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment

CRA adopted ASU No. 2017-04, Intangibles – Goodwill and Other (Topic 350): Simplifying the Test for Goodwill Impairment (“ASU 2017-04”), on December 31, 2017. ASU 2017-04 simplifies the subsequent measurement of goodwill and eliminates Step 2 from the goodwill impairment test. Under the amendments, an entity should perform its annual, or interim, goodwill impairment test by comparing the fair value of a reporting unit with its carrying amount. An entity should recognize an impairment charge for the amount by which the carrying amount exceeds the reporting unit’s fair value; however, the charge recognized should not exceed the total amount of goodwill allocated to that reporting unit. Additionally, an entity should consider income tax effects from any tax-deductible goodwill on the carrying amount of the reporting unit when measuring the goodwill impairment charge, if applicable. The amendments also eliminated the requirements for any reporting unit with a zero or negative carrying amount to perform a qualitative assessment and, if it fails that qualitative test, to perform Step 2 of the goodwill impairment test. Therefore, the same impairment assessment applies to all reporting units. An entity is required to disclose the amount of goodwill allocated to each reporting unit with a zero or negative carrying amount of net assets. The adoption of ASU 2017-04 did not have a material impact on CRA’s financial position, results of operations, cash flows, or disclosures.

Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting

CRA adopted ASU No. 2017-09, Compensation – Stock Compensation (Topic 718): Scope of Modification Accounting (“ASU 2017-09”), on December 31, 2017. ASU 2017-09 updates guidance about which changes to the terms or conditions of a share-based payment award require an entity to apply modification accounting in Topic 718. Under the amendments, an entity should account for the effects of a modification unless all the following conditions are met. First, the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the modified award is the same as the fair value (or calculated value or intrinsic value, if such an alternative measurement method is used) of the original award immediately before the original award is modified. If the modification does not affect any of the inputs to the valuation technique that the entity uses to value the award, the entity is not required to estimate the value immediately before and after the modification. Second, the vesting conditions of the modified award are the same as the vesting conditions of the original award immediately before the original award is modified. Third, the classification of the modified award as an equity instrument or a liability is the same as the classification of the original award immediately before the original award is modified. The adoption of ASU 2017-09 did not have a material impact on CRA’s financial position, results of operations, cash flows, or disclosures.

Recent Accounting Standards Not Yet Adopted

Leases (Topic 842)

In February 2016, the Financial Accounting Standards Board (“FASB”) issued ASU No. 2016-02, Leases (Topic 842) (“ASU 2016-02”), which supersedes FASB ASC Topic 840, Leases (“ASC 840”). ASU 2016-02 establishes a comprehensive new lease accounting model. The new standard clarifies the definition of a lease, requires a dual approach to lease classification similar to current lease classifications, and causes lessees to recognize leases on the balance sheet as a lease liability with a corresponding right-of-use asset, subject to certain permitted accounting policy elections. The liability will be equal to the present value of lease payments. The asset will be based on the liability, subject to adjustment, such as for initial direct costs. Operating leases will result in straight-line expense (similar to current operating leases) while finance leases will result in a front-loaded expense pattern (similar to current capital leases). In July 2018, the FASB issued Accounting Standards Update (“ASU”) No. 2018-10, Codification Improvements to Topic 842, Leases (“ASU 2018-10”). ASU 2018-10 clarifies or corrects unintended application of guidance related to ASU 2016-02. The new standard is effective for the Company for interim and annual periods beginning December 30, 2018, the beginning of fiscal 2019.

CRA will elect the package of practical expedients allowed under ASU 2016-02 and ASU 2018-10, which allows CRA to forgo reassessing the following upon adoption of the new standard: (1) whether contracts contain leases for any expired or existing contracts, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing or expired leases. In addition, CRA will elect an accounting policy to exclude from the consolidated balance sheets the right-of-use assets and lease liabilities related to short term leases, which are those leases with an initial lease term of twelve months or less that do not include an option to purchase the underlying asset that the Company is reasonably certain to exercise.

CRA plans to adopt ASU 2016-02 using the additional modified retrospective transition method provided by ASU No. 2018-11, Leases (Topic 842): Targeted Improvements. Under this approach, the cumulative-effect of the transition adjustments are applied to the applicable opening balances of the consolidated balance sheets in the period of adoption. However, comparative periods prior to the adoption date and their respective disclosures will be presented using the legacy guidance of ASC 840.

CRA is currently in the process of finalizing its evaluation of the impact of adopting Topic 842, including finalizing its determination of the incremental borrowing rates to be used to calculate the present value of its lease payments. The Company will finalize its evaluation during the first fiscal quarter of 2019. As a result of adopting the new standard, CRA currently estimates that the Company will recognize right-of-use assets between approximately $66.0 million and $86.0 million and recognize lease liabilities between approximately $89.0 million and $112.0 million as of December 30, 2018. The difference between the amount of right-of-use assets and lease liabilities recognized will be an adjustment to deferred rent. However, the final amounts could vary from the ranges described above based upon the finalization of our incremental borrowing rates.

CRA believes that the adoption of ASC 842 will not have a material impact on its results of operations or cash flows. CRA does not expect the adoption of ASC 842 to impact any of its existing debt covenants.

Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments

In June 2016, the FASB issued ASU No. 2016-13, Financial Instruments – Credit Losses (Topic 326): Measurement of Credit Losses on Financial Instruments (“ASU 2016-13”). ASU 2016-13 replaces the methodology that recognizes impairment of financial instruments when losses have been incurred with a methodology that recognizes impairment of financial instruments when losses are expected. The amendment requires entities to use a forward-looking “expected loss” model for most financial instruments, including accounts receivable and loans, that is based on historical information, current information, and reasonable and supportable forecasts. For available-for-sale debt securities with unrealized losses, credit losses will be recognized as an allowance rather than as a reduction in the amortized cost of the debt securities. ASU 2016-13 is effective for the Company for interim and annual periods beginning after December 15, 2019. Early adoption is permitted for interim and annual periods beginning after December 15, 2018. Adoption of ASU 2016-13 will be applied as a cumulative-effect adjustment to retained earnings as of the beginning of the first reporting period after adoption.

In November 2018, the FASB issued ASU No. 2018-19, Codification Improvements to Topic 326, Financial Instruments – Credit Losses (“ASU 2018-19”). ASU 2018-19 changes the required adoption date for nonpublic business entities and clarifies that receivables arising from operating leases are not within the scope of Topic 326.

CRA has not yet determined the effects, if any, that the adoption of the amendments may have on its financial position, results of operations, cash flows, or disclosures. CRA plans to adopt the amendments during the first quarter of 2020.

Compensation – Stock Compensation (Topic 718): Improvements to Nonemployee Share-Based Payment Accounting

In June 2018, the FASB issued ASU No. 2018-07, Compensation – Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) (“ASU 2018-07”). ASU 2018-07 expands the scope of Topic 718 to include share-based payment transactions for acquiring goods and services from nonemployees. The amendments in this update specify that Topic 718 applies to all share-based payment transactions in which a grantor acquires goods or services to be used or consumed in a grantor’s own operations by issuing share-based payment awards. The amendments also clarify that Topic 718 does not apply to share-based payments used effectively to provide financing to the issuer or awards granted in conjunction with selling goods or services to customers as part of a contract accounted for under Topic 606, Revenue from Contracts with Customers. The new guidance is effective for interim and annual periods beginning after December 15, 2018. CRA plans to adopt ASU 2018-07 as of December 30, 2018. The new guidance requires a remeasurement of nonemployee awards at fair value as of the adoption date and disclosure of the nature of and reason for the change in accounting principle and, if applicable, quantitative information about the cumulative effect of the change on retained earnings or other components of shareholders’ equity. CRA believes that the adoption of the ASU will not have any impact on its financial position, results of operations, cash flows, or disclosures.

Fair Value Measurements (Topic 820)

In August 2018, the FASB issued ASU No. 2018-13, Fair Value Measurement (Topic 820): Disclosure Framework -- Changes to the Disclosure Requirements for Fair Value Measurement (“ASU No. 2018-13”). The ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements from ASC 820. Entities will no longer be required to disclose the amount of and reasons for transfers between Level 1 and Level 2 of the fair value hierarchy, but public companies will be required to disclose the range and weighted average used to develop significant unobservable inputs for Level 3 fair value measurement. The new standard is effective for interim and annual periods beginning after December 15, 2019. Entities are permitted to early adopt either the entire standard or only the provisions that eliminate or modify the requirements. CRA has not yet determined the effects, if any, that the adoption of ASU 2018-10 may have on its financial position, results of operations, cash flows, or disclosures.

Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement

In August 2018, the FASB issued ASU No. 2018-15, Intangibles – Goodwill and Other – Internal-Use Software (Subtopic 350-40): Customer’s Accounting for Implementation Costs Incurred in a Cloud Computing Arrangement That Is a Service Contract (“ASU 2018-15”). ASU 2018-15 clarifies the accounting for implementation costs in a cloud computing arrangement that is a service contract and aligns the requirements for capitalizing those costs with the capitalization requirements for costs incurred to develop or obtain internal-use software. The new standard is effective for interim and annual periods beginning after December 15, 2019. Early adoption is permitted. CRA is currently evaluating the effects, if any, the adoption of ASU 2018-15 may have on its financial position, results of operations, cash flows, or disclosures.