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Cra International, Inc. – ‘10-Q’ for 9/28/19

On: Thursday, 10/31/19, at 8:18am ET · For: 9/28/19 · Accession #: 1047469-19-5994 · File #: 0-24049

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

10/31/19  Cra International, Inc.           10-Q        9/28/19   63:5.3M                                   Toppan Merrill-FA

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

Document/Exhibit                   Description                      Pages   Size 

 1: 10-Q        Quarterly Report                                    HTML    544K 
 2: 10-Q        Unofficial PDF -- a2239947zf1_10-04                  PDF    109K 
 3: EX-10.1     Material Contract                                   HTML     80K 
 4: EX-31.1     Certification -- §302 - SOA'02                      HTML     24K 
 5: EX-31.2     Certification -- §302 - SOA'02                      HTML     24K 
 6: EX-32.1     Certification -- §906 - SOA'02                      HTML     21K 
62: R1          Document and Entity Information                     HTML     46K 
31: R2          Condensed Consolidated Income Statements            HTML     74K 
                (Unaudited)                                                      
24: R3          Condensed Consolidated Statements of Comprehensive  HTML     33K 
                Income (Unaudited)                                               
42: R4          Condensed Consolidated Balance Sheets (Unaudited)   HTML    121K 
61: R5          Condensed Consolidated Balance Sheets (Unaudited)   HTML     43K 
                (Parenthetical)                                                  
30: R6          Condensed Consolidated Statements of Cash Flows     HTML    128K 
                (Unaudited)                                                      
23: R7          Condensed Consolidated Statement of Shareholders'   HTML    121K 
                Equity (Unaudited)                                               
43: R8          Condensed Consolidated Statement of Shareholders'   HTML     22K 
                Equity (Unaudited) (Parenthetical)                               
60: R9          Summary of Significant Accounting Policies          HTML     40K 
20: R10         Fair Value of Financial Instruments                 HTML    109K 
27: R11         Forgivable Loans                                    HTML     48K 
55: R12         Goodwill and Intangible Assets                      HTML     57K 
37: R13         Accrued Expenses                                    HTML     44K 
21: R14         Credit Agreement                                    HTML     23K 
28: R15         Revenue Recognition                                 HTML    173K 
56: R16         Net Income per Share                                HTML     70K 
38: R17         Income Taxes                                        HTML     25K 
19: R18         Leases                                              HTML     93K 
29: R19         Contingencies                                       HTML     22K 
52: R20         Correction                                          HTML     38K 
48: R21         Subsequent Events                                   HTML     22K 
15: R22         Summary of Significant Accounting Policies          HTML     61K 
                (Policies)                                                       
35: R23         Fair value of Financial Instruments (Tables)        HTML    108K 
53: R24         Forgivable Loans (Tables)                           HTML     47K 
49: R25         Goodwill and Intangible Assets (Tables)             HTML     60K 
16: R26         Accrued Expenses (Tables)                           HTML     43K 
36: R27         Revenue Recognition (Tables)                        HTML    173K 
54: R28         Net Income per Share (Tables)                       HTML     70K 
47: R29         Leases (Tables)                                     HTML     88K 
40: R30         Correction (Tables)                                 HTML     38K 
59: R31         Summary of Significant Accounting Policies -        HTML     22K 
                (Details)                                                        
26: R32         Summary of Significant Accounting Policies - GNU    HTML     22K 
                Interest (Details)                                               
18: R33         Summary of Significant Accounting Policies -        HTML     28K 
                Recent Accounting Standards Adopted (Details)                    
39: R34         Fair Value of Financial Instruments (Details)       HTML     50K 
58: R35         Forgivable Loans (Details)                          HTML     39K 
25: R36         Goodwill and Intangible Assets (Details)            HTML     33K 
17: R37         Goodwill and Intangible Assets - Acquired and       HTML     29K 
                Amortization (Details)                                           
41: R38         Accrued Expenses (Details)                          HTML     42K 
57: R39         Credit Agreement (Details)                          HTML     31K 
45: R40         Revenue Recognition - Disaggregation of Revenue     HTML     35K 
                (Details)                                                        
51: R41         Revenue Recognition - Reserves for Variable         HTML     26K 
                Consideration and Credit Risk (Details)                          
34: R42         Revenue Recognition - Contract Balances from        HTML     29K 
                Contracts with Customers (Details)                               
14: R43         Net Income per Share (Details)                      HTML     45K 
44: R44         Income Taxes (Details)                              HTML     22K 
50: R45         Leases (Details)                                    HTML     71K 
33: R46         Leases - Maturities of lease liabilities under      HTML     46K 
                non-cancellable operating leases (Details)                       
13: R47         Correction (Details)                                HTML     33K 
46: R48         Subsequent Events (Details)                         HTML     40K 
22: XML         IDEA XML File -- Filing Summary                      XML    108K 
32: EXCEL       IDEA Workbook of Financial Reports                  XLSX     60K 
 7: EX-101.INS  XBRL Instance -- crai-20190928                       XML   1.53M 
 9: EX-101.CAL  XBRL Calculations -- crai-20190928_cal               XML    152K 
10: EX-101.DEF  XBRL Definitions -- crai-20190928_def                XML    239K 
11: EX-101.LAB  XBRL Labels -- crai-20190928_lab                     XML    904K 
12: EX-101.PRE  XBRL Presentations -- crai-20190928_pre              XML    578K 
 8: EX-101.SCH  XBRL Schema -- crai-20190928                         XSD    117K 
63: ZIP         XBRL Zipped Folder -- 0001047469-19-005994-xbrl      Zip    111K

‘10-Q’ — Quarterly Report
Document Table of Contents

Page	(sequential)	(alphabetic)	↑Top
		Alternative Formats (Word, et al.) Condensed Consolidated Balance Sheets (unaudited)-September 28, 2019 and December 29, 2018 Condensed Consolidated Income Statements (unaudited)-Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018 Condensed Consolidated Statements of Cash Flows (unaudited)-Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018 Condensed Consolidated Statements of Comprehensive Income (unaudited)-Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018 Condensed Consolidated Statements of Shareholders' Equity (unaudited)-Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018 Controls and Procedures Defaults Upon Senior Securities Exhibits Financial Statements Item 1 Item 1A Item 2 Item 3 Item 4 Item 5 Item 6 Legal Proceedings Management's Discussion and Analysis of Financial Condition and Results of Operations Mine Safety Disclosures Notes to Condensed Consolidated Financial Statements (unaudited) Other Information Quantitative and Qualitative Disclosures About Market Risk Risk Factors Signatures Table of Contents Unregistered Sales of Equity Securities and Use of Proceeds
1	1st Page – Filing Submission
"	Table of Contents
"	Item 1
"	Financial Statements
"	Condensed Consolidated Income Statements (unaudited)-Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018
"	Condensed Consolidated Statements of Comprehensive Income (unaudited)-Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018
"	Condensed Consolidated Balance Sheets (unaudited)-September 28, 2019 and December 29, 2018
"	Condensed Consolidated Statements of Cash Flows (unaudited)-Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018
"	Condensed Consolidated Statements of Shareholders' Equity (unaudited)-Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018
"	Notes to Condensed Consolidated Financial Statements (unaudited)
"	Item 2
"	Management's Discussion and Analysis of Financial Condition and Results of Operations
"	Item 3
"	Quantitative and Qualitative Disclosures About Market Risk
"	Item 4
"	Controls and Procedures
"	Legal Proceedings
"	Item 1A
"	Risk Factors
"	Unregistered Sales of Equity Securities and Use of Proceeds
"	Defaults Upon Senior Securities
"	Mine Safety Disclosures
"	Item 5
"	Other Information
"	Item 6
"	Exhibits
"	Signatures

This is an HTML Document rendered as filed. [ Alternative Formats ]

Table of Contents

UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q


ý		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 28, 2019
or
o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number: 000-24049

CRA International, Inc.
(Exact name of registrant as specified in its charter)


Massachusetts		04-2372210
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)
200 Clarendon Street, Boston, MA		02116-5092
(Address of principal executive offices)		(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		Name of Each Exchange on Which Registered

Common Stock, no par value		CRAI		Nasdaq Global Select Market

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 ý No o

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§ 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files). Yes ý No o

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 definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.


	Large accelerated filer o		Accelerated filer ý		Non-accelerated filer o		Smaller reporting company o Emerging growth company o

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. o

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes o No ý

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of the latest practicable date.

Class		Outstanding at October 25, 2019

Common Stock, no par value per share		7,739,409 shares

Table of Contents

CRA International, Inc.

INDEX


PART I. FINANCIAL INFORMATION
ITEM 1.	Financial Statements	1
	Condensed Consolidated Income Statements (unaudited)—Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018	1
	Condensed Consolidated Statements of Comprehensive Income (unaudited)—Fiscal Quarters and Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018	2
	Condensed Consolidated Balance Sheets (unaudited)—September 28, 2019 and December 29, 2018	3
	Condensed Consolidated Statements of Cash Flows (unaudited)—Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018	4
	Condensed Consolidated Statements of Shareholders' Equity (unaudited)—Fiscal Year-to-Date Periods Ended September 28, 2019 and September 29, 2018	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
ITEM 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
ITEM 3.	Quantitative and Qualitative Disclosures About Market Risk	31
ITEM 4.	Controls and Procedures	32
PART II. OTHER INFORMATION
ITEM 1.	Legal Proceedings	33
ITEM 1A.	Risk Factors	33
ITEM 2.	Unregistered Sales of Equity Securities and Use of Proceeds	33
ITEM 3.	Defaults Upon Senior Securities	34
ITEM 4.	Mine Safety Disclosures	34
ITEM 5.	Other Information	34
ITEM 6.	Exhibits	35
Signatures		36

Table of Contents

PART I. FINANCIAL INFORMATION

ITEM 1. Financial Statements

CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED INCOME STATEMENTS (unaudited)

(In thousands, except per share data)

	Fiscal Quarter Ended						Fiscal Year-to-Date Period Ended

	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Revenues	$	115,686		$	103,871		$	332,108		$	308,885
Costs of services (exclusive of depreciation and amortization)		83,805			73,717			233,412			212,813
Selling, general and administrative expenses		22,449			22,293			68,929			67,682
Depreciation and amortization		2,527			2,636			7,696			7,300

Income from operations		6,905			5,225			22,071			21,090
Interest expense, net		(424	)		(222	)		(954	)		(560	)
Other income (expense), net		210			(64	)		(379	)		72

Income before provision for income taxes		6,691			4,939			20,738			20,602
Provision for income taxes		952			1,031			4,754			4,969

Net income	$	5,739		$	3,908		$	15,984		$	15,633



Net income per share:
Basic	$	0.74		$	0.48		$	2.02		$	1.91



Diluted	$	0.71		$	0.46		$	1.94		$	1.81



Weighted average number of shares outstanding:
Basic		7,769			8,048			7,903			8,129



Diluted		8,050			8,548			8,205			8,615

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (unaudited)

(In thousands)

	Fiscal Quarter Ended						Fiscal Year-to-Date Period Ended

	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Net income	$	5,739		$	3,908		$	15,984		$	15,633
Other comprehensive income
Foreign currency translation adjustments		(1,488	)		(198	)		(1,429	)		(1,483	)

Comprehensive income	$	4,251		$	3,710		$	14,555		$	14,150

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (unaudited)

(In thousands, except share data)

	September 28, 2019			December 29, 2018

ASSETS
Current assets:
Cash and cash equivalents	$	19,833		$	38,028
Accounts receivable, net of allowances of $3,590 at September 28, 2019 and $3,764 at December 29, 2018		90,478			94,525
Unbilled services, net of allowances of $1,474 at September 28, 2019 and $415 at December 29, 2018		50,274			36,060
Prepaid expenses and other current assets		11,017			6,423
Forgivable loans		8,821			6,104

Total current assets		180,423			181,140
Property and equipment, net		57,788			48,088
Goodwill		87,813			88,208
Intangible assets, net		6,818			7,846
Right-of-use assets		110,999			—
Deferred income taxes		9,193			9,330
Forgivable loans, net of current portion		49,046			34,190
Other assets		3,444			2,044

Total assets	$	505,524		$	370,846



LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable	$	23,636		$	21,938
Accrued expenses		94,557			108,233
Deferred revenue and other liabilities		4,149			6,866
Current portion of lease liabilities		10,598			—
Current portion of deferred rent		—			1,810
Current portion of deferred compensation		3,214			3,650
Revolving line of credit		36,000			—

Total current liabilities		172,154			142,497
Non-current liabilities:
Deferred compensation and other non-current liabilities		12,046			7,957
Deferred rent and facility-related non-current liabilities		1,810			23,618
Non-current portion of lease liabilities		126,869			—
Deferred income taxes		293			302

Total non-current liabilities		141,018			31,877
Commitments and contingencies (Note 11)
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; 7,707,886 and 8,010,480 shares issued and outstanding at September 28, 2019 and December 29, 2018, respectively		9,028			22,837
Retained earnings		197,347			186,229
Accumulated other comprehensive loss		(14,023	)		(12,594	)

Total shareholders' equity		192,352			196,472

Total liabilities and shareholders' equity	$	505,524		$	370,846

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)

(In thousands)

	Fiscal Year-to-Date Period Ended

	September 28, 2019			September 29, 2018
OPERATING ACTIVITIES:
Net income	$	15,984		$	15,633
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		7,696			7,305
Loss on disposal of property and equipment		5			—
Deferred rent and facility related liabilities		83			3,650
Right-of-use asset amortization		7,832			—
Deferred income taxes		117			(102	)
Share-based compensation expenses		2,641			3,704
Accounts receivable allowances		(160	)		233
Changes in operating assets and liabilities:
Accounts receivable		3,626			(8,939	)
Unbilled services, net		(14,582	)		(9,976	)
Prepaid expenses and other current assets, and other assets		(5,735	)		1,417
Forgivable loans		(18,942	)		(14,716	)
Incentive cash awards		3,628			2,367
Accounts payable, accrued expenses, and other liabilities		(16,274	)		(8,970	)
Lease liabilities		(5,826	)		—

Net cash used in operating activities		(19,907	)		(8,394	)
INVESTING ACTIVITIES:
Purchases of property and equipment		(12,548	)		(13,379	)

Net cash used in investing activities		(12,548	)		(13,379	)
FINANCING ACTIVITIES:
Issuance of common stock, principally stock options exercises		2,006			1,387
Borrowings under revolving line of credit		54,000			30,161
Repayments under revolving line of credit		(18,000	)		(24,599	)
Tax withholding payments reimbursed by shares		(388	)		(1,783	)
Cash paid on dividend equivalents		(35	)		(98	)
Cash dividends paid to shareholders		(4,742	)		(4,168	)
Repurchases of common stock		(18,068	)		(20,389	)
Distribution to noncontrolling interest		—			(41	)

Net cash provided by (used in) financing activities		14,773			(19,530	)
Effect of foreign exchange rates on cash and cash equivalents		(513	)		(869	)

Net decrease in cash and cash equivalents		(18,195	)		(42,172	)
Cash and cash equivalents at beginning of period		38,028			54,035

Cash and cash equivalents at end of period	$	19,833		$	11,863



Noncash investing and financing activities:
Purchases of property and equipment not yet paid for	$	3,461		$	1,852



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



Asset retirement obligations	$	427		$	217



Right-of-use assets obtained in exchange for lease obligations	$	37,298		$	—



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



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



Supplemental cash flow information:
Cash paid for taxes	$	6,078		$	3,409



Cash paid for interest	$	848		$	380

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

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

(In thousands, except share data)

	Common Stock

	Common Stock									Accumulated Other Comprehensive Loss
	Shares Issued			Amount			Retained Earnings			Accumulated Other Comprehensive Loss			Total Shareholders' Equity
BALANCE AT DECEMBER 29, 2018		8,010,480		$	22,837		$	186,229		$	(12,594	)	$	196,472
Net income		—			—			4,665			—			4,665
Foreign currency translation adjustment		—			—			—			712			712
Exercise of stock options		64,700			1,526			—			—			1,526
Share-based compensation expense		—			911			—			—			911
Restricted shares vestings		25,484			—			—			—			—
Redemption of vested employee restricted shares for tax withholding		(8,157	)		(388	)		—			—			(388	)
Shares repurchased		(86,609	)		(4,349	)		—			—			(4,349	)
Accrued dividends on unvested shares		—			—			(8	)		—			(8	)
Cash paid on dividend equivalents		—			—			(35	)		—			(35	)
Cash dividends paid to shareholders ($0.20 per share)		—			—			(1,616	)		—			(1,616	)

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

Net income		—			—			5,580			—			5,580
Foreign currency translation adjustment		—			—			—			(653	)		(653	)
Share-based compensation expense		—			848			—			—			848
Restricted shares vestings		513			—			—			—			—
Shares repurchased		(177,101	)		(7,161	)		—			—			(7,161	)
Accrued dividends on unvested shares		—			—			(44	)		—			(44	)
Cash dividends paid to shareholders ($0.20 per share)		—			—			(1,580	)		—			(1,580	)

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

Net income		—			—			5,739			—			5,739
Foreign currency translation adjustment		—			—			—			(1,488	)		(1,488	)
Exercise of stock options		21,224			480			—			—			480
Share-based compensation expense		—			882			—			—			882
Restricted shares vestings		14,754			—			—			—			—
Shares repurchased		(157,402	)		(6,558	)		—			—			(6,558	)
Accrued dividends on unvested shares		—			—			(37	)		—			(37	)
Cash dividends paid to shareholders ($0.20 per share)		—			—			(1,546	)		—			(1,546	)

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

See accompanying notes to the condensed consolidated financial statements.

Table of Contents

CRA INTERNATIONAL, INC.

CONDENSED CONSOLIDATED STATEMENT OF SHAREHOLDERS' EQUITY

FOR THE FISCAL YEAR-TO-DATE PERIOD ENDED SEPTEMBER 29, 2018 (unaudited)

(In thousands, except share data)

	Common Stock

	Common Stock									Accumulated Other Comprehensive Loss			CRA International, Inc. Shareholders' Equity
	Shares Issued			Amount			Retained Earnings			Accumulated Other Comprehensive Loss			CRA International, Inc. Shareholders' Equity			Noncontrolling Interest			Total Shareholders' Equity
BALANCE AT DECEMBER 30, 2017		8,297,172		$	47,414		$	169,390		$	(9,896	)	$	206,908		$	321		$	207,229



Balance at December 31, 2017, as previously reported		8,297,172		$	47,414		$	169,390		$	(9,896	)		206,908		$	321		$	207,229
Cumulative effect of a change in accounting principle related to ASC 606		—			—			366			—			366			—			366

Balance at December 31, 2017, as adjusted		8,297,172		$	47,414		$	169,756		$	(9,896	)		207,274		$	321		$	207,595



Net income		—			—			4,886			—			4,886			—			4,886
Foreign currency translation adjustment		—			—			—			1,318			1,318			—			1,318
Exercise of stock options		24,688			535			—			—			535			—			535
Share-based compensation expense		—			1,292			—			—			1,292			—			1,292
Restricted shares vestings		97,722			—			—			—			—			—			—
Redemption of vested employee restricted shares for tax withholding		(35,287	)		(1,783	)		—			—			(1,783	)		—			(1,783	)
Shares repurchased		(162,892	)		(8,057	)		—			—			(8,057	)		—			(8,057	)
Accrued dividends on unvested shares		—			—			10			—			10			—			10
Cash paid on dividend equivalents		—			—			(98	)		—			(98	)		—			(98	)
Cash dividends paid to shareholders ($0.17 per share)		—			—			(1,423	)		—			(1,423	)		—			(1,423	)

BALANCE AT MARCH 31, 2018		8,221,403		$	39,401		$	173,131		$	(8,578	)	$	203,954		$	321		$	204,275

Net income		—			—			6,839			—			6,839			—			6,839
Foreign currency translation adjustment		—			—			—			(2,603	)		(2,603	)		—			(2,603	)
Exercise of stock options		19,395			381			—			—			381			—			381
Share-based compensation expense		—			1,146			—			—			1,146			—			1,146
Restricted shares vestings		513			—			—			—			—			—			—
Shares repurchased		(215,585	)		(12,064	)		—			—			(12,064	)		—			(12,064	)
Accrued dividends on unvested shares		—			—			(44	)		—			(44	)		—			(44	)
Cash dividends paid to shareholders ($0.17 per share)		—			—			(1,372	)		—			(1,372	)		—			(1,372	)

BALANCE AT JUNE 30, 2018		8,025,726		$	28,864		$	178,554		$	(11,181	)	$	196,237		$	321		$	196,558

Net income		—			—			3,908			—			3,908			—			3,908
Foreign currency translation adjustment		—			—			—			(198	)		(198	)		—			(198	)
Exercise of stock options		21,374			471			—			—			471			—			471
Share-based compensation expense		—			1,266			—			—			1,266			—			1,266
Restricted shares vestings		17,410			—			—			—			—			—			—
Shares repurchased		—			—			—			—			—			—			—
Distribution to noncontrolling interest		—			—			—			—			—			(41	)		(41	)
Accrued dividends on unvested shares		—			—			(48	)		—			(48	)		—			(48	)
Cash dividends paid to shareholders ($0.17 per share)		—			—			(1,373	)		—			(1,373	)		—			(1,373	)

BALANCE AT SEPTEMBER 29, 2018		8,064,510		$	30,601		$	181,041		$	(11,379	)	$	200,263		$	280		$	200,543

See accompanying notes to the condensed consolidated financial statements.

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

(Unaudited)

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.

Principles of Consolidation

The consolidated financial statements include the accounts of CRA and its wholly owned subsidiaries. In addition, for periods prior to December 30, 2018, 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.

Basis of Presentation

The accompanying unaudited condensed consolidated financial statements reflect the results of operations, financial position, cash flows, and shareholders' equity as of and for the fiscal quarters and fiscal year-to-date periods ending September 28, 2019 and September 29, 2018, respectively. These financial statements have been prepared in accordance with the rules and regulations of the U.S. Securities and Exchange Commission ("SEC") for Quarterly Reports on Form 10-Q. Accordingly, these financial statements do not include all the information and note disclosures required by accounting principles generally accepted in the United States of America ("GAAP") for annual financial statements. In the opinion of management, these financial statements reflect all adjustments of a normal, recurring nature necessary for the fair statement of CRA's results of operations, financial position, cash flows, and shareholders' equity for the interim periods presented in conformity with GAAP. Results of operations for the interim periods presented herein are not necessarily indicative of results of operations for a full year. These financial statements should be read in conjunction with the consolidated financial statements and notes thereto for the fiscal year ended December 29, 2018 included in CRA's Annual Report on Form 10-K filed with the SEC on February 28, 2019 (the "2018 Form 10-K").

GNU Interest

Prior to liquidation of GNU on December 18, 2018, CRA's ownership interest in GNU was 55.89%. For periods prior to December 30, 2018, 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 did not contribute to CRA's results of operations during the fiscal quarters or fiscal year-to-date periods ended September 28, 2019 or September 29, 2018.

Estimates

The preparation of financial statements in conformity with GAAP requires management to make significant estimates and judgments that affect the reported amounts of assets and liabilities, as well as the related disclosure of contingent assets and liabilities, at the date of the financial statements, and the

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(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

reported amounts of consolidated revenues and expenses during the reporting period. Estimates in these condensed consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed price contracts, variable consideration to be included in the transaction price of revenue contracts, depreciation of property and equipment, measurement of operating lease right-of-use assets and liabilities, share-based compensation, valuation of contingent consideration liabilities, valuation of acquired intangible assets, impairment of long lived assets and goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued incentive compensation, and certain other accrued expenses. These items are monitored and analyzed by CRA for changes in facts and circumstances, 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.

Recent Accounting Standards Adopted

Leases (Topic 842)

CRA adopted Accounting Standard Update ("ASU") No. 2016-02, Leases (Topic 842), which established Accounting Standards Codification ("ASC") Topic 842 ("ASC 842") and supersedes ASC Topic 840, Leases ("ASC 840"), on December 30, 2018 using the additional modified retrospective transition method provided by ASC 842. The cumulative effect of the transition adjustments was recognized as of the date of adoption.

CRA elected the package of practical expedients provided by ASC 842, which allowed CRA to forgo reassessing the following upon adoption of the new standard: (1) whether contracts contain leases for any expired or existing contracts, (2) the lease classification for any expired or existing leases, and (3) initial direct costs for any existing or expired leases. In addition, CRA elected an accounting policy to exclude from the consolidated balance sheets the right-of-use ("ROU") assets and lease liabilities related to short-term leases, which are those leases with an initial lease term of twelve months or less that do not include an option to purchase the underlying asset that CRA is reasonably certain to exercise. Refer to Note 10 for further discussion of CRA's lease accounting policy.

The reported results for 2019 reflect the application of ASC 842 guidance, whereas comparative periods and their respective disclosures prior to the adoption of ASC 842 are presented using the legacy guidance of ASC 840. As a result of adopting the new standard, CRA recognized ROU assets of $82.3 million and lease liabilities of $106.8 million. The difference between the amount of ROU assets and lease liabilities recognized was an adjustment to deferred rent. There was no change to net deferred tax assets as a result of CRA's adoption of ASC 842. The adoption of ASC 842 did not have a material impact on CRA's results of operations or cash flows, nor did it have an impact on any of CRA's existing debt covenants.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

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

CRA adopted ASU No. 2018-07, Compensation—Stock Compensation: Improvements to Nonemployee Share-Based Payment Accounting (Topic 718) ("ASU 2018-07") on December 30, 2018. 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 requires a remeasurement of nonemployee awards at fair value as of the adoption date. The adoption of ASU 2018-07 did not have a material impact on CRA's financial position, results of operations, cash flows, or disclosures.

Recent Accounting Standards Not Yet Adopted

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

In June 2016, the Financial Accounting Standards Board ("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, which 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 CRA 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 is in the process of determining 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.

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").

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(Unaudited)

1. Summary of Significant Accounting Policies (Continued)

The ASU eliminates, adds and modifies certain disclosure requirements for fair value measurements from ASC 820, Fair Value Measurements and Disclosures (Topic 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 2018-13 may have on its financial position, results of operations, cash flows, or disclosures. CRA plans to adopt ASU 2018-13 during the first quarter of 2020.

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. CRA plans to adopt ASU 2018-15 during the first quarter of 2020.

2. Fair Value of Financial Instruments

Topic 820 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).

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(Unaudited)

2. Fair Value of Financial Instruments (Continued)

The following tables show CRA's financial instruments as of September 28, 2019 and December 29, 2018 that are measured and recorded in the condensed consolidated financial statements at fair value on a recurring basis (in thousands):

	September 28, 2019

	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable Inputs
	Level 1		Level 2		Level 3
Assets:
Money market mutual funds	$	149	$	—	$	—

Total Assets	$	149	$	—	$	—



Liabilities:
Contingent consideration liability	$	—	$	—	$	9,632

Total Liabilities	$	—	$	—	$	9,632

	December 29, 2018

	Quoted Prices in Active Markets for Identical Assets or Liabilities		Significant Other Observable Inputs		Significant Unobservable 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

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

The contingent consideration liabilities in the tables above are for estimated future payments related to an acquisition that occurred on January 31, 2017. The asset purchase agreement provided for additional purchase consideration to be paid over a period of up to four years following the closing of the transaction in the form of an earnout, subject to the satisfaction of specific revenue performance targets. 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 internally generated projections of sourced revenue 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 is reassessed on a quarterly basis by CRA using additional information as it becomes available, and any change in the fair value estimates are recorded in costs of services (exclusive of depreciation and amortization) on the condensed consolidated income statement of that period.

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(Unaudited)

2. Fair Value of Financial Instruments (Continued)

The following table summarizes the changes in the contingent consideration liabilities over the fiscal year-to-date period ended September 28, 2019 and the fiscal year ended December 29, 2018 (in thousands):

	September 28, 2019		December 29, 2018

Beginning balance	$	6,197	$	5,137
Remeasurement of acquisition-related contingent consideration		1,868		(244	)
Accretion		1,567		1,304

Ending balance	$	9,632	$	6,197

3. Forgivable Loans

Forgivable loan activity for the fiscal year-to-date period ended September 28, 2019 and the fiscal year ended December 29, 2018 is as follows (in thousands):

	September 28, 2019			December 29, 2018

Beginning balance	$	40,294		$	28,628
Advances		33,404			30,572
Repayments		(1,106	)		(3,396	)
Reclassification from accrued expenses		(1,121	)		—
Amortization		(13,313	)		(15,329	)
Effects of foreign currency translation		(291	)		(181	)

Ending balance	$	57,867		$	40,294



Current portion of forgivable loans	$	8,821		$	6,104



Non-current portion of forgivable loans	$	49,046		$	34,190

At September 28, 2019 and December 29, 2018, CRA had other loans to current and former employees included in other assets on the condensed consolidated balance sheet amounting to $0.3 million and $0.1 million, respectively, net of allowances.

4. Goodwill and Intangible Assets

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

	Goodwill, gross			Accumulated impairment losses			Goodwill, net

Balance at December 29, 2018	$	164,625		$	(76,417	)	$	88,208
Effects of foreign currency translation		(395	)		—			(395	)

Balance at September 28, 2019	$	164,230		$	(76,417	)	$	87,813

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(Unaudited)

4. Goodwill and Intangible Assets (Continued)

Intangible assets that are separable from goodwill and have determinable useful lives are valued separately and amortized over their expected useful lives. There were no impairment losses related to intangible assets during the fiscal year-to-date period ended September 28, 2019 or September 29, 2018.

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

	September 28, 2019		December 29, 2018

Non-competition agreements, net of accumulated amortization of $190 and $544, respectively	$	134	$	180
Customer relationships, net of accumulated amortization of $5,436 and $4,454, respectively		6,684		7,666

Total, net of accumulated amortization of $5,626 and $4,998, respectively	$	6,818	$	7,846

5. Accrued Expenses

Accrued expenses consist of the following (in thousands):

	September 28, 2019		December 29, 2018

Compensation and related expenses	$	75,319	$	90,711
Income taxes payable		702		514
Commissions due to senior consultants		8,752		9,624
Direct project accruals		1,882		684
Accrued leasehold improvements		2,321		132
Other		5,581		6,568

Total	$	94,557	$	108,233

As of September 28, 2019 and December 29, 2018, approximately $59.9 million and $73.9 million, respectively, of accrued bonuses were included above in "Compensation and related expenses."

6. Credit Agreement

CRA is party to a credit agreement that provides CRA with a $125.0 million revolving credit facility and a $15.0 million sublimit for the issuance of letters of credit. CRA may use the proceeds of the revolving credit facility to provide working capital and for other general corporate purposes. CRA may repay any borrowings under the revolving credit facility at any time, but no later than October 24, 2022. There were $36.0 million in borrowings outstanding under this revolving credit facility as of September 28, 2019. There were no outstanding borrowings under this facility as of December 29, 2018.

As of September 28, 2019, the amount available under this revolving credit facility was reduced by certain letters of credit outstanding, which amounted to $4.4 million. Under the credit agreement, CRA must comply with various financial and non-financial covenants. Compliance with these financial

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(Unaudited)

6. Credit Agreement (Continued)

covenants is tested on a fiscal quarterly basis. As of September 28, 2019 and December 29, 2018, CRA was in compliance with the covenants of its credit agreement.

7. Revenue Recognition

CRA offers functional expertise across a variety of litigation, regulatory, financial, industry and management consulting services. Together, these services comprised all of CRA's consolidated revenues during the fiscal quarters and fiscal year-to-date periods ended September 28, 2019 and September 29, 2018. 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.

Disaggregation of Revenue

The following table disaggregates CRA's revenue by type of contract and geographic location (in thousands):

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

Type of Contract	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Consulting services revenues:
Fixed Price	$	30,057	$	25,047	$	76,622	$	66,440
Time-and-materials		85,629		78,824		255,486		242,445

Total	$	115,686	$	103,871	$	332,108	$	308,885

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

Geographic Breakdown	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Consulting services revenues:
United States	$	92,217	$	80,721	$	263,221	$	244,878
United Kingdom		17,116		17,253		53,027		47,317
Other		6,353		5,897		15,860		16,690

Total	$	115,686	$	103,871	$	332,108	$	308,885

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. Variable consideration reserves are based on actual price concessions and those expected to be extended to CRA customers and are

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(Unaudited)

7. Revenue Recognition (Continued)

recorded as a component of the allowances for accounts receivable and unbilled services. Adjustments to the variable consideration reserves are as follows (in thousands):

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Adjustments to reserves for variable consideration and credit risk	$	2,282	$	2,441	$	6,440	$	5,887

Bad debt expense is reported as a component of selling, general and administrative expense. Bad debt expense is as follows (in thousands):

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Bad debt expense	$	142	$	748	$	173	$	1,150

Reimbursable Expenses

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):

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Reimbursable expenses	$	13,978	$	11,422	$	38,991	$	34,737

CRA collects goods and services (GST/HST) and value added taxes (VAT) from customers and records these amounts on a net basis.

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 September 28, 2019. 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 September 28, 2019.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

7. Revenue Recognition (Continued)

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 September 28, 2019 and December 29, 2018.

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.

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

	Contract Liability

			Fiscal Year Ended
	Fiscal Year-to-Date Period Ended		Fiscal Year Ended
	Fiscal Year-to-Date Period Ended		December 29, 2018
	September 28, 2019		December 29, 2018
Balance at the beginning of the period	$	5,453	$	3,287
Balance at the end of the period	$	2,502	$	5,453

During the fiscal quarter and fiscal year-to-date period ended September 28, 2019, CRA recognized the following revenue as a result of changes in the contract liability balance (in thousands):

	Fiscal Quarter Ended

	Fiscal Quarter Ended		Fiscal Year-to-Date Period Ended
	September 28, 2019		Fiscal Year-to-Date Period Ended
	September 28, 2019		September 28, 2019
Amounts included in contract liabilities at the beginning of the period	$	2,405	$	4,900
Performance obligations satisfied in previous periods	$	3,395	$	3,606

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

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(Unaudited)

8. Net Income per Share

CRA calculates basic and diluted earnings per common share using the two-class method. Under the two-class method, net earnings are allocated to each class of common stock and participating security as if all of the net earnings for the period had been distributed. CRA's participating securities consist of unvested share-based payment awards that contain a nonforfeitable right to receive dividends and therefore are considered to participate in undistributed earnings with common shareholders. Basic earnings per common share excludes dilution and is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period. Diluted earnings per common share is calculated by dividing net earnings allocable to common shares by the weighted-average number of common shares outstanding for the period, as adjusted for the potential dilutive effect of non-participating share-based awards. Net earnings allocable to these participating securities were not material for the fiscal quarters and fiscal year-to-date periods ended September 28, 2019 and September 29, 2018.

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

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Net income, as reported	$	5,739	$	3,908	$	15,984	$	15,633
Less: net income attributable to participating shares		12		15		47		82

Net income available to common shareholders	$	5,727	$	3,893	$	15,937	$	15,551

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

	Fiscal Quarter Ended				Fiscal Year-to-Date Period Ended

	September 28, 2019		September 29, 2018		September 28, 2019		September 29, 2018
Basic weighted average shares outstanding		7,769		8,048		7,903		8,129
Dilutive stock options and restricted stock units		281		500		302		486

Diluted weighted average shares outstanding		8,050		8,548		8,205		8,615

For the fiscal quarter and fiscal year-to-date period ended September 28, 2019, the anti-dilutive share-based awards that were excluded from the calculation of common stock equivalents for purposes of computing diluted weighted average shares outstanding amounted to 63,164 and 47,169 shares, respectively. For the fiscal quarter and fiscal year-to-date period ended September 29, 2018, the anti-dilutive share-based awards that were excluded from the calculation of common stock equivalents for purposes of computing diluted weighted average shares outstanding amounted to 8,256 and 13,443 shares, respectively. These share-based awards each period were anti-dilutive because their exercise price exceeded the average market price over the respective period.

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(Unaudited)

9. Income Taxes

CRA's effective income tax rates were 14.2% and 20.9% for the third quarter of fiscal 2019 and fiscal 2018, respectively. The effective tax rate for the third quarter of fiscal 2019 was lower than the prior year primarily due to the release of tax reserves as a result of expiration of statutes of limitation, partially offset by a decrease in the tax benefit related to share-based compensation. The effective tax rate in the third quarter of fiscal 2019 was lower than the combined federal and state statutory tax rate primarily due to the reversal of tax reserves as a result of expiration of statutes of limitation, the tax benefit on share-based compensation, and the remeasurement of U.S deferred tax assets and liabilities based on expected fiscal 2019 applicable state apportionment and statutory rates, 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. The effective tax rate in the third quarter of fiscal 2018 was lower than the combined federal and state statutory tax rate primarily due to the tax benefit on share-based compensation and the remeasurement of U.S deferred tax assets and liabilities based on expected fiscal 2018 applicable state apportionment and statutory rates.

CRA's effective income tax rates were 22.9% and 24.1% for the fiscal year-to-date periods ended September 28, 2019 and September 29, 2018, respectively. The effective tax rate for the fiscal year-to-date period ended September 28, 2019 was lower than the prior year primarily due to the release of tax reserves as a result of expiration of statutes of limitation, partially offset by a decrease in the tax benefit related to share-based compensation. The effective tax rate in the fiscal year-to-date period ended September 28, 2019 was lower than the combined federal and state statutory tax rate primarily due to the release of tax reserves as a result of expiration of statutes of limitation, the tax benefit on share-based compensation, and the remeasurement of U.S deferred tax assets and liabilities based on the expected fiscal 2019 applicable state apportionment and statutory rates, 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. The effective tax rate for the fiscal year-to-date period ended September 29, 2018 was lower than the combined federal and state statutory tax rate primarily due to the tax benefit on share-based compensation, partially offset by the non-deductible items referenced above.

CRA has not provided for deferred income taxes or foreign withholding taxes on undistributed earnings and other basis differences that may exist from its foreign subsidiaries as of September 28, 2019, because such earnings are considered to be indefinitely reinvested. CRA does not rely on these unremitted earnings as a source of funds for its domestic business as it expects to have sufficient cash flow in the U.S. to fund its U.S. operational and strategic needs. If CRA were to repatriate its foreign earnings that are indefinitely reinvested, it would accrue substantially no additional tax expense.

10. Leases

CRA is a lessee under certain operating leases for office space and equipment. Prior to adopting ASC 842, CRA followed the lease accounting guidance as issued in ASC 840. Under ASC 840, CRA classified its leases as operating or capital leases based on evaluation of certain criteria of the lease agreement. For leases that contained rent escalations or rent holidays, CRA recorded the total rent expense during the lease term on a straight-line basis over the term of the lease and recorded the difference between the rents paid and the straight-line rent expense as deferred rent on the balance

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. Leases (Continued)

sheet. Any tenant improvement allowances received from the lessor were recorded as a reduction to rent expense over the term of the lease.

ASC 842, which CRA adopted on December 30, 2018, requires lessees to recognize leases on the balance sheet as a lease liability with a corresponding ROU asset, subject to certain permitted accounting policy elections. As a result of adopting the new standard, CRA recognized ROU assets of $82.3 million and lease liabilities of $106.8 million related to its operating leases as of December 30, 2018. The difference between the amount of ROU assets and lease liabilities recognized was an adjustment to eliminate the deferred rent balance, which was a component of ASC 840.

Under ASC 842, CRA determines whether a contract is a lease at the inception of the contract. This determination is based on whether the contract provides CRA the right to control the use of a physically distinct asset or substantially all of the capacity of an asset. Leases with an initial noncancelable term of twelve months or less that do not include an option to purchase the underlying asset that CRA is reasonably certain to exercise are classified as short-term leases. CRA has elected as an accounting policy to exclude from the consolidated balance sheets the ROU assets and lease liabilities related to short-term leases. CRA recognizes rent expense for its operating leases on a straight-line basis over the term of the lease.

Many of CRA's equipment leases are short-term or cancellable with notice. CRA's office space leases have remaining lease terms between one and approximately twelve years, many of which include one or more options to extend the term for periods of up to five years for each option. Certain leases contain options to terminate the lease early, which may include a penalty for exercising the option. Many of the termination options require notice within a specified period, after which the option is no longer available to CRA if not exercised. The extension options and termination options may be exercised at CRA's sole discretion. CRA does not consider in the measurement of ROU assets and lease liabilities an option to extend or terminate a lease if CRA is not reasonably certain to exercise the option. As of September 28, 2019, CRA has not included any options to extend or terminate in its measurement of ROU assets or lease liabilities.

Certain of CRA's leases include covenants that oblige CRA, at its sole expense, to repair and maintain the leased asset periodically during the lease term. CRA is not a party to any leases that contain residual value guarantees nor is CRA a party to any leases that provide an option to purchase the underlying asset.

Many of CRA's office space leases include fixed and variable payments. Variable payments relate to real estate taxes, insurance, operating expenses, and common area maintenance, which are usually billed at actual amounts incurred proportionate to CRA's rented square feet of the building. Variable payments that do not depend on an index or rate are expensed by CRA as they are incurred and are not included in the measurement of the lease liability.

Many of CRA's leases contain both lease and non-lease components. For office space leases, the Company has elected as an accounting policy to account for lease and nonlease components as a single component. For equipment leases, fixed and variable payments are allocated to each component relative to observable or estimated standalone prices. CRA measures its variable lease costs as the portion of variable payments that are allocated to lease components.

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. Leases (Continued)

CRA measures its lease liability for each leased asset as the present value of lease payments, as defined in ASC 842, allocated to the lease component, discounted using an incremental borrowing rate specific to the underlying asset. CRA's ROU assets are equal to the lease liability, adjusted for lease incentives received, including tenant improvement allowances, and payments made to the lessor prior to the lease commencement date. CRA estimates its incremental borrowing rate for each leased asset based on the interest rate CRA would incur to borrow an amount equal to the lease payments on a collateralized basis over a similar term in a similar economic environment.

The components of CRA's lease expenses, which are included in the condensed consolidated income statement, are as follows (in thousands):

	Fiscal Quarter Ended		Fiscal Year-to-Date Period Ended

	September 28, 2019		September 28, 2019
Operating lease cost	$	4,052	$	11,276
Short-term lease cost		106		295
Variable lease cost		1,181		3,150

Total lease cost	$	5,339	$	14,721

Supplemental cash flow information related to CRA's leases are as follows (in thousands):

		Fiscal Year-to-Date Period Ended

		September 28, 2019
Cash paid for amounts included in the measurement of lease liabilities
Operating cash flows from operating leases		$12,053
Right-of-use assets obtained in exchange for lease obligations
Operating leases		$37,298

The following table presents supplemental balance sheet information related to CRA's operating leases (in thousands):

		September 28, 2019

Assets:
Operating lease right-of-use assets		$110,999



Liabilities:
Current portion of lease liabilities		$10,598
Non-current portion of lease liabilities		126,869

Total operating lease liabilities		$137,467



Weighted average remaining lease term—operating leases		9.8 years
Weighted average discount rate—operating leases		3.7%

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

10. Leases (Continued)

At September 28, 2019, CRA had the following maturities of lease liabilities related to office space and equipment, all of which are under non-cancellable operating leases (in thousands):

Fiscal Year	Operating Lease Commitments

2019 (excluding the nine months ended September 28, 2019)	$	2,505
2020		16,883
2021		16,802
2022		16,907
2023		17,024
Thereafter		96,285

Total lease payments		166,406
Less: imputed interest		(28,939	)

Total	$	137,467

As of September 28, 2019, CRA had additional operating leases for office space that have not yet commenced that have minimum rental commitments of $28.8 million. These operating leases will commence in fiscal year 2019 and 2020 and have lease terms of approximately six years to eleven years, subject to certain extension options.

11. Contingencies

CRA is subject to legal actions arising in the ordinary course of business. In management's opinion, based on current knowledge, CRA has adequate legal defenses and/or insurance coverage with respect to the eventuality of such actions. CRA does not believe any settlement or judgment relating to any pending legal action would materially affect its financial position or results of operations. However, the outcome of such legal actions is inherently unpredictable and subject to inherent uncertainties.

12. Correction

During the fourth quarter of fiscal 2018, CRA determined that the change in accounts receivable allowances presented in the March 31, 2018 condensed consolidated statement of cash flows required adjustment. These adjustments in disclosure are immaterial and had no effect on the amount of accounts receivable presented on the March 31, 2018 condensed consolidated balance sheet. As a result of these adjustments, a classification change was required within the operating activities portion of the condensed consolidated statement of cash flows. As of December 29, 2018, these adjustments were corrected and the accounts receivable and accounts receivable allowances were properly presented within the consolidated financial statements.

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CRA INTERNATIONAL, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Continued)

(Unaudited)

12. Correction (Continued)

The following table presents the total classification changes required related to these adjustments for the fiscal year-to-date period ended September 29, 2018 (in thousands):

	As previously reported			As revised

Accounts receivable allowances	$	884		$	233
Accounts receivable	$	(9,391	)	$	(8,939	)
Unbilled services	$	(10,175	)	$	(9,976	)
Net cash used in operating activities	$	(8,394	)	$	(8,394	)

13. Subsequent Events

On October 31, 2019, CRA announced that its Board of Directors declared a quarterly cash dividend of $0.23 per common share, payable on December 13, 2019 to shareholders of record as of November 26, 2019.

During the month of October 2019, CRA repaid $10.0 million on its existing borrowings under its revolving line of credit. After this repayment, $26.0 million of borrowings remain outstanding.

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ITEM 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

Forward-Looking Statements

Except for historical facts, the statements in this quarterly report are forward-looking statements. Forward-looking statements are merely our current predictions of future events. These statements are inherently uncertain, and actual events could differ materially from our predictions. Important factors that could cause actual events to vary from our predictions include those discussed below 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 the other documents that we file with the Securities and Exchange Commission, or SEC. You can read these documents at www.sec.gov.

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 file them electronically 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.

Critical Accounting Policies and Significant Estimates

The discussion and analysis of our financial condition and results of operations are based upon our condensed consolidated financial statements, which have been prepared in accordance with generally accepted accounting principles in the U.S. ("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 the 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. Estimates in these condensed consolidated financial statements include, but are not limited to, allowances for accounts receivable and unbilled services, revenue recognition on fixed price contracts, variable consideration to be included in the transaction price of revenue contracts, depreciation of property and equipment, measurement of operating lease right-of-use ("ROU") assets and liabilities, share-based compensation, valuation of contingent consideration liabilities, valuation of acquired intangible assets, impairment of long lived assets and goodwill, accrued and deferred income taxes, valuation allowances on deferred tax assets, accrued incentive compensation, and certain other accrued expenses. These items are monitored and analyzed by 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.

We have described our significant accounting policies in Note 1 to our consolidated financial statements included in the 2018 Form 10-K. We have reviewed our accounting policies, identifying those that we believe to be critical to the preparation and understanding of our consolidated financial statements in the list set forth below. See the disclosure under the heading "Critical Accounting Policies" in Item 7 of Part II of the 2018 Form 10-K for a detailed description of these policies and their potential effects on our results of operations and financial condition.

•: Revenue recognition and accounts receivable allowances

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•: Deferred compensation
•: Valuation of contingent consideration liability
•: Valuation of goodwill and other intangible assets
•: Accounting for income taxes

Except for the adoption of ASC 842 as described below, we did not adopt any changes in the fiscal year-to-date period ended September 28, 2019 that had a material effect on these critical accounting policies, nor did we make any changes to our accounting policies in the fiscal year-to-date period ended September 28, 2019 that changed these critical accounting policies.

Leases

We adopted ASU No. 2016-02, Leases (Topic 842) (ASC 842) on December 30, 2018, using the additional modified retrospective transition method provided by ASC 842. The reported results for 2019 reflect the application of ASC 842 guidance while the reported results for 2018 were prepared under the guidance of ASC 840, Leases (ASC 840). As a result of adopting the new standard, we recognized ROU assets of $82.3 million and lease liabilities of $106.8 million, of which $10.6 million is classified as a current liability, as of December 30, 2018. The difference between the amount of ROU assets and lease liabilities recognized was an adjustment to deferred rent. Prior periods will not be retrospectively adjusted. See Note 10 to our consolidated condensed financial statements included in this quarterly report on Form 10-Q for a complete description of our accounting policy.

Recent Accounting Standards

See Note 1 to our condensed consolidated financial statements included in this quarterly report on Form 10-Q for a discussion of recent accounting standards that we have not yet adopted under the heading "Recent Accounting Standards Not Yet Adopted."

Results of Operations—For the Fiscal Quarter and Fiscal Year-to-Date Period Ended September 28, 2019, Compared to the Fiscal Quarter and Fiscal Year-to-Date Period Ended September 29, 2018

The following table provides operating information as a percentage of revenues for the periods indicated:

	Fiscal Quarter Ended						Fiscal Year-to-Date Period Ended

	September 28, 2019			September 29, 2018			September 28, 2019			September 29, 2018
Revenues		100.0	%		100.0	%		100.0	%		100.0	%
Costs of services (exclusive of depreciation and amortization)		72.4			71.0			70.3			68.9
Selling, general and administrative expenses		19.4			21.5			20.8			21.9
Depreciation and amortization		2.2			2.5			2.3			2.4

Income from operations		6.0			5.0			6.6			6.8
Interest expense, net		(0.4	)		(0.2	)		(0.3	)		(0.2	)
Other income (expense), net		0.2			(0.1	)		(0.1	)		0.0

Income before provision for income taxes		5.8			4.8			6.2			6.7
Provision for income taxes		0.8			1.0			1.4			1.6

Net income		5.0	%		3.8	%		4.8	%		5.1	%

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Fiscal Quarter Ended September 28, 2019 Compared to the Fiscal Quarter Ended September 29, 2018

Revenues. Revenues increased by $11.8 million, or 11.4%, to $115.7 million for the third quarter of fiscal 2019 from $103.9 million for the third quarter of fiscal 2018. The increase in net revenue was a result of an increase in gross revenues of $10.9 million as compared to the third quarter of fiscal 2018, and a decrease in write-offs and reserves of $0.9 million compared to the third quarter of fiscal 2018. Utilization remained flat at 76% for the third quarter of fiscal 2019 relative to the third quarter of fiscal 2018, while consultant headcount grew 8.2% from 685 at the end of the third quarter of fiscal 2018 to 741 at the end of the third quarter of fiscal 2019. Included in revenues are the effect of changes in currency exchange rates resulting in a decrease to revenue of $1.1 million for the fiscal quarter ended September 28, 2019, and a decrease of $0.2 million for the fiscal quarter ended September 29, 2018.

Overall, revenues outside of the U.S. represented approximately 20% and 22% of total revenues for the third quarters of fiscal 2019 and fiscal 2018, respectively. Revenues derived from fixed-price engagements increased to 26% of total revenues for the third quarter of fiscal 2019 compared with 24% of total revenues for the third quarter of fiscal 2018. These percentages of revenue derived from fixed-price engagements depend largely on the proportion of our revenues derived from our management consulting business, which typically has a higher concentration of fixed-price service contracts.

Costs of Services (exclusive of depreciation and amortization). Costs of services (exclusive of depreciation and amortization) increased by $10.1 million, or 13.7%, to $83.8 million for the third quarter of fiscal 2019 from $73.7 million for the third quarter of fiscal 2018. The increase in costs of services was due primarily to an increase of $2.3 million in employee compensation and fringe benefit costs attributable to our increased consultant headcount, an increase in incentive and retention compensation costs of $4.6 million, an increase in forgivable loan and incentive awards amortization of $0.3 million, and an increase in expense related to the net change in contingent consideration valuation of $0.7 million. These increased expenses were partially offset by a decrease in stock compensation of $0.4 million. Additionally, client reimbursable expenses increased by $2.6 million in the third quarter of fiscal 2019 compared to the third quarter of fiscal 2018. As a percentage of revenues, costs of services (exclusive of depreciation and amortization) increased to 72.4% for the third quarter of fiscal 2019 from 70.9% for the third quarter of fiscal 2018.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $0.1 million, or 0.4%, to $22.4 million for the third quarter of fiscal 2019 from $22.3 million for the third quarter of fiscal 2018. Within this category of expenses, there was a $0.3 million increase in employee and incentive compensation, a $1.1 million increase in rent expense primarily due to additional space in our Boston office, and a $0.2 million increase in commissions to our nonemployee experts for the third quarter of fiscal 2019 as compared to the third quarter of fiscal 2018. Partially offsetting these increased expenses was a $0.4 million decrease in other operating expenses primarily due to a decrease in legal and other professional fees and a $1.0 million decrease in bad debt expense.

As a percentage of revenues, selling, general and administrative expenses decreased to 19.4% for the third quarter of fiscal 2019 from 21.5% for the third quarter of fiscal 2018. Commissions to our nonemployee experts decreased to 2.6% of revenues for the third quarter of fiscal 2019 compared to 2.7% of revenues for the third quarter of fiscal 2018.

Provision for Income Taxes. The income tax provision was $1.0 million and the effective tax rate was 14.2% for the third quarter of fiscal 2019 compared to $1.0 million and 20.9% for the third quarter of fiscal 2018. The effective tax rate for the third quarter of fiscal 2019 was lower than the prior year primarily due to the release of tax reserves as a result of expiration of statutes of limitation, partially

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offset by a decrease in the tax benefit related to share-based compensation. The effective tax rate in the third quarter of fiscal 2019 was lower than the combined federal and state statutory tax rate primarily due to the release of tax reserves as a result of expiration of statutes of limitation, the tax benefit on share-based compensation, and the remeasurement of U.S deferred tax assets and liabilities based on expected fiscal 2019 applicable state apportionment and statutory rates, 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. The effective tax rate in the third quarter of fiscal 2018 was lower than the combined federal and state statutory tax rate primarily due to the tax benefit on share-based compensation and the remeasurement of U.S deferred tax assets and liabilities based on expected fiscal 2018 applicable state apportionment and statutory rates.

Net Income. Net income increased by $1.8 million to $5.7 million for the third quarter of fiscal 2019 from $3.9 million for the third quarter of fiscal 2018. The net income per diluted share was $0.71 per share for the third quarter of fiscal 2019, compared to $0.46 of net income per diluted share for the third quarter of fiscal 2018. Weighted average diluted shares outstanding decreased by approximately 498,000 shares to approximately 8,050,000 shares for the third quarter of fiscal 2019 from approximately 8,548,000 shares for the third quarter of fiscal 2018. The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since the fiscal year-to-date period ended September 29, 2018, 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, since the third quarter of fiscal 2018.

Fiscal Year-to-Date Period Ended September 28, 2019 Compared to the Fiscal Year-to-Date Period Ended September 29, 2018

Revenues. Revenues increased by $23.2 million, or 7.5%, to $332.1 million for the fiscal year-to-date period ended September 28, 2019 from $308.9 million for the fiscal year-to-date period ended September 29, 2018. The increase in net revenue was a result of an increase in gross revenues of $23.8 million as compared to the fiscal year-to-date period ended September 29, 2018, offset by an increase in write-offs and reserves of $0.6 million as compared to the fiscal year-to-date period ended September 29, 2018. Utilization remained flat at 76% for the fiscal year-to-date period ended September 28, 2019 relative to the fiscal year-to-date period ended September 29, 2018, while consultant headcount increased during the period. Included in revenues are the effect of changes in currency exchange rates resulting in a decrease in revenue of $3.8 million for the fiscal year-to-date period ended September 28, 2019 and an increase in revenue of $3.3 million for the fiscal year-to-date period ended September 29, 2018, respectively.

Overall, revenues outside of the U.S. represented approximately 21% of total revenues for each of the fiscal year-to-date periods ended September 28, 2019 and September 29, 2018. Revenues derived from fixed-price engagements were 23% and 22% of total revenues for the fiscal year-to-date periods ended September 28, 2019 and September 29, 2018, respectively. These percentages of revenue derived from fixed-price engagements depend largely on the proportion of our revenues derived from our management consulting business, which typically has a higher concentration of fixed-price service contracts.

Costs of Services (exclusive of depreciation and amortization). Costs of services (exclusive of depreciation and amortization) increased by $20.6 million, or 9.7%, to $233.4 million for the fiscal year-to-date period ended September 28, 2019 from $212.8 million for the fiscal year-to-date period ended September 29, 2018. The increase in costs of services was due primarily to an increase of $5.2 million in employee compensation and fringe benefit costs associated with our increased consulting headcount, an increase in incentive and retention compensation costs of $7.7 million, an increase in forgivable loan and incentive awards amortization of $1.7 million, and an increase in the valuation of the contingent consideration of $3.4 million, partially offset by a decrease in stock compensation

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expense of $1.1 million. Additionally, client reimbursable expenses increased by $4.3 million in the fiscal year-to-date period ended September 28, 2019 compared to the fiscal year-to-date period ended September 29, 2018. As a percentage of revenues, costs of services (exclusive of depreciation and amortization) increased to 70.3% for the fiscal year-to-date period ended September 28, 2019 from 68.9% for the fiscal year-to-date period ended September 29, 2018.

Selling, General and Administrative Expenses. Selling, general and administrative expenses increased by $1.2 million, or 1.8%, to $68.9 million for the fiscal year-to-date period ended September 28, 2019 from $67.7 million for the fiscal year-to-date period ended September 29, 2018. The primary contributor to this increase was an increase in employee and incentive compensation of $1.3 million, a $0.7 million increase in travel and entertainment, a $0.5 million increase in training and marketing, a $0.6 million increase in subscriptions and licenses, a $1.0 million increase in rent, and a $0.2 million increase in commissions to our nonemployee experts for the fiscal year-to-date period ended September 30, 2019 as compared to the fiscal year-to-date period ended September 29, 2018, offset by a $2.0 million decrease in legal and other professional fees, a $1.0 million decrease in bad debt expense, and a $0.2 million decrease in other operating expenses.

As a percentage of revenues, selling, general and administrative expenses decreased to 20.8% for the fiscal year-to-date period ended September 28, 2019 from 21.9% for the fiscal year-to-date period ended September 29, 2018 due primarily to the increase in revenues. Commissions to our nonemployee experts decreased to 2.9% of revenues for the fiscal year-to-date period ended September 28, 2019 compared to 3.0% of revenues for the fiscal year-to-date period ended September 29, 2018 as less revenue was sourced by nonemployee experts in the fiscal year-to-date period ended September 28, 2019 compared to the fiscal year-to-date period ended September 29, 2018.

Provision for Income Taxes. For fiscal year-to-date period ended September 28, 2019, our income tax provision was $4.8 million, and the effective tax rate was 22.9%, compared to a provision of $5.0 million and an effective tax rate of 24.1% for the fiscal year-to-date period ended September 29, 2018. The effective tax rate for the fiscal year-to-date period ended September 28, 2019 was lower than the prior year primarily due to the release of tax reserves as a result of expiration of statutes of limitation, partially offset by a decrease in the tax benefit related to share-based compensation. The effective tax rate in the fiscal year-to-date period ended September 28, 2019 was lower than the combined federal and state statutory tax rate primarily due to the release of tax reserves as a result of expiration of statutes of limitation, the tax benefit on share-based compensation, and the remeasurement of U.S deferred tax assets and liabilities based on the expected fiscal 2019 applicable state apportionment and statutory rates, 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. The effective tax rate for the fiscal year-to-date period ended September 29, 2018 was lower than the combined federal and state statutory tax rate primarily due to the tax benefit on share-based compensation, partially offset by non-deductible items referenced above.

Net Income. Net income increased by $0.4 million to $16.0 million for the fiscal year-to-date period ended September 28, 2019 from $15.6 million for the fiscal year-to-date period ended September 29, 2018. The diluted net income per share was $1.94 for the fiscal year-to-date period ended September 28, 2019, compared to diluted net income per share of $1.81 for the fiscal year-to-date period ended September 29, 2018. Diluted weighted average shares outstanding decreased by approximately 410,000 to approximately 8,205,000 shares for the fiscal year-to-date period ended September 28, 2019 from approximately 8,615,000 shares for the fiscal year-to-date period ended September 29, 2018. The decrease in weighted average diluted shares outstanding was primarily due to the repurchase of shares of our common stock since the fiscal year-to-date period ended September 29, 2018, 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, since the third quarter of fiscal 2018.

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Liquidity and Capital Resources

Fiscal Year-to-Date Period Ended September 28, 2019

We believe that our current cash, cash equivalents, cash generated from operations, and amounts available under our bank revolving line of credit will be sufficient to meet our anticipated working capital and capital expenditure requirements for at least the next 12 months.

General. During the fiscal year-to-date period ended September 28, 2019, cash and cash equivalents decreased by $18.2 million. We completed the period with cash and cash equivalents of $19.8 million and working capital (defined as current assets less current liabilities) of $8.3 million. The principal drivers of the reduction of cash were payment of a significant portion of our fiscal 2018 performance bonuses in the second quarter of 2019, the funding of forgivable loans, the repurchase of shares, and capital expenditures related to the buildout of the expanded Boston office space, offset by net borrowings of $36.0 million.

Of the total cash and cash equivalents held at September 28, 2019, $7.8 million was held within the U.S. We have sufficient sources of liquidity in the U.S., including cash from operations and availability on our revolving line of credit, to fund U.S. activities. At September 28, 2019, we had outstanding borrowings on the revolving line of credit of $36.0 million.

Sources and Uses of Cash. During the fiscal year-to-date period ended September 28, 2019, net cash used in operating activities was $19.9 million. Net income was $16.0 million for the fiscal year-to-date period ended September 28, 2019. The primary factor in cash used in operations was the decrease in the "accounts payable, accrued expenses, and other liabilities" line item of our consolidated statement of cash flows of $16.3 million. Other uses of cash included an increase of $14.6 million in unbilled receivables, a $5.7 million increase in prepaid expenses and other current assets and a $5.8 million decrease in lease liabilities. The change in forgivable loans for the period of $18.9 million was primarily driven by $32.3 million of forgivable loan issuances, net of repayments, offset by $13.3 million of forgivable loan amortization. Offsetting these uses of cash was a $3.5 million decrease in accounts receivable, net. Cash provided by operations included non-cash depreciation and amortization expense of $7.7 million, share-based compensation expenses of $2.6 million, and $7.8 million in ROU amortization.

During the fiscal year-to-date period ended September 28, 2019, net cash used in investing activities was $12.5 million for capital expenditures primarily related to the buildout of the Boston and Cambridge, UK office space.

During the fiscal year-to-date period ended September 28, 2019, net cash provided by financing activities was $14.8 million, primarily as a result of borrowings under the line of credit of $36.0 million, net of repayments, and $2.0 million received upon the issuance of shares of common stock related to the exercise of stock options. Offsetting these increases in cash were the tax withholding payments reimbursed by restricted shares of $0.4 million, payment of $4.7 million of cash dividends to shareholders, and $18.1 million of repurchases of common stock.

Indebtedness

We are party to a credit agreement that provides us with a $125.0 million revolving credit facility and a $15.0 million sublimit for the issuance of letters of credit. We may use the proceeds of the revolving credit facility to provide working capital and for other general corporate purposes. Generally, we may repay any borrowings under the revolving credit facility at any time, but must repay all borrowings no later than October 24, 2022. There was $36.0 million in outstanding borrowings under this revolving line of credit as of September 28, 2019.

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The amount available under this revolving line of credit is reduced by certain letters of credit outstanding, which amounted to $4.4 million as of September 28, 2019. 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 $30.7 million in net assets as of September 28, 2019.

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.

Forgivable Loans and Term 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 three 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 incentive performance awards to certain of our employees and non-employee experts if specific performance targets are met. The amounts of the awards to be paid under these compensation arrangements could fluctuate depending on future performance through the respective measurement periods. Increases in estimated awards are expensed prospectively over the remaining service period. Decreases in estimated awards are recorded in the period incurred. We believe that we will have sufficient funds to satisfy any obligations related to the incentive performance awards. We expect to fund these payments, if any, from existing cash resources, cash generated from operations, or borrowings on our existing revolving credit facility.

Business and Talent Acquisitions

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 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 will depend on several factors,

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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 2019, our Board of Directors authorized an expansion to our existing share repurchase program, authorizing the purchase of an additional $20.0 million 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 the fiscal quarter and fiscal year-to-date period ended September 28, 2019, we repurchased and retired 157,402 shares and 421,112 shares, respectively, under our share repurchase program at an average price per share of $41.69 and $42.94, respectively. During the fiscal quarter and fiscal year-to-date period ended September 29, 2018, we repurchased and retired 215,585 shares and 378,477 shares, respectively, under our share repurchase program at an average price per share of $55.99 and $53.90, respectively. As of September 28, 2019, we had approximately $3.5 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 existing 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 of any future dividends is subject to the discretion of our Board of Directors. During the fiscal quarter and fiscal year-to-date period ended September 28, 2019, we paid dividends of $1.5 million and $4.8 million, respectively. During the fiscal quarter and fiscal year-to-date period ended September 29, 2018, we paid dividends of $1.4 million and $4.3 million respectively, to our shareholders.

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;
•: dividends to shareholders;

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•: 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 and short-term borrowings. 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 bank 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.

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

Important factors that could cause our actual results to differ materially from the forward-looking statements we make in this Quarterly Report on Form 10-Q, as well as a description of material risks we face, are set forth under the heading "Risk Factors" included in Part I—Item 1A of the 2018 Form 10-K. 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 3. Quantitative and Qualitative Disclosures About Market Risk

For information regarding our exposure to certain market risks see "Item 7A. Quantitative and Qualitative Disclosures about Market Risk," in the 2018 Form 10-K.

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ITEM 4. Controls and Procedures

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, 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 not effective as of September 28, 2019, due to the material weaknesses in internal control over financial reporting related to the inadequate design or execution of internal controls over the completeness and accuracy of: 1) our contingent consideration and incentive-based compensation liabilities, including our internal controls over revenue forecasts and certain other assumptions used in the computation of these liabilities; 2) revenue and related reserves; 3) certain accounts payable and expense accruals; and 4) the evaluation of certain technical tax matters described in Item 9A of the 2018 Form 10-K.

Notwithstanding these material weaknesses, management has concluded that the condensed consolidated financial statements included in this quarterly report on Form 10-Q present fairly, in all material aspects, our financial position at the end of, and the results of operations and cash flows for, the periods presented in conformity with accounting principles generally accepted in the United States.

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 third quarter of fiscal 2019. Except for the ongoing remediation of the material weaknesses in internal controls over financial reporting noted above pursuant to the plan described in Item 9A of the 2018 Form 10-K, there were no changes in our internal control over financial reporting identified in connection with the above evaluation that occurred during the third quarter of fiscal 2019, that have materially affected or are reasonably likely to materially affect, our internal control over financial reporting.

Plan for Remediation of Material Weakness

We are committed to remediating the control deficiencies that gave rise to the material weaknesses described above. Management is responsible for implementing changes and improvements to our internal control over financial reporting and for remediating the control deficiencies that gave rise to these material weaknesses. During fiscal 2019, we are enhancing our system of internal controls over financial reporting with the following actions:

•: Maintaining the Special Internal Controls Committee to guide our remediation efforts;
•: Continuing our evaluation of the design and operation of our internal controls related to fixed price contract revenue accounting, accounts payable and accrued expenses, including the evaluation of automated controls;
•: Developing and implementing management review procedures and controls over revenue forecasts and assumptions used in the computation of incentive-based compensation and contingent consideration;
•: Developing and implementing management review procedures and controls over revenue and related reserves, and income taxes;

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•: Provided additional training on the importance of review controls and related documentation as well as effective review and documentation procedures;
•: Evaluating areas of the finance organization for further technological advancements, such as accounts payable, accrued expenses, and incentive-based compensation to ensure the timeliness, completeness, and accuracy of our accounting records and enhanced reporting;
•: Continuing refinement of our accounting policies, procedures, controls as well as broadening formalized documentation of our control policies; and
•: Engaged a third-party specialist to assist in the assessment of our tax function, including our information technology capabilities, processes and systems.

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.

PART II. OTHER INFORMATION

ITEM 1. Legal Proceedings

None.

ITEM 1A. Risk Factors

There has been no material change in any risk factors previously disclosed in on the 2018 Form 10-K. See "Risk Factors" in the 2018 Form 10-K for a complete description of the material risks we face.

ITEM 2. Unregistered Sales of Equity Securities and Use of Proceeds

(a) Not applicable.

(b) Not applicable.

(c) The following table provides information about our repurchases of shares of our common stock during the fiscal quarter ended September 28, 2019. 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 five weeks, respectively, to coincide with our reporting periods during the third quarter of fiscal 2019.

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Issuer Purchases of Equity Securities

Period		(b) Average Price Paid per Share			(d) Maximum Number (or Approximate Dollar Value) of Shares that May Yet Be Purchased Under the Plans or Programs

June 30, 2019 to July 27, 2019	—		—	—	$	10,075,100
July 28, 2019 to August 24, 2019	157,402	$	41.69	157,402	$	10,075,100
August 25, 2019 to September 28, 2019	—		—	—	$	3,512,496

On February 13, 2019, our Board of Directors authorized an expansion to our existing share repurchase program of an additional $20.0 million 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. During the four weeks ended August 24, 2019, we repurchased and retired 157,402 shares under this program at an average price per share of $41.69. Approximately $3.5 million was available for future repurchases under this program as of September 28, 2019. We expect to continue to repurchase shares under this program.

ITEM 3. Defaults Upon Senior Securities

None.

ITEM 4. Mine Safety Disclosures

None.

ITEM 5. Other Information

None.

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ITEM 6. EXHIBIT INDEX

Item No.			Description

	10.1		Third Amendment to Lease dated September 9, 2019 by and between CRA International, Inc. and 1411 IC-SIC Property LLC.
	31.1		Rule 13a-14(a)/15d-14(a) certification of principal executive officer
	31.2		Rule 13a-14(a)/15d-14(a) certification of principal financial officer
	32.1		Section 1350 certification
	101		The following financial statements from CRA International, Inc.'s Quarterly Report on Form 10-Q for the fiscal quarter ended September 28, 2019, formatted in XBRL (eXtensible Business Reporting Language), as follows: (i) Condensed Consolidated Income Statements (unaudited) for the fiscal quarters and the fiscal year to date periods ended September 28, 2019 and September 29, 2018, (ii) Condensed Consolidated Statements of Comprehensive Income (unaudited) for the fiscal quarters ended September 28, 2019 and September 29, 2018, (iii) Condensed Consolidated Balance Sheets (unaudited) as at September 28, 2019 and December 30, 2018, (iv) Condensed Consolidated Statements of Cash Flows (unaudited) for the fiscal quarters ended September 28, 2019 and September 29, 2018, (v) Condensed Consolidated Statement of Shareholders' Equity (unaudited) for the fiscal quarters ended September 28, 2019 and September 29, 2018, and (vi) Notes to Condensed Consolidated Financial Statements (Unaudited).

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SIGNATURES

Pursuant to the requirements 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.
Date: October 31, 2019	By:	/s/ *PAUL A. MALEH* Paul A. Maleh President and Chief Executive Officer
Date: October 31, 2019	By:	/s/ *CHAD M. HOLMES* Chad M. Holmes Chief Financial Officer, Executive Vice President and Treasurer
Date: October 31, 2019	By	/s/ *DOUGLAS C. MILLER* Douglas C. Miller Vice President and Chief Accounting Officer

Dates Referenced Herein and Documents Incorporated by Reference

This ‘10-Q’ Filing	Date	Other Filings

	10/24/22
	12/15/19
	12/13/19	4
	11/26/19
Filed on:	10/31/19	8-K
	10/25/19
	9/30/19
For Period end:	9/28/19
	8/25/19
	8/24/19
	7/28/19
	7/27/19
	6/30/19
	6/29/19	10-Q
	3/30/19	10-Q
	2/28/19	10-K, 8-K
	2/13/19	SC 13G/A
	12/30/18
	12/29/18	10-K
	12/18/18	4
	12/15/18
	9/29/18	10-Q
	6/30/18	10-Q
	3/31/18	10-Q
	12/31/17
	12/30/17	10-K
	1/31/17
		List all Filings

4 Subsequent Filings that Reference this Filing

  As Of               Filer                 Filing    For·On·As Docs:Size             Issuer                      Filing Agent

 2/29/24  Cra International, Inc.           10-K       12/30/23  104:10M
 3/02/23  Cra International, Inc.           10-K       12/31/22  104:9.1M
 3/03/22  Cra International, Inc.           10-K        1/01/22   92:8.8M
 3/04/21  Cra International, Inc.           10-K        1/02/21   92:9.2M

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Filing Submission 0001047469-19-005994 – Alternative Formats (Word / Rich Text, HTML, Plain Text, et al.)

Cra International, Inc. – ‘10-Q’ for 9/28/19

On: Thursday, 10/31/19, at 8:18am ET · For: 9/28/19 · Accession #: 1047469-19-5994 · File #: 0-24049

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34Filing Table of Contents

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4 Subsequent Filings that Reference this Filing

Quarterly Report — Form 10-Q — Sect. 13 / 15(d) – SEA’34
Filing Table of Contents

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Document Table of Contents