EXPONENT INC - 10-Q Quarterly Report

FORM 10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

(Mark One)

x	QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended April 1, 2005

¨	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from to

Commission File Number 0-18655

EXPONENT, INC.

(Exact name of registrant as specified in its charter)

DELAWARE

77-0218904

(State or other jurisdiction

of incorporation)

(I.R.S. Employer

Identification Number)


149 COMMONWEALTH DRIVE, MENLO PARK, CALIFORNIA		94025
(Address of principal executive office)		(Zip Code)

Registrant’s telephone number, including area code (650) 326-9400

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 x No ¨

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Act). Yes x No ¨

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 May 6, 2005
Common Stock $.001 par value		7,976,990 shares

EXPONENT, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION

Item 1.	Condensed Consolidated Financial Statements:

	Condensed Consolidated Balance Sheets

	April 1, 2005 and December 31, 2004	3

	Condensed Consolidated Statements of Income

	Quarters Ended April 1, 2005 and April 2, 2004	4

	Condensed Consolidated Statements of Comprehensive Income

	Quarters Ended April 1, 2005 and April 2, 2004	5

	Condensed Consolidated Statements of Cash Flows

	Quarters Ended April 1, 2005 and April 2, 2004	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	14

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	21

Item 4.	Controls and Procedures	22

PART II – OTHER INFORMATION

Item 6.	Exhibits	22

Signatures		23

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PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

EXPONENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

April 1, 2005 and December 31, 2004

(in thousands, except share data)

(unaudited)


	April 1, 2005			December 31, 2004
Assets
Current assets:
Cash and cash equivalents	$	2,990		$	4,680
Short-term investments		52,012			55,366
Accounts receivable, net of allowance for doubtful accounts of $1,995 and $1,503 at April 1, 2005 and December 31, 2004, respectively		44,070			38,586
Prepaid expenses and other assets		2,661			2,674
Deferred income taxes		2,594			2,205

Total current assets		104,327			103,511

Property, equipment and leasehold improvements, net		30,509			30,211
Goodwill		8,607			8,607
Other assets		3,598			1,803

	$	147,041		$	144,132

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	6,710		$	4,330
Accrued payroll and employee benefits		14,848			18,528
Deferred revenues		1,297			1,681

Total current liabilities		22,855			24,539

Other liabilities		2,563			1,484
Deferred rent		1,115			1,087

Total liabilities		26,533			27,110

Stockholders’ equity:
Common stock, $.001 par value; 20,000,000 shares authorized; 8,052,880 and 8,005,644 shares issued at April 1, 2005 and December 31, 2004, respectively		8			8
Additional paid-in capital		45,350			42,282
Deferred stock-based compensation		(2,152	)		(907	)
Accumulated other comprehensive income		36			114
Retained earnings		79,392			75,525
Treasury stock, at cost, 90,253 and 0 shares held at April 1, 2005 and December 31, 2004, respectively		(2,126	)		—

Total stockholders’ equity		120,508			117,022

	$	147,041		$	144,132

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EXPONENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Quarters Ended April 1, 2005 and April 2, 2004

(in thousands, except per share data)

(unaudited)


	Quarters Ended
	April 1, 2005		April 2, 2004
Revenues:
Revenues before reimbursements	$	36,929	$	35,925
Reimbursements		2,267		2,841

Revenues		39,196		38,766

Operating expenses:
Compensation and related expenses		23,881		22,937
Other operating expenses		4,664		4,841
Reimbursable expenses		2,267		2,841
General and administrative expenses		2,329		2,340

		33,141		32,959

Operating income		6,055		5,807

Other income:
Interest income, net		234		93
Miscellaneous income, net		114		71

		348		164

Income before income taxes		6,403		5,971
Income taxes		2,536		2,450

Net income	$	3,867	$	3,521

Net income per share:
Basic	$	0.48	$	0.48
Diluted	$	0.45	$	0.42

Shares used in per share computations:
Basic		8,023		7,336
Diluted		8,673		8,298

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EXPONENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Quarters Ended April 1, 2005 and April 2, 2004

(in thousands)

(unaudited)


	Quarters Ended
	April 1, 2005			April 2, 2004
Net income	$	3,867		$	3,521
Other comprehensive income (loss):
Foreign currency translation adjustments		(41	)		12
Unrealized loss on short-term investments, net of taxes		(37	)		(13	)

Comprehensive income, net of taxes	$	3,789		$	3,520

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EXPONENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Quarters Ended April 1, 2005 and April 2, 2004

(in thousands)

(unaudited)


	Quarters Ended
	April 1, 2005			April 2, 2004
Cash flows from operating activities:
Net income	$	3,867		$	3,521
Adjustments to reconcile net income to net cash used in operating activities:
Depreciation and amortization		1,126			984
Deferred rent expense		28			56
Provision for doubtful accounts		640			553
Stock-based compensation		96			27
Deferred income tax provision		(1,087	)		—
Tax benefit for stock option plans		266			—
Changes in operating assets and liabilities:
Accounts receivable		(6,124	)		(5,913	)
Prepaid expenses and other assets		(11	)		410
Accounts payable and accrued liabilities		2,380			155
Accrued payroll and employee benefits		(2,339	)		(1,789	)
Deferred revenues		(384	)		(1,589	)

Net cash used in operating activities		(1,542	)		(3,585	)

Cash flows from investing activities:
Capital expenditures		(1,096	)		(457	)
Other assets		8			238
Purchase of short-term investments		(19,398	)		(18,252	)
Sale/maturity of short-term investments		22,382			17,820

Net cash provided by (used in) investing activities		1,896			(651	)

Cash flows from financing activities:
Repayments of borrowings and long-term obligations		(21	)		(19	)
Repurchase of common stock		(3,064	)		—
Issuance of common stock		1,058			806

Net cash (used in) provided by financing activities		(2,027	)		787

Effect of foreign currency exchange rates on cash and cash equivalents		(17	)		(2	)

Net decrease in cash and cash equivalents		(1,690	)		(3,451	)
Cash and cash equivalents at beginning of period		4,680			5,666

Cash and cash equivalents at end of period	$	2,990		$	2,215

The accompanying notes are an integral part of these Condensed Consolidated Financial Statements.

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EXPONENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Quarters Ended April 1, 2005 and April 2, 2004

Note 1: Basis of Presentation

Exponent, Inc. (referred to as the “Company” or “Exponent”) is an engineering and scientific consulting firm that provides solutions to complex problems. The Company operates on a 52-53 week fiscal year ending on the Friday closest to the last day of December.

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments which are necessary for the fair presentation of the condensed consolidated financial statements have been included and all such adjustments are of a normal and recurring nature. The operating results for the fiscal quarters ended April 1, 2005 and April 2, 2004, are not necessarily representative of the results of future quarterly or annual periods.

Reclassifications. Certain prior period balances have been reclassified to conform to the current period presentation. The Company reclassified $2,300,000 in variable rate demand obligations from cash and cash equivalents to short-term investments on the fiscal 2004 condensed consolidated balance sheet. The reclassification to short-term investments is based on the latest interpretation of cash equivalents pursuant to Statement of Financial Accounting Standards No. 95 (“SFAS 95”), “Statement of Cash Flows”.

Note 2: Revenue Recognition

The Company derives its revenues primarily from professional fees earned on consulting engagements and fees earned for the use of its equipment and facilities, as well as reimbursements for outside direct expenses associated with the services that are billed to its clients.

Exponent reports revenues net of subcontractor fees. The Company has determined that it is not the primary obligor with respect to its subcontractors because:

•

its clients are directly involved in the subcontractor selection process;

•

the subcontractor is responsible for fulfilling the scope of work; and

•

the Company passes through the costs of subcontractor agreements with only a minimal fixed percentage mark-up to compensate it for processing the transactions.

Reimbursements, including those related to travel and other out-of-pocket expenses, and other similar third-party costs such as the cost of materials, are included in revenues, and an equivalent amount of reimbursable expenses are included in operating expenses. Any mark-up on reimbursable expenses is included in revenues.

Substantially all of the Company’s engagements are performed under time and material or fixed-price billing arrangements. On time and material and fixed-price projects, revenue is generally recognized as the services are performed. For substantially all of the Company’s fixed-price engagements, it recognizes revenue based on the relationship of incurred labor hours at standard rates to its estimate of the total labor hours at standard rates it expects to incur over the term of the contract. The Company believes this methodology achieves a reliable measure of the revenue from the consulting services it provides to its customers under fixed-price contracts given the nature of the consulting services the Company provides and the following additional considerations:

•

the Company considers labor hours at standard rates and expenses to be incurred when pricing its contracts;

•

the Company generally does not incur set-up costs on its contracts;

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•

the Company does not believe that there are reliable milestones to measure progress toward completion;

•

if either party terminates the contract early, the customer is required to pay the Company for time at standard rates plus materials incurred to date;

•

the Company does not recognize revenue for award fees or bonuses until specific contractual criteria are met;

•

the Company does not include revenue for unpriced change orders until the customer agrees with the changes;

•

historically the Company has not had significant accounts receivable write-offs or cost overruns; and

•

its contracts are typically progress billed on a monthly basis.

Gross revenues and reimbursements for the quarters ended April 1, 2005 and April 2, 2004 are as follows:


	Quarters Ended
(In thousands)	April 1, 2005		April 2, 2004
Gross revenues	$	41,767	$	40,593
Less: Subcontractor fees		2,571		1,827

Revenues		39,196		38,766

Reimbursements:
Out-of-pocket travel reimbursements

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