2015
Annual Report
Dear Fellow Stockholders:
In 2015, we grew revenues, expanded margins and closed the year with strong earnings and a
healthy balance sheet.
For the year, total revenues increased 3% to $312.8 million and revenues before reimbursements
reached $295.7 million. Net income increased 7% to $43.6 million, or $1.60 per diluted share,
and EBITDA rose to $76.4 million.
We generated $60.5 million in cash from operating activities, and ended the year with $171.6
million in cash and short-term investments. We also repurchased $23.3 million in common stock
and paid $15.6 million in dividends during the year. While the decline in defense technology
development and the completion of a major project in the third quarter created headwinds for
top-line growth in 2015, we believe our bottom-line results and capital structure demonstrate the
resilience of our model.
In 2015, we experienced strong demand for our reactive and proactive services. We continue to
assist clients with navigating the regulatory process and product performance assessments. We
benefited from the broadening of product offerings and exploration of new materials in the
consumer electronics and biomedical industries, as well as increased commercial construction
and infrastructure spending.
As we move through 2016, we are focused on further expanding our unique market position in
assessing reliability, safety, human health effects and environmental impacts of increasingly
complex technologies, products, and processes. We will leverage our experience and reputation
in reactive services to continue the development of our proactive services, such as design
evaluations, risk management and regulatory consulting.
In summary, our long-term financial goals include producing organic revenue growth, improving
profitability and maintaining a healthy balance sheet. We remain optimistic about our future and
look forward to continuing to deliver strong financial results and driving shareholder value
through our ongoing stock repurchases and dividend payments.
We would like to thank our employees for their dedication, and our clients and investors for their
continued support.
With regards,
Paul R. Johnston, Ph.D.
President and Chief Executive Officer
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
________________________________
FORM 10-K
________________________________
[X]
Annual Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the fiscal
year ended January 1, 2016.
OR
[ ]
Transition report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 for the
transition period from ________ to _________.
Commission File Number 0-18655
________________________________
EXPONENT, INC.
(Exact name of registrant as specified in its charter)
________________________________
(State or other jurisdiction of incorporation or organization)
Delaware
77-0218904
(I.R.S. Employer Identification No.)
149 Commonwealth Drive, Menlo Park, California
(Address of principal executive offices)
94025
(Zip Code)
(650) 326-9400
(Registrant’s telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, $0.001 par value per share
Name of Each Exchange on Which Registered
The NASDAQ Stock Market LLC
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities
Act.
Yes X
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the
Act.
No X
Yes
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of
the Act 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 has submitted electronically and posted on its corporate Web site, if
any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during
the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
Yes X
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained
herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ]
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer,
or a smaller reporting company. See definitions of “large accelerated filer”, “accelerated filer” and “smaller
reporting company” in Rule 12b-2 of the Exchange Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ]
(Do not check if a smaller
reporting company)
Smaller reporting company [ ]
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes
No X
The aggregate market value of the common stock held by non-affiliates of the registrant based on the closing sales
price of the common stock as reported on the NASDAQ Global Select Market on July 2, 2015, the last business day
of the registrant’s most recently completed second quarter, was $996,092,846. Shares of the registrant’s common
stock held by each executive officer and director and by each entity or person that, to the registrant’s knowledge,
owned 10% or more of registrant’s outstanding common stock as of July 2, 2015 have been excluded in that such
persons may be deemed to be affiliates of the registrant. This determination of affiliate status is not necessarily a
conclusive determination for other purposes.
The number of shares of the registrant’s common stock outstanding as of February 19, 2016 was 25,720,598.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the registrant’s 2016 Annual Meeting of Stockholders to
be held on May 26, 2016 are incorporated by reference into Part III of this Annual Report on Form 10-K.
2
EXPONENT, INC.
FORM 10-K ANNUAL REPORT
FISCAL YEAR ENDED JANUARY 1, 2016
TABLE OF CONTENTS
Business
PART I
Item 1.
Item 1A. Risk Factors
Item 1B. Unresolved Staff Comments
Item 2.
Item 3.
Item 4. Mine Safety Disclosures
Properties
Legal Proceedings
PART II
Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer
Purchases of Equity Securities
Selected Financial Data
Item 6.
Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Item 8.
Item 9.
Item 9A. Controls and Procedures
Item 9B. Other Information
Financial Statements and Supplementary Data
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure
Page
4
14
19
19
19
19
19
21
21
30
31
31
31
31
PART III
31
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
32
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 32
32
Item 13. Certain Relationships and Related Transactions, and Director Independence
32
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Signatures
Exhibit Index
FORWARD-LOOKING STATEMENTS
This Annual Report on Form 10-K contains, and
incorporates by reference, certain “forward-looking”
statements (as such term is defined in the Private
Securities Litigation Reform Act of 1995, and the
rules promulgated pursuant to the Securities Act of
1933, as amended, and the Securities Exchange Act
of 1934, as amended), including but not limited to
statements regarding future growth and market
opportunities,
headcount,
utilization and operating expenses, that are based on
the beliefs of the Company’s management, as well as
assumptions made by, and information currently
available to, the Company’s management. Such
forward-looking statements are subject to the safe
harbor created by the Private Securities Litigation
revenue, margins,
3
33
62
63
in
the documents
Reform Act of 1995. When used in this document
and
incorporated herein by
reference, statements other than statements of current
or historical fact are forward-looking statements. The
words “anticipate,” “believe,” “estimate,” “continue”,
“could”, “may”, “plan”, “expect” and similar
expressions, as they relate to the Company or its
identify certain of such forward-
management,
looking statements. Such statements reflect
the
current views of the Company or its management
with respect to future events and are subject to certain
risks, uncertainties and assumptions. Should one or
more of these risks or uncertainties materialize, or
should underlying assumptions prove incorrect, the
Company’s
or
results,
achievements could differ materially from those
expressed in, or implied by, any such forward-
performance,
actual
looking statements. Factors that could cause or
contribute to such material differences include the
possibility that the demand for our services may
decline as a result of changes in general and industry
specific economic conditions,
timing of
the
the effects of
for our services,
engagements
competitive services and pricing, the absence of
backlog related to our business, our ability to attract
and retain key employees, the effect of tort reform
and government regulation on our business, and
liabilities resulting from claims made against us.
Additional risks and uncertainties are discussed in
this Annual Report under the heading “Risk Factors”
and elsewhere.
The inclusion of such forward-looking information
should not be regarded as a representation by the
Company or any other person that the future events,
plans, or expectations contemplated by the Company
will be achieved. The Company undertakes no
obligation to update or revise any such forward-
looking statements.
PART I
Item 1. Business
Inc.,
GENERAL
Exponent,
its subsidiaries,
together with
(“Exponent”, the “Company”, “we”, “us” and “our”)
is a science and engineering consulting firm that
to complex problems. Our
provides solutions
multidisciplinary
team of scientists, physicians,
engineers, business and regulatory consultants brings
together more than 90 different technical disciplines
to solve complicated issues facing industry and
government today. Our professional staff can perform
in-depth scientific research and analysis, or very
rapid-response evaluations to provide our clients with
the critical information they need.
The history of Exponent, Inc. goes back to 1967, with
the founding of the partnership Failure Analysis
Associates, which was incorporated the following
year in California and reincorporated in Delaware as
Failure Analysis Associates, Inc. in 1988. The Failure
Group, Inc. was organized in 1989 as a holding
company for Failure Analysis Associates, Inc. and
changed its name to Exponent, Inc. in 1998.
CLIENTS
General
Exponent serves clients in automotive, aviation,
chemical, construction, consumer products, energy,
health,
insurance, manufacturing,
government,
technology and other sectors of the economy. Many
of our engagements are initiated directly by large
corporations or by lawyers or insurance companies
whose clients anticipate, or are engaged in, litigation
related to their products, equipment, processes or
services. The scope of our services in failure
prevention and technology evaluation has grown as
the
technological complexity of products has
increased over the years.
Pricing and Terms of Engagements
We provide our services on either a fixed-price basis
or on a time and material basis, charging in the latter
case hourly rates for each staff member involved in a
project, based on his or her skills and experience. Our
standard rates for professionals range from $165 to
$650 per hour. Our engagement agreements typically
provide for monthly billing, require payment of our
invoices within 30 days of receipt and permit clients
to
time. Clients
normally agree to indemnify us and our personnel
against liabilities arising out of the use or application
of the results of our work or recommendations.
terminate engagements at any
SERVICES
Exponent provides high quality engineering and
scientific consulting services to clients around the
world. Our service offerings are provided on a
require
project-by-project basis. Many projects
support from multiple practices. We currently operate
22 practices and centers in two operating segments,
Engineering and Other Scientific and Environmental
and Health:
ENGINEERING AND OTHER SCIENTIFIC
• Biomechanics
• Biomedical Engineering
• Buildings & Structures
• Civil Engineering
• Construction Consulting
• Electrical Engineering & Computer Science
• Engineering Management Consulting
• Human Factors
•
• Materials & Corrosion Engineering
• Mechanical Engineering
• Polymer Science & Materials Chemistry
• Statistical & Data Sciences
• Technology Development
• Thermal Sciences
• Vehicle Analysis
Industrial Structures
4
ENVIRONMENTAL AND HEALTH
Buildings & Structures
• Chemical Regulation & Food Safety
• Ecological & Biological Sciences
• Environmental & Earth Sciences
• Epidemiology, Biostatistics &
Computational Biology
• Occupational & Environmental Health Risk
Assessment
• Toxicology & Mechanistic Biology
ENGINEERING AND OTHER SCIENTIFIC
Biomechanics
Our Biomechanics Practice uses engineering and
biomedical science to solve complex problems at the
intersection of biology and engineering. Our
expertise is used to understand and evaluate the
interaction between the human body as a biological
system and the physical environment to explore the
cause, nature, and severity of injuries.
During
the past year, our biomechanics staff
performed analyses of human injury related to a
variety of products including recreational vehicles,
sporting goods, trucks, trains, aircraft, industrial
equipment, and automobiles. They also looked at the
implications of using protective devices (such as
restraint systems, airbags, and helmets) on reducing
the potential for injury, and assessed injuries in the
workplace, in the home, and during recreational
activities.
Biomedical Engineering
Our Biomedical Engineering Practice applies
engineering principles to the medical field, including
the evaluation of designs and performance of medical
devices and biologics. Our engineers and scientists
assist clients with characterization of cells, tissues,
biomaterials, and medical devices. As part of our
regulatory compliance, we can perform preclinical
testing and formulate a related regulatory strategy,
conduct design verification and validation, as well as
design and manufacturing failure analyses, recall
management, and medical device explant analysis. In
addition, our staff can perform analysis of clinical
outcomes for medical devices using administrative
claims databases. Our expertise is also utilized in
product
litigation,
technology acquisition and due diligence matters.
intellectual property
liability,
The basic function of a building is to provide
structurally sound, durable and environmentally
controlled space to house and protect occupants and
contents. If this basic function is not achieved, it is
because one or more aspect(s) of the building design
or construction failed
intended
function. Our architects, engineers, and scientists
have been investigating such failures for decades, and
we use this experience to solve problems with
building systems and components, including finding
the best repair options and mitigating the risk of
future failures.
to perform
its
include property
During the past year, we have evaluated numerous
problems with residential, commercial and industrial
structures for insurers, attorneys and owners. Our
inspections,
evaluations often
testing, engineering analysis and the development of
repair recommendations. In addition, we have
worked with owners to assess and mitigate the risk of
failure associated with hazards such as hurricanes,
earthquakes, tsunamis and aging infrastructure. We
have assessed these risks to high-rise buildings,
industrial facilities, pipelines and nuclear power plant
structures.
Civil Engineering
Our Civil Engineering Practice provides broad
expertise that includes geotechnical engineering,
geological engineering, engineering geology, and
geology to address a host of geo-failures, including
landslides, foundation and retaining wall failures,
levee failures and
pipeline failures, dam and
construction claims. We also provide peer review
services for complicated structures. Our water
resources staff specializes in the application of
proven hydrologic, hydraulic, hydrodynamic, and
sediment transport research and science to provide
scientifically sound and cost-effective solutions to
our clients.
fires,
Over the past year, our consultants have been
engaged in a number of investigations related to
wildland
retaining wall and
foundation
large construction claims,
flooding and sediment transport. This practice has
had a diverse portfolio of projects and clients that
represent a broad spectrum of industries.
landslides,
failures,
Construction Consulting
Our Construction Consulting Practice provides
project advisory, risk analysis, strategic planning,
5
dispute resolution, delay analysis and financial
damages services. During the past year, we expanded
the practice by leveraging key client relationships in
several construction sectors including utilities and oil
and gas. Our multi-disciplinary staff, which includes
construction managers,
engineers,
schedulers, accountants, and technical specialists,
provides these services to both the public and private
sectors for clients who represent a diverse mix of
companies and agencies.
architects,
Our projects include many sectors of the construction
and engineering industry which include power plants,
transmission and distribution facilities, petrochemical
facilities, water/wastewater treatment plants, bridges
and roads, rail systems, tunnels, airports, commercial
buildings,
industrial and
manufacturing facilities, sporting arenas and gaming
facilities. We provide services to firms involved in
the engineering and construction industry including
construction owners, lending agencies, engineering
and
subcontractors,
designers, attorneys and insurance carriers.
institutional buildings,
construction
contractors,
Electrical Engineering & Computer Science
Our Electrical Engineering and Computer Science
Practice offers a broad range of expertise to address
complex issues for industrial, government and private
clients. Our power engineers advise and offer
guidance to clients on problems relating to electrical
systems including power generation, transmission
and distribution. Our team of electrical engineers
works on failure analysis, product robustness and
reliability for consumer and industrial electronics.
Our computer engineers and scientists work with
high-tech
controlled
and
applications to evaluate product safety and software
reliability. The computer engineering and science
expertise we offer encompasses a breadth of areas
including
sciences,
information and numerical
algorithms and data structures, computer graphics,
and
computer
communications,
and
cryptography. We operate laboratories for testing
heavy equipment and electronics and we have a
broad capability in analyzing computer software.
networking
as
architecture,
as well
industries
computer
security
ranging
Over the past year, we performed a wide array of
investigations
from assessing electrical
damage to infrastructure from the effect of weather
related events to working with clients to develop
sophisticated machine learning algorithms applied to
large quantities of unstructured data. We continue to
work with consumer electronics manufacturers and
the transportation industry on the reliability and
6
robustness of computer controlled equipment for user
safety. We have also provided our expertise to clients
with intellectual property matters by advising them
on matters of integrated circuit design, semiconductor
fabrication and computer software implementations.
Engineering Management Consulting
Our Engineering Management Consulting Practice
rapid
provides multi-disciplinary expertise and
response
to assist clients with management
consulting services related to technical issues. Our
consultants provide services in the areas of asset
strategy, technology strategy, regulatory strategy,
asset planning, project management, engineering,
construction, maintenance, operations, and
risk
analysis. This practice primarily services the electric
and gas utility industries, including transmission,
nuclear
fuel
fossil
distribution,
generation, and renewable generation.
generation,
We provide unique and advanced services including
risk and reliability assessment and mitigation. Our
scientists and engineers assist our clients
in
minimizing losses related to asset failures and/or
business operations. Accidents, unanticipated events,
and system failures are the primary causes of
deferred or lost production interruptions and may
lead to loss of life, injury, property damage, and
undesired releases. Our multi-disciplinary staff has
also
business
and
interruption,
reliability assessments for chemical, petrochemical,
petroleum, and manufacturing clients worldwide.
diverse
technical,
compliance-related
performed
and
risk
Human Factors
Our Human Factors Practice evaluates human
performance and safety in product and system use.
Our consultants study how the limitations and
capabilities of people, including memory, perception,
reaction time, judgment, physical size and dexterity,
affect the way they use a product, interact with an
organization or environment, process information or
participate in an activity.
We address the reliability of human memory and
retrospective reporting in the gathering of fact-based
evidence. We review warnings and labeling issues
related to consumer products, pharmaceuticals, motor
vehicles, medical devices and industrial products. In
addition, we assist manufacturers with compliance
with regulatory guidelines related to products and
work with them regarding analysis of adverse event
in publicly
reports and consumer complaints
the Consumer
available databases overseen by
Product Safety Commission and the Food and Drug
Administration. We also provide support assessing
alleged
for consumer
false advertising claims
products, foods and pharmaceuticals.
Industrial Structures
Our
in
Industrial Structures Practice, based
Düsseldorf and Berlin, Germany, specializes in
design and assessment of industrial structures subject
to extreme conditions. Our staff has provided design
reviews and assessments on more
than 1,000
structures around the world, and our staff has
participated in the creation of several engineering
standards.
Our Industrial Structures Practice provides planning,
assessment, rehabilitation and dismantling analysis of
in four particular areas:
load-bearing structures
antenna masts, power plants, buildings and special
structures like refractories or tanks. One service we
provide in over 900 locations throughout the year is
quality assurance of antenna masts for a variety of
facilities including telecommunications, wind energy
and industrial chimneys. Our consultants provide
inspection services related to new construction and
assess design deficiencies related to new and existing
facilities, as well as assist our clients with on-time,
quality construction on their projects.
With the use of our self-developed computer software
for non-linear material behavior, we provide close-to-
reality assessment of a wide variety of structures such
as cracked reinforced concrete structures, multi-layer
refractories or masonry towers. Beyond industrial
structures, more and more commercial property
projects are becoming part of this practice.
Materials & Corrosion Engineering
Our
in-depth knowledge of materials science,
corrosion, and metallurgical engineering, combined
with the breadth of our collective experience across
many industries and disciplines gives our Materials
and Corrosion Engineering Practice a unique ability
to efficiently provide our clients with solutions to
their complex materials-based problems. We use our
knowledge and experience to understand how and
why materials, products, and processes may not
perform their intended function, as well as to prevent
future problems. In the past year, our Materials and
Corrosion Engineering Practice helped clients solve
critical materials-related issues in the consumer
electronics, medical device, chemical processing,
transportation, energy, and aerospace fields, among
others.
Mechanical Engineering
We provide clients with a thorough comprehension of
current or alternative designs to determine potential
vulnerabilities before
failures occur, develop
appropriate risk mitigation methods, and provide post
failure investigations. Our consultants review the
safety and reliability of processes and products. We
assist in performing product recall investigations and
reviewing internal compliance programs as part of
the implementation of corrective action plans. We
have performed these activities in the transportation,
heavy industry, energy, and consumer product areas.
Our staff develop and utilize detailed, validated
computational models
to evaluate equipment,
consumer products and medical devices to solve a
variety of technical challenges associated with their
design and optimization. Our scientists and engineers
also provide services in the area of intellectual
property and are often asked to interpret the language
of a patent from a scientific and engineering
perspective and provide insight regarding the proper
technical interpretation of patent claims. During the
past year our mechanical engineers worked on a wide
variety of projects ranging from high profile
consumer product recall investigations to pipeline
integrity evaluations and worker safety issues.
analysis
integrity
equipment
Industrial
and
management is a growing part of our business
involved with increasing productivity and lowering
in manufacturing. We advise clients on
risk
mitigating engineering asset failures,
improving
equipment reliability, and performance and better
their risk profile. Our approach
understanding
combines engineering mechanics with computational
algorithms,
and
operational data.
industry-accepted
standards,
Polymer Science & Materials Chemistry
Our Polymer Science and Materials Chemistry
Practice consults with industrial, government, legal,
insurance and individual clients regarding polymers
and textiles used in diverse applications as well as
chemical aspects of batteries, drug delivery systems,
and other products that depend on highly controlled
manufacturing environments. We assist clients in
understanding the short- and long-term performance
of plastic, rubber, adhesive, coating, composite and
electrochemical energy systems when challenged by
physical, chemical, thermal and other operational
stressors.
7
Our consultants participate in product development
programs, perform failure analyses and provide
support to clients involved in regulatory and legal
proceedings. Clients value our technical expertise
related to chemistry, formulation, manufacturing and
materials performance, our understanding of the
history and evolution of these materials, and our
ability to assist them in identifying and incorporating
emerging materials and manufacturing technologies
into their businesses. During the past year, significant
program
of
consumer electronics, wearable devices, battery
medical
technology,
devices,
systems, historical
combination drug delivery
formulations
components, manufacturing
technology, industrial textiles, performance apparel,
building materials, automotive materials, technology
scouting, materials science aspects of health risk,
service life prediction, sustainability, and polymer-
related intellectual property, including trade secrets.
components
implantable
addressed
activities
and
Statistical & Data Sciences
Our Statistical & Data Sciences Practice comprises
our company’s core capabilities
in statistical
methodology and offers its expertise to serve clients
at any and all stages of the empirical research process
including product development, manufacturing, and
regulatory stages. The practice specializes
in
determining whether a particular activity or product
poses an unreasonable risk. Risk estimation involves
establishing a reference period and then collecting
information about the number of injuries (or other
adverse events) suffered and the amount of exposure
during this period. Through analysis and synthesis of
client-supplied data, combined with information from
public sources, we help clients measure their own
risk in the context of similar risks and determine
appropriate courses of action.
data
scientists
industry, and
and
During the past year, we worked on a variety of
engineering, health, and environmental projects for
legal clients. Our
government,
statisticians
performed
assessments of manufacturing quality systems,
applied data mining methods to the analysis of
medical device complaints, examined
the field
reliability of electronic networks and computer
equipment, and assessed the effects of selected
factors on industrial exposure to environmental
contaminants.
harnessing
specializes
prevention expertise, our Technology Development
Practice
advanced
in
technologies and concepts from our experience with
the commercial and defense sectors
to deliver
innovation to our clients. We identify and leverage
the best in off-the-shelf technologies combined with
custom development to deliver solutions ranging
from
concept
architectures. Our focus is on a close collaboration
with the end user, ease of use, reliability, high
quality, and speed of engineering design and
execution.
integrated
systems
fully
to
the Practice shifted
Historically, Technology Development has focused
its efforts in the government/defense sector; in 2014
and 2015
towards more
commercial work and made some structural changes
to more closely align with the commercial side of the
company. Focus areas for this effort were in oil and
gas,
and
cybersecurity.
transportation,
technology,
sports
In the ongoing work for government/defense, we
have continued to build on our landmine detection
expertise for both vehicle and handheld applications.
This work includes renewing our long term support
for the U.K. Ministry of Defence and their robotic
buried threat detection system.
Thermal Sciences
to
small
insurance
installations
Our Thermal Sciences Practice provides multi-
disciplinary expertise to assist clients in chemical,
fire protection, and mechanical engineering. We have
investigated and analyzed thousands of fires and
loss disasters at
explosions ranging from high
manufacturing facilities, energy facilities and oil and
gas
claims.
Information gained from these analyses has helped us
assist clients with preventive measures related to the
design of their facilities and products. We assist
clients in minimizing the risk of fires and explosions,
we provide regulatory consulting for permitting new
industrial facilities, and we assist manufacturers in
addressing the risk of fires associated with consumer
products. Our engineers use fire modeling and other
computational fluid dynamics modeling tools to
supplement our analytical, experimental, and field-
based activities. Preventive services include process
safety hazard analysis for the chemical and oil and
gas industries, fire protection engineering and dust
explosion consulting.
Technology Development
Drawing
science,
engineering, testing, failure analysis and failure
our multidisciplinary
on
In recent years, the Thermal Sciences Practice has
developed tools to evaluate fire and explosion risks
of lithium-ion batteries. We have consulted with a
8
variety of clients to evaluate and mitigate fire and
explosion hazards of batteries
in applications
including consumer products, vehicles and energy
storage.
During the past year, our work in oil and gas
exploration and production, Liquefied Natural Gas
(LNG) and downstream oil and gas sectors has
continued to remain active. Our services in these
include assessing new oil well control
areas
technologies, assessing potential fire and explosion
risks and consequences,
loss of
containment incidents and assessing the integrity of
fixed assets. We have also seen growth in our non-
litigation fire protection engineering services.
investigating
Vehicle Analysis
trucking,
We have performed thousands of investigations for
recreational vehicle,
the automotive,
marine, aerospace, and rail
industries. Internal
research programs and client projects have resulted in
that have assisted
technological contributions
manufacturers
the understanding of product
performance and provided insight to government
agencies in establishing policy and regulations.
Information gained from these analyses has also
assisted clients in assessing preventive measures
related to the design of their products, as well as
evaluating failures.
in
that
insight
Our Test and Engineering Center located in Phoenix,
Arizona, is the setting for our most complex tests,
along with rigorous analysis of results. We have
gained a worldwide reputation for our ability to
mobilize resources expeditiously and efficiently,
integrate a broad array of technical disciplines, and
provide valuable
is objective and
withstands rigorous scrutiny. Many of our projects
involve addressing the cause of accidents and our
clients rely on us to determine what happened in an
accident and why it happened. In many cases, they
also want us to assess what could have been done to
reduce the severity of the accident or to mitigate
occupant injuries to those involved. Whether the
objective is design analysis, component testing, or
accident reconstruction, our knowledge of vehicle
systems and engineering principles coupled with our
experience from conducting full-scale tests aim to
add insight and proficiency to every project.
ENVIRONMENTAL AND HEALTH
Chemical Regulation & Food Safety
Our Center for Chemical Regulation and Food Safety
includes both technical and regulatory specialists
who are experienced in dealing with foods, and with
pesticide and non-pesticide products
including
conventional
biochemicals,
of
antimicrobials/biocides,
biotechnology, cosmetics and industrial chemicals.
We provide practical, scientific and regulatory
support to meet global business objectives at every
stage of the product cycle, from research and
development to retail and beyond.
chemicals,
and
products
During the past year our Chemical Regulation and
Food Safety staff have conducted a wide array of
work. The European and U.S. sides of the Center
were jointly involved with the ongoing support of a
new pesticide active ingredient and end-use product.
The European side of our business was involved with
many projects related to plant protection and biocidal
product regulatory submissions, from new active
substances and those under review to product-
specific dossiers for individual European member
states. In addition, we provided many specialist
assessments relating to human and environmental
exposure and product efficacy and national and
international Maximum Residue Limit/import
tolerance submissions. We continued to provide
clients with regulatory compliance support for food
contact materials, food additives and novel foods, as
well as undertaking safety assessments for food and
cosmetics products. For industrial chemicals we
continued to provide full regulatory support for our
clients who prepared and submitted registrations and
risk assessments. In the U.S. we continued to provide
services related to new pesticide active ingredient and
end-use product development and registrations in the
U.S. and Canada, registration review under EPA,
import tolerances in the U.S. and Canada, due
diligence, and data compensation, as well as the
approval of new pesticide inert ingredients and new
non-pesticide active ingredient approvals. Our food
safety consultants continued to assist clients with
food additives, food contact notifications, and
nutrition-related analyses, as well as product safety
proactive and reactive support services, recall and
litigation support.
Ecological & Biological Sciences
Our ecological and biological scientists provide
strategic support on issues related to natural resources
damages associated with chemicals and forest fires,
9
international environmental disputes, ecosystem
service assessments for businesses, climate change,
ecological risk assessment, ecotoxicology, novel
remediation methods, restoration of wetlands and
other natural resources, large development projects,
resource utilization (mineral mining, oil and gas,
wood pulp), genomic assessments, and the use of
chemicals and other products in commerce. The
practice specializes
the effects of
chemical, biological, and physical stressors on
aquatic and terrestrial ecosystems. Many of these
assessments utilize a causal analysis approach to
systematically and transparently determine causation
in complex and interrelated situations. The practice is
comprised of nationally recognized experts that cover
disciplines related to the ecological implications and
risks associated with these projects.
in assessing
Environmental & Earth Sciences
chemistry
Our environmental scientists and engineers provide
cost-effective, scientifically defensible and realistic
assessments and solutions to complex environmental
issues. We offer technical, regulatory and litigation
support to industries that include oil and gas, mining
and minerals, chemicals, forest products, railroads,
aerospace, and trade associations, and to municipal
and government clients. Our consultants specialize in
transport,
the areas of environmental fate and
environmental
forensics,
hydrogeology, air toxics, modeling and monitoring,
water quality and water supply, data analytics,
remediation consulting, environmental engineering
and waste management, climate
impacts, and
evaluation of environmental and social risks. Our
work often involves complex and high visibility
environmental problems and issues, often the focus
of environmental or
tort claims, where
toxic
evaluation of contamination, historical reconstruction
of events, releases, and doses, and water resource
issues are central to problem resolution. We provide
strategic and advisory consulting on risk mitigation,
planning, and regulatory issues.
and
Epidemiology, Biostatistics & Computational
Biology
Our health scientists apply epidemiology to examine
and address complex health issues in a variety of
settings. Through the principles of epidemiology, we
analyze
interaction of host, agent, and
environment to reach conclusions about the causes
and occurrence of disease in human populations.
the
Our consultants combine the expertise of several
assessment
medical
specialties,
exposure
professionals, and other scientists who have advanced
degrees in statistics and public health. All of our
physicians have graduate training in epidemiology
and biostatistics. Our research work has included
numerous community health assessments, disease
cluster investigations, survey research, occupational
cohort and case-control studies, exposure assessment
studies, cancer modeling, meta-analyses, and state-
of-the-art reviews.
Occupational & Environmental Health Risk
Assessment
to assess
to such agents. The
In our Occupational and Environmental Health Risk
Assessment Center, we apply scientific processes to
characterize and estimate health risks from exposures
to chemical, physical, and biological agents in the
workplace, home, and outdoor environment. Risk
assessment is a systematic process for analyzing
information on exposure and effects of toxic agents
and other environmental hazards
the
likelihood of adverse effects to health and safety of
risks)
individuals and populations (i.e., health
potentially exposed
risk
assessment process integrates information regarding
whether a particular agent is or is not casually linked
to a particular health effect (hazard identification);
the relation between the magnitude of exposure and
the probability of occurrence of the health effect
(dose-response or toxicity assessment); the route,
duration and magnitude of exposure (exposure
assessment); and the characterization of the nature
and magnitude of health risk (risk characterization).
Risk assessments are used in a variety of contexts,
including evaluating potential impacts of exposure to
chemicals and other agents associated with consumer
products,
specific
contaminated sites, and in developing risk-based
criteria to protect workers and the public. The risk
highly
is
assessment
interdisciplinary to address complex health issues,
and draws from diverse fields such as biology,
chemistry, ecology, engineering, environmental
sciences, industrial hygiene, mathematical modeling,
medicine, public health, statistics and toxicology.
occupational
necessity
settings,
process
or
of
Exponent’s Occupational and Environmental Health
Risk Assessment Center
is composed of an
interdisciplinary team of scientists, physicians, and
engineers who have decades of experience assisting
clients address and evaluate complex workplace and
environmental health and safety questions. Exponent
scientists, physicians, and engineers are highly
knowledgeable in risk assessment methodologies and
related analyses that are critical components of many
10
environmental
practices, and that are frequently used in litigation.
regulatory decisions, workplace
Our multidisciplinary team has extensive experience
investigating a broad variety of health concerns such
as claims of illnesses from exposures to ionizing
radiation and electromagnetic fields, chemicals, dusts
and other airborne particulates, smoke and fumes,
nanoparticles, molds and other micro-organisms.
Together, we develop strategies to aid in controlling
such exposures, when needed. In addition, our staff
has extensive experience in addressing health issues
to medical devices, consumer products,
related
sanitation. Our
and
manufacturing processes,
atmospheric scientists provide air quality and
meteorological modeling, permitting, and licensing
support services. Our environmental and health
scientists investigate accidental releases of chemicals,
evaluate transport and fate of chemical substances,
simulate home and workplace exposures as well as
develop measures of prevention and control
exposure, and assist clients with emergency
preparedness and response.
Toxicology & Mechanistic Biology
The members of our Toxicology and Mechanistic
Biology Center have exceptional expertise and depth
in
toxicology and mechanistic biology. Our
knowledge and experience contribute to the ability of
our clients to make better informed decisions that
affect the regulation of their substances in commerce.
We work with our clients to resolve issues that affect
the safe use of a wide variety of substances. By
evaluating the mechanisms by which substances
interact with complex biological systems, we provide
perspectives on the potential for adverse effects at
realistic human and environmental exposure levels,
and develop strategies to manage human health and
environmental risks. The members of our staff are
recognized nationally and internationally for their
outstanding credentials and decades of experience
from government, academia and industry.
We have addressed issues for clients on industrial
chemicals, pesticides, drugs, medical devices,
nanotechnology, and other agents. We have
developed and published various detailed reviews on
toxicity mode of action assessments, specifically how
substances cause harm and whether or not laboratory
data are relevant to human risk. We have provided
nonclinical toxicology support in nearly all phases of
pharmaceutical and combination drug development
from preclinical studies to post-marketing safety
assessments. We have been active in developing
study plans to assess potential endocrine toxicity of
11
chemical substances and in reviewing data for the
U.S. Environmental Protection Agency Endocrine
Disruptor Screening Program.
COMPETITION
The marketplace for our services is fragmented and
we face different sources of competition in providing
various services. In addition, the services that we
provide to some of our clients can be performed in-
house by
the
capability to perform such services themselves will
retain Exponent or other independent consultants
because of independence concerns.
those clients. Clients
that have
In each of our practices and centers, we believe that
the principal competitive factors are: technical
capability and breadth of services, ability to deliver
services on a timely basis, professional reputation
and knowledge of litigation and regulatory processes.
Although we believe that we generally compete
favorably in each of these areas, some of our
to provide services
competitors may be able
acceptable to our clients at lower prices.
We believe that the barriers to entry are low and that
for many of our technical disciplines, competition is
increasing. In response to competitive forces in the
marketplace, we continue to look for new markets for
our various technical disciplines.
BUSINESS SEGMENTS AND GEOGRAPHIC
OPERATIONS OVERVIEW
in
and health
epidemiology
and Environmental
We report two operating segments based on two
primary areas of service: Engineering and Other
Scientific,
and Health.
Engineering and Other Scientific is a broad service
group providing technical consulting in different
practices primarily in engineering. Environmental
the area of
and Health provides services
environmental,
risk
analysis. This operating segment provides a wide
range of consulting services relating to environmental
hazards and risks and the impact on both human
health and the environment. For more information
about the financial condition and results of operations
of each segment, please see Part II - “Item 7:
Management's Discussion and Analysis of Financial
Condition and Results of Operations” and “Item 8:
Financial Statements and Supplementary Data.” For
information about the Company’s operations in
different geographical areas, please see “Note 16:
Segment Reporting” of our Notes to Consolidated
Financial Statements. For information about the
Company’s disclosures regarding foreign currency
exchange rate risk, please see “Item 7A. Quantitative
and Qualitative Disclosures About Market Risk.”
EMPLOYEES
As of January 1, 2016, we employed 999 full-time,
part-time and hourly employees,
including 777
engineering and scientific staff, 61 technical support
staff and 161 administrative and support staff. Our
staff includes 694 employees with advanced degrees,
of which 473 employees have achieved the level of
Ph.D., Sc.D. or M.D.
ADDITIONAL INFORMATION
of
our
address
Internet website
The
is
www.exponent.com. We make available, free of
charge through our website, access to our Annual
Reports on Form 10-K, Quarterly Reports on Form
10-Q, Current Reports on Form 8-K and other
periodic and current Securities and Exchange
Commission (SEC) reports, along with amendments
to all of those reports, as soon as reasonably
practicable after we file or furnish the reports with
the SEC. Additionally, copies of materials filed or
furnished by us with the SEC may be accessed at the
SEC’s Public Reference Room at 100 F Street NE,
Washington, D.C. or at the SEC’s website at
http://www.sec.gov. For information about the SEC’s
Public Reference Room, the public may contact 1-
800-SEC-0330. Copies of material filed or furnished
by us with the SEC may also be obtained by writing
to us at our corporate headquarters, Exponent, Inc.,
Attention: Investor Relations, 149 Commonwealth
Drive, Menlo Park, CA 94025, or by calling (650)
326-9400. The content of our Internet website is not
incorporated into and is not part of this Annual
Report on Form 10-K.
12
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Exponent and their ages as of February 26, 2016 are as follows:
Name
Age
Position
Paul R. Johnston, Ph.D.
Paul D. Boehm, Ph.D.
Robert D. Caligiuri, Ph.D.
Catherine Ford Corrigan, Ph.D.
Steven J. Murray, Ph.D.
John D. Osteraas, Ph.D.
Richard Reiss, Sc.D.
Richard L. Schlenker, Jr.
Sally B. Shepard
62
67
64
47
41
61
49
50
55
Executive officers of Exponent are appointed by the
Board of Directors and serve at the discretion of the
Board or until the appointment of their successors.
There is no family relationship between any of the
directors and officers of the Company.
for
responsibility
Paul R. Johnston, Ph.D., joined the Company in
1981, was promoted to Principal Engineer in 1987,
and to Vice President in 1996. In 1997, he assumed
responsibility for the firm’s network of offices. In
July 2003, he was appointed Chief Operating Officer
and added
the Health and
Environmental Groups. In 2006, he assumed line
responsibility for all of the firm’s consulting groups.
Dr. Johnston was named President in May 2007. He
was named Chief Executive Officer and elected to
the Board of Directors in May 2009. Dr. Johnston
received his Ph.D. (1981) in Civil Engineering and
M.S. (1977) in Structural Engineering from Stanford
University. He received his B.A.I. (1976) in Civil
Engineering with First Class Honors from Trinity
College, University of Dublin, Ireland where he was
elected a Foundation Scholar in 1975. Dr. Johnston is
a Registered Professional Civil Engineer in the State
of California and a Chartered Engineer in Ireland.
President, Chief Executive Officer and Director
Group Vice President
Group Vice President
Group Vice President
Group Vice President
Group Vice President
Group Vice President
Executive Vice President, Chief Financial Officer and
Corporate Secretary
Vice President – Human Resources
2004. From 1999 to 2001, Dr. Boehm was Vice
President and Managing Director, Environmental
Health and Safety Consulting at Arthur D. Little, Inc.
Dr. Boehm received his Ph.D. (1977) and M.S.
(1973) in Oceanography from the University of
Rhode
in Chemical
Engineering from the University of Rochester. Dr.
Boehm has published more than 100 articles in peer-
reviewed journals and authored numerous reports on
environmental forensics and impact assessments. Dr.
Boehm has been chosen to serve on several National
Research Council panels.
Island and B.S.
(1970)
and B.S.
Robert D. Caligiuri, Ph.D., joined the Company in
1987. He was promoted to Principal Engineer in 1990
and Group Vice President in 1999. Dr. Caligiuri
received his Ph.D. (1977) and M.S. (1974) in
Materials Science and Engineering from Stanford
University
in Mechanical
Engineering from the University of California, Davis.
Prior to joining the Company he was a Program
Manager
for SRI
and Materials Scientist
International. He
is a Registered Professional
Metallurgical Engineer in the States of Arkansas,
California, Utah, Michigan, North Carolina, Texas
and Washington and a Fellow of ASM International.
(1973)
Paul D. Boehm, Ph.D., joined the Company in April
2004 as a Group Vice President and Principal
Scientist. Prior to joining the Company, Dr. Boehm
was Vice President and Market Manager, Oil and Gas
Sector, at Battelle Memorial Institute from 2001 to
the
Catherine Ford Corrigan, Ph.D.,
Company in 1996. She was promoted to Principal in
the Biomechanics practice
in 2002, and was
appointed Group Vice President in May 2012. Dr.
joined
13
of Technology
in Medical
Corrigan earned her Ph.D. (1996)
Engineering and Medical Physics and M.S. (1992) in
Mechanical Engineering from the Massachusetts
Institute
in
Bioengineering from the University of Pennsylvania.
Prior to joining Exponent, Dr. Corrigan was a
researcher
the Orthopaedic Biomechanics
Laboratory at Beth Israel Hospital and Harvard
Medical School.
her B.S.
and
in
Steven J. Murray, Ph.D., joined the Company in
2001. He was promoted to Principal Engineer in
2008. Dr. Murray was promoted to Corporate Vice
President in May 2014 and Group Vice President in
January 2015. Dr. Murray received his Ph.D. (2000)
in Materials Science and Engineering (Electronic
Materials Panel) from the Massachusetts Institute of
Technology, B.S. (1996) in Materials Science and
Mineral Engineering and B.S. (1996) in Mechanical
Engineering from
the University of California,
Berkeley. He is a Registered Professional Electrical
Engineer in the State of Oregon and Registered
Professional Mechanical Engineer in the State of
California.
John D. Osteraas, Ph.D., worked for the Company
from 1982 to 1985 as a Senior Engineer. He rejoined
the Company in 1990 as a Managing Engineer. He
was promoted to Principal Engineer in 1992 and
Group Vice President in 2006. Dr. Osteraas received
his Ph.D. (1990) in Civil Engineering, M.S. (1977) in
from
Civil Engineering: Structural Engineering
Stanford University and B.S. (1976) in Civil and
Environmental Engineering from the University of
Wisconsin. Dr. Osteraas is a Registered Professional
Engineer in 17 states and is a Fellow of the American
Society of Civil Engineers.
Richard Reiss, Sc.D., joined the Company in 2006
as a Principal Scientist. He was promoted to Group
Vice President in January 2015. Dr. Reiss earned his
Sc.D. (1994) in Environmental Health from the
Harvard University School of Public Health, M.S.
from
(1991)
in Environmental Engineering
in
Northwestern University and B.S.
Chemical Engineering
the University of
California, Santa Barbara. Prior to joining Exponent
he was a Vice President with Sciences International.
Dr. Reiss is a Fellow of the Society of Risk Analysis.
(1989)
from
Richard L. Schlenker, Jr. joined the Company in
1990. Mr. Schlenker is the Executive Vice President,
Chief Financial Officer and Corporate Secretary of
the Company. He was appointed Executive Vice
President in April 2010, Chief Financial Officer in
in
July 1999 and Secretary of
the Company
14
November 1997. Mr. Schlenker was the Director of
Human Resources from 1998 until his appointment as
Chief Financial Officer. He was the Manager of
Corporate Development from 1996 until 1998. From
1993 to 1996, Mr. Schlenker was a Business
Manager, where he managed the business activities
for multiple consulting practices within
the
Company. Prior to 1993, he held several different
positions in finance and accounting within the
Company. Mr. Schlenker holds a B.S. in Finance
from the University of Southern California.
Sally B. Shepard, rejoined the Company in 2014 as
Vice President - Human Resources. From 2012 to
2014 she served as Vice President Human Resources
at 41st Parameter. From 2002 to 2009 she served as
Vice President Human Resources at CoWare, Inc.,
which was acquired by Synopsys. From 2000 to 2001
Ms. Shepard served as Vice President Human
Resources at Lutris Technologies. She also provided
Human Resources consulting services for a variety of
companies between roles. From 1981 to 1999 Ms.
Shepard held a variety of roles at Exponent including
Managing Engineer, Business Manager, Director of
Human Resources and Information Technology, and
Vice President of Corporate Human Resources. Ms.
in Mechanical
Shepard holds a B.S.
Engineering from Stanford University.
(1982)
Item 1A. Risk Factors
Exponent operates in a rapidly changing environment
that involves a number of uncertainties, some of
which are beyond our control and may have a
material adverse effect on our financial condition and
results of operations. These uncertainties include, but
are not limited to, those mentioned elsewhere in this
report and those set forth below.
The unpredictable and reactive nature of our
business can create uneven performance in any
given quarter or fiscal year.
Revenues are primarily derived
from services
provided in response to client requests or events that
occur without notice, and engagements, generally
billed as services are performed, are terminable or
subject to postponement or delay at any time by
clients. As a result, backlog at any particular time is
small in relation to our quarterly or annual revenues
and is not a reliable indicator of revenues for any
future periods. Revenues and operating margins for
any particular quarter are generally affected by
staffing mix, resource requirements and timing and
size of engagements.
Our financial results could suffer if our clients’
needs change more rapidly than we are able to
secure the appropriate mix of trained, skilled and
experienced personnel.
As our clients’ needs change, new technologies
develop, and legal and regulatory processes change,
we may be unable to timely hire or train personnel
with the appropriate new set of skills and experience
which could negatively impact our growth and
profitability.
Failure to attract and retain key employees may
adversely affect our business.
involves
Exponent’s business
the delivery of
professional services and is labor-intensive. Our
success depends in large part upon our ability to
attract, retain and motivate highly qualified technical
and managerial personnel. Qualified personnel are in
great demand and are likely to remain a limited
resource for the foreseeable future. We cannot
provide any assurance that we can continue to attract
sufficient numbers of highly qualified technical and
managerial personnel and
retain existing
employees. The loss of key managerial employees,
business generators or any significant number of
employees could have a material adverse impact on
our business, including our ability to secure and
complete engagements.
to
Competition could reduce our pricing and adversely
affect our business.
The markets for our services are highly competitive.
In addition, there are relatively low barriers to entry
into our markets and we have faced, and expect to
continue to face, additional competition from new
entrants into our markets. Competitive pressure could
reduce the market acceptance of our services and
result in price reductions that could have a material
adverse effect on our business, financial condition or
results of operations.
The loss of a large client could adversely affect our
business.
insurance,
We currently derive a significant portion of our
revenues from clients in the consumer electronics,
energy,
and utilities
industries and the government sector. The loss of any
large client, organization or insurer could have a
material adverse effect on our business, financial
condition or results of operations.
transportation
Our clients may be unable to pay for our services.
If a client's financial difficulties become severe, the
client may be unwilling or unable to pay our invoices
in the ordinary course of business, which could
adversely affect collections of both our accounts
receivable and unbilled services. On occasion, some
of our clients have entered bankruptcy, which has
prevented us from collecting amounts owed to us.
The bankruptcy of a client with substantial accounts
receivable could have a material adverse effect on our
financial condition and results of operations.
We hold substantial investments that could present
liquidity risks.
Our cash equivalent and short-term
investment
portfolio as of January 1, 2016, consisted primarily of
local
obligations of U.S. agencies, state and
government agencies and the U.S. Treasury. We
follow an established investment policy to monitor,
manage and limit our exposure to interest rate and
credit risk. The policy sets forth credit quality
standards and limits our exposure to any one issuer,
as well as our maximum exposure to various asset
classes.
Investments in some financial instruments may pose
risks arising from liquidity and credit concerns. As of
January 1, 2016, we had no impairment charge
associated with our investment portfolio relating to
such adverse financial market conditions. Although
we believe our current investment portfolio has a low
risk of impairment, we cannot predict future market
conditions or market liquidity and can provide no
assurance that our investment portfolio will remain
unimpaired.
Our business is dependent on our professional
reputation.
The professional reputation of Exponent and its
consultants is critical to our ability to successfully
compete for new client engagements and attract or
retain professionals. Proven or unproven allegations
against us may damage our professional reputation.
Any factors that damage our professional reputation
could have a material adverse effect on our business.
Our business can be adversely
deregulation or reduced regulatory enforcement.
impacted by
Public concern over health, safety and preservation of
the environment has resulted in the enactment of a
broad range of environmental and/or other laws and
regulations by local, state and federal lawmakers and
15
their enforcement. To
agencies. These laws and the implementation of new
regulations affect nearly every industry, as well as the
agencies of federal, state and local governments
charged with
the extent
changes in such laws, regulations and enforcement or
other factors significantly reduce the exposures of
manufacturers, owners, service providers and others
to liability, the demand for our services may be
significantly reduced.
Tort reform can reduce demand for our services.
in
significant
Several of our practices have a
consulting
support
litigation
concentration
services. To the extent tort reform reduces the
exposure of manufacturers, owners, service providers
and others to liability, the demand for our litigation
support consulting services may be significantly
reduced.
Our engagements may result in professional or
other liability.
Our services typically involve difficult engineering
and scientific assignments and carry risks of
professional and other
liability. Many of our
engagements involve matters that could have a severe
impact on a client's business, cause a client to lose
significant amounts of money, or prevent a client
from pursuing desirable business opportunities.
Accordingly, if a client is dissatisfied with our
performance, the client could threaten or bring
litigation in order to recover damages or to contest its
obligation to pay our fees. Litigation alleging that we
performed negligently, disclosed client confidential
information, lost or damaged evidence, infringed on
patents, were forced to withdraw from a legal matter
due
to a conflict or otherwise breached our
obligations to a client could expose us to significant
liabilities to our clients or other third parties or
tarnish our reputation.
Potential conflicts of interest may preclude us from
accepting some engagements.
We provide litigation support consulting and other
services primarily in connection with significant
disputes, or other matters that are usually adversarial
or that involve sensitive client information. The
nature of our consulting services may preclude us
from accepting engagements with other potential
clients because of conflicts. Accordingly, the nature
of our business limits the number of both potential
clients and potential engagements.
We are subject to unpredictable risks of litigation.
Although we seek to avoid litigation whenever
possible, from time to time we are party to various
lawsuits and claims. Disputes may arise, for example,
from employment issues, regulatory actions, business
acquisitions and real estate and other commercial
transactions. There can be no assurances that any
lawsuits or claims will be immaterial in the future.
Any material lawsuits or claims could adversely
affect our business and reputation.
We may experience security breaches that could
to protect confidential
lead
information.
inability
the
to
Despite the implementation of security measures, our
operating systems are vulnerable
to electronic
breaches of security. Such breaches could lead to
disruptions of our operations
and potential
unauthorized disclosure of confidential information,
which could result in legal claims or proceedings.
While we have taken reasonable steps to prevent and
mitigate
the damage of a security breach by
continuously improving our design and coordination
of security controls across our business, those steps
may not be effective and there can be no assurance
that any such steps can be effective against all
possible risks.
Impairment of goodwill may require us to record a
significant charge to earnings.
subject
evaluation
to periodic
On our balance sheet, we have $8,607,000 of
goodwill
for
impairment. Failure to achieve sufficient levels of
cash flow at reporting units, the loss of key
employees, changes to the scope of operations of our
business or a significant and sustained decline in our
stock price could result in goodwill impairment
charges. During times of financial market volatility,
significant judgment is required to determine the
underlying cause of the decline and whether stock
price declines are short-term in nature or indicative of
an event or change in circumstances.
Impairment of long-lived assets or restructuring
activities may require us to record a significant
charge to earnings.
Our long-lived assets, including our office and
laboratory space in Menlo Park, California and our
test and engineering center in Phoenix, Arizona, are
subject to periodic testing for impairment. Failure to
achieve sufficient levels of cash flow at the asset
group level could result in impairment of our long-
16
lived assets. In addition, we have operating lease
commitments for office, warehouse and laboratory
space of $20,597,000 as of January 1, 2016. Changes
in the business environment could lead to changes in
the scope of operations of our business. These
changes, including the closure of one or more offices,
could result in restructuring and/or asset impairment
charges.
Our international operations create special risks
that could adversely affect our business.
in
the
revenues
In addition to our offices in the United States, we
the United Kingdom,
in
have physical offices
Germany, Switzerland, Hong Kong and China and
conduct business in several other countries. We
expect to continue to expand globally and our
international revenues may account for an increasing
future. Our
portion of our
international operations carry special
financial,
business and legal risks, including cultural and
language differences; employment laws and related
factors that could result in lower utilization, higher
staffing costs, and cyclical fluctuations of utilization
and revenues; currency fluctuations that adversely
affect our financial position and operating results;
requirements and other
burdensome
barriers to conducting business; managing the risks
associated with engagements with foreign officials
and governmental agencies,
the risks
arising from the United States Foreign Corrupt
Practices Act and the United Kingdom Bribery Act of
2010; greater difficulties in managing and staffing
foreign operations; successful entry and execution in
new markets; restrictions on the repatriation of
earnings; and potentially adverse tax consequences.
regulatory
including
Inherent risks related to government contracts may
adversely affect our business.
to
We work for various United States and foreign
governmental entities and agencies. Government
entities reserve the right to audit our contracts and
conduct inquiries and investigations of our business
to government contracts.
practices with respect
Findings from an audit may result in fees being
refunded
the government or prospective
adjustment to previously agreed upon rates that will
affect future margins. If a government client
discovers improper or illegal activities in the course
of audits or investigations, we may become subject to
and
various
civil
include
administrative
termination of contracts,
forfeiture of profits,
suspension of payments, fines and suspensions or
debarment from doing business with other agencies
criminal
sanctions, which may
penalties
and
of the government. The inherent limitations of
internal controls may not prevent or detect all
improper or illegal activities, regardless of the
adequacy of such controls. Government contracts,
and the proceedings surrounding them, are often
subject to more extensive scrutiny and publicity than
other commercial contracts. Negative publicity
related to our government contracts, regardless of
whether it is accurate, may further damage our
business by affecting our ability to compete for new
contracts.
A decline in the U.S. Government defense budget,
changes in budgetary priorities or timing of contract
awards may adversely affect our business.
levels
Our operating results could be adversely affected by
spending caps or changes in the budgetary priorities
of the U.S. Government or the Department of
Defense (DoD), as well as delays in program starts or
the award of contracts or task orders under contracts.
Current U.S. Government spending
for
defense-related programs may not be sustained and
future spending and program authorizations may not
increase or may decrease or shift to programs in areas
in which we do not provide services or are less likely
to be awarded contracts. Such changes in spending
authorizations and budgetary priorities may occur as
a result of the rapid growth of the federal budget
deficit, increasing political pressure and legislation.
The U.S. Government also conducts periodic reviews
of U.S. defense strategies and priorities, which may
shift DoD budgetary priorities, reduce overall U.S.
Government spending or delay contract or task order
awards for defense-related programs. In addition,
the DoD acquisition system and
changes
contracting models could affect whether and how we
pursue certain opportunities and the terms under
which we are able to do so. A significant decline in
overall U.S. Government spending, the substantial
reduction or elimination of particular defense-related
programs or significant delays in contract or task
order awards could adversely affect our business.
to
Governments may terminate, cancel, modify or
curtail our contracts at any time prior to their
completion.
Under our government contracts, the client generally
has the right not to exercise options to extend or
expand our contracts and may otherwise terminate,
cancel, modify or curtail our contracts at
its
convenience. Any decision by the client not to
exercise contract options or to terminate, cancel,
modify or curtail our programs or contracts would
17
adversely affect our revenues, revenue growth and
profitability.
Our quarterly results may vary.
We could incur significant liabilities and suffer
negative publicity if people or properties are harmed
by the products and systems we sell or the services
we offer.
We design, develop, manufacture, sell, service and
maintain various products and systems. In some
instances, we also train operators of such products
and systems. Many of these products and systems
utilize software algorithms that are probabilistic in
nature and subject to significant technical limitations.
There are many factors, some of which are beyond
our control, which could result in the failure of our
products or systems. The failure of our products or
systems could lead to injury, death, or extensive
property damage and may lead to product liability,
professional liability, or other claims against us.
Further, if our products or systems fail, or are
perceived to have failed, the negative publicity from
such incident could have a material adverse effect on
our business.
in, or
Changes
interpretations of, accounting
principles could have a significant impact on our
financial position and results of operations.
We prepare our consolidated financial statements in
accordance with accounting principles generally
accepted in the United States of America (“GAAP”).
These principles are subject to interpretation by the
SEC and various bodies formed to interpret and
create appropriate accounting principles. A change in
these principles can have a significant effect on our
reported results and may even retroactively affect
previously reported transactions. Additionally, the
adoption of new or revised accounting principles may
require that we make significant changes to our
systems, processes and controls.
Our business can be adversely affected by
downturns in the overall economy.
The markets that we serve are cyclical and subject to
general economic conditions. The direction and
relative strength of the global economy continues to
be uncertain. If economic growth in the United
States, where we primarily operate, slows, our clients
may consolidate or go out of business and thus
demand
reduced
significantly.
services could be
for our
as
the
such
significance of
Variations in our revenues and operating results
occur from time to time, as a result of a number of
factors,
client
engagements commenced and completed during a
quarter, the timing of engagements, the number of
working days in a quarter, employee hiring and
utilization rates, and
integration of companies
acquired. Because a high percentage of our expenses,
particularly personnel and facilities related expenses,
are relatively fixed in advance of any particular
quarter, a variation in the timing of the initiation or
the completion of our client assignments can cause
significant variations
in operating results from
quarter to quarter.
The market price of our common stock may be
volatile.
Many factors could cause the market price of our
common stock to rise and fall. These include the risk
factors listed above and below; changes in estimates
of our performance or recommendations by securities
analysts; future sales of shares of common stock in
the public market; market conditions in the industry
and economy as a whole; acquisitions or strategic
alliances involving us or our competitors; restatement
of financial results; and changes in accounting
principles or methods. In addition, the stock market
often experiences significant price fluctuations.
the
These fluctuations are often unrelated
operating performance of particular companies.
These broad market fluctuations may adversely affect
the market price of our common stock. When the
stock drops
market price of
significantly, shareholders often institute securities
class action litigation against that company. Any
litigation against us could cause us
incur
substantial costs, divert the time and attention of our
management and other resources, or otherwise harm
our business.
company's
to
to
a
There can be no assurance that we will continue to
declare cash dividends or repurchase our shares at
all or in any particular amounts.
Our Board of Directors has declared quarterly
dividends since March 2013. Our intent to continue
to pay quarterly dividends and to repurchase our
shares is subject to capital availability and, in the
case of dividends, periodic determinations by our
Board of Directors that cash dividends are in the best
interest of our stockholders and are in compliance
with all laws and agreements applicable to the
declaration and payment of cash dividends by us.
18
PART II
Item 5. Market for Registrant’s Common Equity,
Related
Issuer
Purchases of Equity Securities
Stockholder Matters
and
Exponent’s common stock is traded on the NASDAQ
Global Select Market, under the symbol “EXPO.”
The following table sets forth for the fiscal periods
indicated the high and low sales prices for our
common stock. The share prices have been adjusted
to give effect to the two-for-one stock split on May
28, 2015.
Stock prices by quarter
Fiscal Year Ended January 2, 2015:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
High
Low
$ 38.95
$ 38.16
$ 38.82
$ 42.01
$ 32.86
$ 32.41
$ 34.92
$ 35.31
Fiscal Year Ended January 1, 2016:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
$ 45.95
$ 48.50
$ 46.74
$ 54.73
$ 39.20
$ 41.50
$ 40.58
$ 45.66
As of February 19, 2016, there were 198 holders of
record of our common stock. Because many of the
shares of our common stock are held by brokers and
other institutions on behalf of stockholders, we
believe that there are considerably more beneficial
holders of our common stock than record holders.
We paid $15.5 million, $13.0 million and $7.9
million of dividends during fiscal 2015, 2014 and
2013, respectively. Total dividends paid per share
were $0.60, $0.50 and $0.30 during fiscal 2015, 2014
and 2013, respectively. On February 3, 2016, our
Board of Directors announced a quarterly cash
dividend of $0.18 per share of the Company’s
common stock, payable March 25, 2016,
to
stockholders of record as of March 4, 2016. We
anticipate paying quarterly dividends each year in
March, June, September and December, subject to
declaration by our Board of Directors. See Part II,
“Item 7: Management’s Discussion and Analysis of
Financial Condition and Results of Operations –
Liquidity and Capital Resources.”
Future dividends and share repurchases may also be
affected by, among other factors: our views on
potential future capital requirements for investments,
including acquisitions; legal risks; stock repurchase
programs; changes in federal and state income tax
laws or corporate laws; contractual restrictions; and
changes
to our business model. Our dividend
payments and share repurchases may change from
time to time, and we cannot provide assurance that
we will continue to declare dividends or repurchase
shares at all or in any particular amounts. A reduction
or suspension in our dividend payments or share
repurchase activity could have a negative effect on
our stock price.
Item 1B. Unresolved Staff Comments
None.
Item 2. Properties
Our Silicon Valley office facilities consist of a
153,738 square foot building, with office and
laboratory space located on a 6.3-acre tract of land
we own in Menlo Park, California and an adjacent
27,000 square feet of leased warehouse storage space.
Our Test and Engineering Center (TEC) occupies 147
acres in Phoenix, Arizona. We lease this land from
the state of Arizona under a 30-year lease agreement
that expires in January 2028 and have options to
renew for two fifteen-year periods. We constructed
an indoor test facility as well as an engineering and
test preparation building at the TEC.
lease office, warehouse and
In addition, we
laboratory space in 18 other locations in 13 states and
the District of Columbia, as well as in Germany,
China, Hong Kong, Switzerland and the United
Kingdom. Leases for these offices, warehouse and
laboratory facilities have terms generally ranging
between one and ten years. Aggregate lease expense
in
leased properties was
$6,202,000.
fiscal 2015
for all
Item 3. Legal Proceedings
Exponent is not engaged in any material legal
proceedings.
Item 4. Mine Safety Disclosures
Not applicable.
19
The following table provides information on the Company’s share repurchases (of Company common stock) for the
quarter ended January 1, 2016 (in thousands, except price per share):
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
-
$
-
-
67
67
-
$ 52.32
$ 52.32
Total Number of
Shares Purchased
as Part of Publicly
Announced Plans
or Programs
Approximate Dollar
Value of Shares That
May Yet Be Purchased
Under the Plan or
Program
-
-
67
67
$15,265
$35,000
$50,265
$46,765
October 3 to October 30
Additional funds authorized for
share repurchases
October 31 to November 27
November 28 to January 1
Total
The foregoing repurchases of the Company’s common stock were effected pursuant to a repurchase program
authorized by the Company’s Board of Directors. On February 15, 2013, the Board of Directors authorized
$35,000,000 for the repurchase of the Company’s common stock. On May 29, 2014, the Company’s Board of
Directors authorized an additional $35,000,000 for the repurchase of the Company’s common stock. On October 20,
2015, the Company’s Board of Directors authorized an additional $35,000,000 for the repurchase of the Company’s
common stock. These repurchase programs have no expiration dates. As of January 1, 2016, there remained
$46,765,000 available for repurchases under these authorizations.
COMPANY STOCK PRICE PERFORMANCE GRAPH
The graph compares the Company’s cumulative total stockholder return calculated on a dividend-reinvested basis
from 2010 through 2015 with those of the Standard & Poor’s (“S&P”) 500 Index and the S&P SmallCap 600 Index.
The Company does not have a comparable peer group and thus has selected the S&P Small Cap 600 Index. The
graph assumes that $100 was invested on the last day of 2010. Note that the historic stock price performance is not
necessarily indicative of future stock price performance.
TOTAL SHAREHOLDER RETURNS
300
250
200
150
100
50
s
r
a
l
l
o
D
0
Dec 10
Dec 11
Dec 12
Dec 13
Dec 14
Dec 15
Years Ending
S&P 500 Index
S&P SmallCap 600 Index
Exponent, Inc.
20
Item 6. Selected Financial Data
The following selected consolidated financial data are derived from our consolidated financial statements. This data
should be read in conjunction with the consolidated financial statements and notes thereto, and with Part II - “Item
7: Management’s Discussion and Analysis of Financial Condition and Results of Operations.”
(In thousands, except per share data)
2015
2014
Fiscal Year
2013
2012
2011
Consolidated Statements of Income Data:
Revenues before reimbursements
Revenues
Operating income
Net income
Net income per share:
Basic
Diluted
$ 295,705
$ 312,832
$ 68,933
$ 43,599
$ 289,209
$ 304,704
$ 63,549
$ 40,701
$ 280,043
$ 296,168
$ 55,946
$ 38,640
$ 266,562
$ 292,653
$ 57,620
$ 37,225
$ 246,667
$ 272,446
$ 53,460
$ 32,695
$
$
1.64
1.60
$
$
1.51
1.47
$
$
1.42
1.38
$
$
1.35
1.30
$
$
1.16
1.11
Cash dividends declared per share
$
0.60
$
0.50
$
0.30
$
-
$
-
Consolidated Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital
Total assets
Long-term liabilities
Total stockholders’ equity
$ 125,751
$ 45,842
$ 192,312
$ 387,507
$ 44,229
$ 262,804
$ 129,490
$ 24,913
$ 176,153
$ 365,299
$ 41,666
$ 244,288
$ 122,948
$ 33,171
$ 171,402
$ 344,166
$ 36,960
$ 235,059
$ 113,268
$ 20,881
$ 156,016
$ 315,417
$ 27,217
$ 216,429
$ 84,439
$ 25,260
$ 130,510
$ 268,788
$ 21,298
$ 186,715
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
Inc.
is a science and engineering
Exponent,
consulting firm that provides solutions to complex
problems. Our multidisciplinary team of scientists,
physicians, engineers, business and
regulatory
consultants brings together more than 90 different
technical disciplines to solve complicated issues
facing industry and government today. Our services
include analysis of products, people, property,
processes and finances related to litigation, product
recall, regulatory compliance, research, development
and design.
CRITICAL ACCOUNTING ESTIMATES
In preparing our consolidated financial statements,
we make assumptions, judgments and estimates that
can have a significant impact on our revenue,
21
balance
sheet. We
operating income and net income, as well as on the
liabilities on our
value of certain assets and
consolidated
our
base
assumptions, judgments and estimates on historical
experience and various other factors that we believe
to be reasonable under the circumstances. Actual
results could differ materially from these estimates
under different assumptions or conditions. On a
regular basis we evaluate our assumptions, judgments
and estimates and make changes accordingly. We
judgments and
believe
estimates
revenue
recognition and estimating the allowance for doubtful
accounts and contract
the greatest
losses have
impact on our consolidated financial
potential
statements, so we consider these to be our critical
accounting policies. We discuss below
the
assumptions, judgments and estimates associated
with these policies. Historically, our assumptions,
judgments and estimates relative to our critical
accounting policies have not differed materially from
actual results. For further information on our critical
the assumptions,
in accounting
involved
that
for
different estimates, the amount and timing of our
revenue for any period could be materially different.
requires a positive assessment of
All contracts are subject to review by management,
which
the
collectability of contract amounts. If, during the
course of the contract, we determine that collection of
revenue is not reasonably assured, we do not
recognize the revenue until its collection becomes
reasonably assured, which in those situations would
generally be upon receipt of cash. We assess
collectability based on a number of factors, including
past transaction history with the client, as well as the
credit-worthiness of the client. Losses on fixed-price
contracts are recognized during the period in which
the loss first becomes evident. Contract losses are
determined to be the amount by which the estimated
total costs of the contract exceeds the total fixed price
of the contract.
Estimating the allowance for doubtful accounts
and contract losses. We make estimates of our
ability to collect accounts receivable and our unbilled
but recognized work-in-process. In circumstances
where we are aware of a specific customer’s inability
to meet its financial obligations to us or for disputes
with customers that affect our ability to fully collect
our accounts receivable and unbilled work-in-
process, we record a specific allowance to reduce the
net
the amount we
reasonably believe will be collected. For all other
customers we recognize allowances for doubtful
accounts and contract losses taking into consideration
factors such as historical write-offs, customer
concentration, customer credit-worthiness, current
economic conditions, and aging of amounts due.
recognized
receivable
to
accounting policies, see “Note 1: Summary of
Significant Accounting Policies” of our Notes to
Consolidated Financial Statements.
Revenue recognition. We derive our revenues
primarily from professional fees earned on consulting
engagements, fees earned for
the use of our
equipment and facilities, as well as reimbursements
for outside direct expenses associated with the
services that are billed to our clients.
fixed-price
all of our
Substantially all of our engagements are service
contracts performed under time and material or fixed-
price billing arrangements. For time and material and
fixed-price service projects, revenue is generally
the services are performed. For
recognized as
substantially
service
engagements, we recognize revenue based on the
relationship of incurred labor hours at standard rates
to our estimate of the total labor hours at standard
rates we expect to incur over the term of the contract.
Our estimate of total labor hours we expect to incur
over the term of the contract is based on the nature of
the project and our past experience on similar
projects. We believe this methodology achieves a
reliable measure of the revenue from the consulting
services we provide to our customers under fixed-
price contracts.
Significant management judgments and estimates
must be made and used in connection with the
revenues recognized in any accounting period. These
judgments and estimates include an assessment of
collectability and, for fixed-price engagements, an
estimate as to the total effort required to complete the
project. If we made different judgments or utilized
22
The following table sets forth, for the periods indicated, the percentage of revenues of certain items in our
consolidated statements of income and the percentage increase (decrease) in the dollar amount of such items year to
year:
PERCENTAGE OF REVENUES
FOR FISCAL YEARS
2014
2015
2013
PERIOD TO
PERIOD CHANGE
2015 vs. 2014 2014 vs. 2013
Revenues
100.0%
100.0%
100.0%
2.7%
2.9%
Operating expenses:
Compensation and related expenses
Other operating expenses
Reimbursable expenses
General and administrative expenses
Operating income
Other income, net
Income before income taxes
Provision for income taxes
59.0
8.6
5.5
4.9
78.0
22.0
0.7
22.7
8.8
60.2
8.6
5.1
5.2
79.1
20.9
1.4
22.3
8.9
62.2
8.5
5.4
5.0
81.1
18.9
2.7
21.6
8.5
0.5
2.6
10.5
(3.5)
1.1
8.5
(0.3)
3.9
(3.9)
7.7
0.4
13.6
(50.2)
(44.8)
4.7
1.0
6.3
7.7
Net income
13.9%
13.4%
13.0%
7.1%
5.3%
EXECUTIVE SUMMARY
Revenues for fiscal 2015 increased 3% and revenues
before reimbursements increased 2% as compared to
the prior year. The increase in revenues before
reimbursements was due to an increase in billable
hours and an
rates. We
experienced demand for our consulting services from
a diverse set of clients for both reactive and proactive
projects.
in billing
increase
During fiscal 2015, we experienced demand for our
reactive services performing high profile accident
and failure investigations and evaluating potentially
significant product recalls.
We also experienced demand for our proactive
consulting services, performing design evaluations of
consumer electronics and medical devices in addition
to regulatory consulting for the chemical and food
industries.
During fiscal 2015, we had notable performances in
several practices including our materials & corrosion
engineering, biomedical engineering, and polymer
science & materials chemistry practices, as well as
our infrastructure group. We experienced strong
23
demand from the consumer electronics industry, as
our clients broadened their product offerings and
needed assistance with the use of new materials. We
also continued to assist clients in the biomedical
industry with regulatory approvals and assessing the
products. Our
field
their
infrastructure group benefited
increased
from
commercial construction and infrastructure spending.
performance
of
The low growth rate in revenues was due to one of
our major investigations in our Environmental and
Health segment ending in July of 2015 and a
continued step down in the level of activity in our
technology development practice due to constraints
on defense spending and the withdrawal of United
States and United Kingdom combat troops from
Afghanistan.
The increase in revenues before reimbursements and
low expense growth resulted in a 7% increase in net
to $43,599,000 during fiscal 2015 as
income
compared to $40,701,000 during the prior year.
Diluted earnings per share increased to $1.60 per
share as compared to $1.47 during the prior year due
to the increase in net income and the decrease in our
share count from our ongoing share repurchase
program.
We remain focused on selectively adding top talent
and developing the skills necessary to expand upon
our market position, providing clients with in-depth
scientific research and analysis to determine what
happened and how to prevent failures or exposures in
the future, capitalizing on emerging growth areas,
managing other operating expenses, generating cash
from operations, maintaining a strong balance sheet
and undertaking activities such as share repurchases
and dividends to enhance shareholder value.
OVERVIEW OF THE YEAR ENDED
JANUARY 1, 2016
Our revenues consist of professional fees earned on
consulting engagements,
for use of our
equipment and facilities, and reimbursements for
outside direct expenses associated with the services
performed that are billed to our clients.
fees
We operate on a 52-53 week fiscal year with each
year ending on the Friday closest to December 31st.
The fiscal years ended January 1, 2016 and January
2, 2015 included 52 weeks of activity. The fiscal year
ended January 3, 2014 included 53 weeks of activity.
Fiscal 2016 will end on Friday, December 30, 2016.
During fiscal 2015, billable hours increased 1.6% to
1,125,000 as compared to 1,107,000 during fiscal
2014. The increase in billable hours was due to
continued demand for our proactive and reactive
consulting services.
Our utilization was 72% for fiscal 2015 and 2014.
Technical full-time equivalent employees increased
1.3% to 751 during fiscal 2015 as compared to 741
during fiscal 2014 due to our recruiting and retention
efforts. We continue to selectively hire key talent to
expand our capabilities.
The increase in revenues for our Engineering and
Other Scientific segment was due to an increase in
billable hours and an increase in billing rates. During
fiscal 2015, billable hours for this segment increased
by 5.2% to 835,000 as compared to 794,000 during
fiscal 2014. The increase was due to demand for
services in our materials & corrosion engineering,
biomedical engineering, polymer science & materials
chemistry practices, as well as our infrastructure
group. Utilization increased to 75% for fiscal 2015 as
compared to 74% for fiscal 2014. Technical full-time
equivalents increased 3.5% to 537 for fiscal 2015
from 519 for fiscal 2014 due to our recruiting and
retention efforts.
The decrease in revenues from our Environmental
and Health segment was due to a decrease in billable
hours. During fiscal 2015, billable hours for this
segment decreased by 7.3% to 290,000 as compared
to 313,000 during fiscal 2014. Utilization decreased
to 65% for fiscal 2015 as compared to 68% for fiscal
2014. The decrease in billable hours and utilization
was due to one of our major investigations ending in
July of 2015 and weaker demand for our services in
our health centers. Technical full-time equivalents
decreased 3.6%
to 214 during fiscal 2015 as
compared to 222 for fiscal 2014 due to our efforts to
align resources with anticipated demand.
Revenues are primarily derived
from services
provided in response to client requests or events that
occur without notice and engagements are generally
terminable or subject to postponement or delay at any
time by our clients. As a result, backlog at any
particular time is small in relation to our quarterly or
annual revenues and is not a reliable indicator of
revenues for any future periods.
Compensation and Related Expenses
FISCAL YEARS ENDED JANUARY 1, 2016,
AND JANUARY 2, 2015
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
Revenues
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
Engineering
and Other Scientific $ 237,959 $ 223,384
Percentage of
6.5%
total revenues
Environmental
and Health
Percentage of
total revenues
76.1%
73.3%
74,873
81,320
(7.9)%
23.9%
26.7%
Total revenues
$ 312,832 $ 304,704
2.7%
24
Compensation
and related expenses
Percentage of
total revenues
$ 184,502 $ 183,533
0.5%
59.0%
60.2%
The increase in compensation and related expenses
during fiscal 2015 was due to an increase in payroll,
fringe benefits, and bonus expense partially offset by
a change in the value of assets associated with our
deferred compensation plan. During fiscal 2015
payroll and fringe benefits increased $1,683,000 and
$971,000, respectively, due
in
technical full-time equivalent employees, our annual
salary increase and, an increase in health insurance
increase
the
to
increased $1,204,000 due
to a
rates. Bonuses
corresponding increase in income before income
taxes, before bonus expense, and before stock-based
compensation expense. During fiscal 2015, deferred
compensation expense decreased $2,850,000 with a
corresponding decrease to other income (expense),
net, as compared with the prior year due to the
change in value of assets associated with our deferred
compensation plan. This decrease consisted of a
decrease in the value of the plan assets of $325,000
during fiscal 2015 as compared to an increase in the
value of the plan assets of $2,525,000 during fiscal
2014. We expect our compensation expense,
in value of deferred
excluding
compensation plan assets,
increase as we
selectively add new talent.
the change
to
Other Operating Expenses
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
General and Administrative Expenses
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
General and
administrative expenses $ 15,295
Percentage of
$ 15,842
(3.5)%
total revenues
4.9%
5.2%
The decrease in general and administrative expenses
during fiscal 2015 was primarily due to a decrease in
legal fees of $566,000 and a decrease in charitable
contributions of $507,000, partially offset by an
increase in outside consulting services of $218,000
and an increase in accounting fees of $164,000. The
decrease in legal fees was due to a decrease in costs
associated with legal claims during fiscal 2015 as
compared to fiscal 2014. The increase in outside
consulting services was due to investments in our
corporate infrastructure. We expect general and
administrative expenses to increase as we selectively
add new talent, expand our business development
efforts, and pursue staff development initiatives.
Other operating
expenses
Percentage of
total revenues
$ 26,975
$ 26,285
2.6%
8.6%
8.6%
Other Income (Expense), Net
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
Other income
and expense, net
Percentage of
total revenues
$ 2,200
$ 4,416
(50.2)%
0.7%
1.4%
in other
Other income (expense), net, consists primarily of
interest income earned on available cash, cash
equivalents and short-term investments, changes in
the value of assets associated with our deferred
compensation plan and rental income from leasing
excess space in our Silicon Valley facility. The
income (expense), net, was
decrease
primarily due to the change in value of assets
associated with our deferred compensation plan.
During fiscal 2015, other income, net decreased
$2,850,000 with a corresponding decrease to deferred
compensation expense as compared to fiscal 2014.
This change consisted of a decrease in the value of
the plan assets of $325,000 during fiscal 2015 as
compared to an increase in the value of the plan
assets of $2,525,000 during fiscal 2014.
Other operating expenses include facilities-related
costs, technical materials, computer-related expenses
and depreciation and amortization of property,
equipment and leasehold improvements. The increase
in other operating expenses was primarily due to an
increase in computer expense of $274,000, an
increase in office expense of $167,000, an increase in
technical materials of $150,000, and
several
individually
increases, which were
associated with the increase in technical full-time
equivalent employees and
in our
corporate infrastructure. We expect other operating
expense to grow as we selectively add new talent and
make investments in our corporate infrastructure.
insignificant
investments
Reimbursable Expenses
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
Reimbursable expenses
Percentage of
$ 17,127
$ 15,495
10.5%
total revenues
5.5%
5.1%
The increase in reimbursable expenses was primarily
due to an increase in project-related costs in our
materials & corrosion engineering practice within our
Engineering and Other Scientific segment. The
amount of reimbursable expenses will vary from year
to year depending on the nature of our projects.
25
Income Taxes
(In thousands except
percentages)
Fiscal Years
2015
2014
Percent
Change
Income taxes
Percentage of
total revenues
Effective tax rate
$ 27,534 $ 27,264
1.0%
8.8%
38.7%
8.9%
40.1%
The decrease in our effective tax rate was due to an
increase in foreign earnings in jurisdictions with
lower income tax rates and a decrease in state income
taxes.
FISCAL YEARS ENDED JANUARY 2, 2015,
AND JANUARY 3, 2014
Revenues
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
Engineering
and Other Scientific $ 223,384 $ 215,972
Percentage of
3.4%
total revenues
Environmental
and Health
Percentage of
total revenues
73.3%
72.9%
81,320
80,196
1.4%
26.7%
27.1%
Total revenues
$ 304,704 $ 296,168
2.9%
The increase in revenues for our Engineering and
Other Scientific segment was due to an increase in
billable hours and an increase in billing rates partially
offset by fiscal 2014 having one less week of activity
than fiscal 2013. During fiscal 2014, billable hours
for this segment increased by 2.1% to 794,000 as
compared to 778,000 during fiscal 2013. The increase
was due to demand for services in our materials &
engineering,
corrosion
polymer science & materials chemistry, human
factors, and construction consulting practices.
Utilization was 74% for both fiscal 2014 and fiscal
2013. Technical full-time equivalents increased 4.6%
to 519 for fiscal 2014 from 496 for fiscal 2013 due to
our recruiting and retention efforts.
engineering, biomedical
The increase in revenues from our Environmental and
Health segment was due to an increase in billable
hours and an increase in billing rates partially offset
by fiscal 2014 having one less week of activity than
fiscal 2013. During fiscal 2014, billable hours for this
segment increased by 1.3% to 313,000 as compared
to 309,000 during fiscal 2013. Utilization increased
to 68% for fiscal 2014 as compared to 65% for fiscal
2013. The increase in billable hours and utilization
was due
in our
to demand for our services
environmental sciences and ecological sciences
practices. Technical full-time equivalents were 222
during fiscal 2014 as compared to 223 for fiscal
2013.
Compensation and Related Expenses
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
Compensation
and related expenses
Percentage of
total revenues
$ 183,533 $ 184,084
(0.3)%
60.2%
62.2%
The decrease in compensation and related expenses
during fiscal 2014 was due to a change in the value of
assets associated with our deferred compensation
plan partially offset by an increase in payroll and
bonus expense. During
fiscal 2014, deferred
compensation expense decreased $3,519,000 with a
corresponding decrease to other income (expense),
net, as compared with the prior year due to the
change in value of assets associated with our deferred
compensation plan. This decrease consisted of an
increase in the value of the plan assets of $2,525,000
during fiscal 2014 as compared to an increase in the
value of the plan assets of $6,044,000 during fiscal
2013. Payroll increased $1,657,000 due to a 3.1%
increase in technical full-time equivalent employees
and the impact of our annual salary increases
partially offset by fiscal 2014 having one less week
of activity than fiscal 2013. Bonuses increased
$1,503,000 due to a corresponding increase in
profitability.
Other Operating Expenses
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
Other operating
expenses
Percentage of
total revenues
$ 26,285
$ 25,299
3.9%
8.6%
8.5%
Other operating expenses include facilities-related
costs, technical materials, computer-related expenses
and depreciation and amortization of property,
equipment and leasehold improvements. The increase
in other operating expenses was primarily due to an
increase in occupancy expense of $514,000 and an
in depreciation and amortization of
increase
$454,000. The increases in occupancy expense and
depreciation and amortization were due to the
continued expansion of our facilities to accommodate
26
increase
the
employees.
in
technical
full-time equivalent
Income Taxes
Reimbursable Expenses
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
Reimbursable expenses
Percentage of
$ 15,495
$ 16,125
(3.9)%
total revenues
5.1%
5.4%
The decrease in reimbursable expenses was primarily
due to a decrease in project-related costs in our
technology development practice in our Engineering
and Other Scientific segment. The amount of
reimbursable expenses will vary from year to year
depending on the nature of our projects.
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
Income taxes
Percentage of
total revenues
Effective tax rate
$ 27,264 $ 25,305
7.7%
8.9%
40.1%
8.5%
39.6%
income
taxes was due
in
increase
to a
increase
The
corresponding
income. The
increase in our effective tax rate was due to
manufacturing deductions claimed in fiscal 2013.
These manufacturing deductions were non-recurring.
in pre-tax
LIQUIDITY AND CAPITAL RESOURCES
General and Administrative Expenses
(In thousands)
2015
Fiscal Years
2014
2013
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
General and
administrative expenses $ 15,842
Percentage of
$ 14,714
7.7%
total revenues
5.2%
5.0%
The increase in general and administrative expenses
during fiscal 2014 was primarily due to an increase in
travel and meals of $561,000 and an increase in
contributions of $506,000. The increase in travel and
meals was due to a firm-wide managers’ meeting
held during the third quarter of 2014.
Other Income (Expense), Net
(In thousands except
percentages)
Fiscal Years
2014
2013
Percent
Change
Other income
and expense, net
Percentage of
total revenues
$ 4,416
$ 7,999
(44.8)%
1.4%
2.7%
Other income (expense), net, consists primarily of
interest income earned on available cash, cash
equivalents and short-term investments, changes in
the value of assets associated with our deferred
compensation plan and rental income from leasing
excess space in our Silicon Valley facility. The
decrease
income (expense), net, was
primarily due to the change in value of assets
associated with our deferred compensation plan. This
change consisted of an increase in the value of the
plan assets of $2,525,000 during fiscal 2014 as
compared to an increase in the value of the plan
assets of $6,044,000 during fiscal 2013.
in other
Net cash provided
by (used in):
Operating activities $ 60,489 $ 48,252 $ 61,792
Investing activities
$ (27,035) $ 2,435 $ (18,880)
Financing activities $ (36,916) $ (43,128) $ (33,769)
invest our excess cash
We financed our business in fiscal 2015 through
available cash and cash flows from operating
activities. We
in cash
equivalents and short-term
investments. As of
January 1, 2016, our cash, cash equivalents and short-
term investments were $171,593,000 compared to
$154,403,000 at January 2, 2015. We believe our
existing balances of cash, cash equivalents and short-
term investments will be sufficient to satisfy our
expenditures,
working
outstanding
repurchases,
dividends and other liquidity requirements over at
least the next 12 months.
capital
stock
commitments,
capital
needs,
Generally, our net cash provided by operating
activities is used to fund our day-to-day operating
activities. First quarter operating cash requirements
are generally higher due to payment of our annual
bonuses accrued during the prior year. Our largest
source of operating cash flows is cash collections
from our clients. Our primary uses of cash from
operating
employee-related
are
expenditures, leased facilities, taxes, and general
operating expenses including marketing and travel.
activities
for
Net cash provided by operating activities was $60.5
million for fiscal 2015 as compared to $48.3 million
and $61.8 million
fiscal 2014 and 2013,
respectively. The increase in net cash provided by
operating activities during fiscal 2015 as compared to
in
27
into an
On December 14, 2015, we entered
agreement to purchase a 1.1 acre parcel of land with
27,000 square feet of warehouse storage space in
Menlo Park, California adjacent to our owned office
and lab facilities. We have leased this warehouse
storage space for the past 25 years. The total
purchase price is $8,250,000. On February 18, 2016
all of the purchase contingencies were released and
we expect the sale to close in the next year.
We maintain nonqualified deferred compensation
plans for the benefit of a select group of highly
compensated employees. Vested amounts due under
the plans of $40,322,000 were recorded as a long-
term liability on our consolidated balance sheet at
January 1, 2016. Company assets that are earmarked
to pay benefits under the plans are held in a rabbi
trust and are subject to the claims of our creditors. As
of January 1, 2016, invested amounts under the plans
of $36,522,000 were recorded as a long-term asset on
our consolidated balance sheet.
law, we have
As permitted under Delaware
agreements whereby we indemnify our officers and
directors for certain events or occurrences while the
officer or director is, or was serving, at our request in
such capacity. The indemnification period covers all
pertinent events and occurrences during the officer’s
or director’s
lifetime. The maximum potential
amount of future payments we could be required to
make under these indemnification agreements is
unlimited; however, we have director and officer
insurance coverage that reduces our exposure and
enables us to recover a portion of any future amounts
paid. We believe the estimated fair value of these
indemnification agreements in excess of applicable
insurance coverage is minimal.
Off-Balance Sheet Arrangements
As part of our ongoing business, we do not engage in
transactions
relationships with
generate
unconsolidated entities or financial partnerships, such
as entities often referred to as structured finance or
special purpose entities.
that
fiscal 2014 was primarily due to an increase in cash
receipts from clients. The decrease in net cash
provided by operating activities during fiscal 2014, as
compared to fiscal 2013, was due to a decrease in
cash receipts from clients. Accounts receivable
increased during fiscal 2014 as compared to a
decrease during fiscal 2013.
During fiscal 2015, 2014 and 2013, net cash provided
by (used in) investing activities was primarily related
to the purchase and sale or maturity of short-term
investments.
The decrease in net cash used in financing activities
during fiscal 2015, as compared to fiscal 2014, was
due to a decrease in repurchases of our common
stock partially offset by an increase in our quarterly
dividend payments. The increase in net cash used in
financing activities during fiscal 2014, as compared
to fiscal 2013, was due to an increase in our quarterly
dividend payments and an increase in repurchases of
our common stock.
We expect to continue our investing activities,
including capital expenditures. Furthermore, cash
reserves may be used to repurchase common stock
under our stock repurchase programs, pay dividends,
procure facilities and equipment or strategically
acquire professional
are
service
complementary to our business.
firms
that
The following schedule summarizes our principal
contractual commitments as of January 1, 2016 (in
thousands):
Fiscal
year
2016
2017
2018
2019
2020
Thereafter
Operating
lease
Purchase
commitments Obligations
$ 7,919
5,780
3,221
2,062
1,151
1,444
$ 21,577
$ 432
-
-
-
-
-
$ 432
Total
$ 8,351
5,780
3,221
2,062
1,151
1,444
$ 22,009
The above table does not reflect unrecognized tax
benefits of $1,878,000, the timing of which is
uncertain. Refer to “Note 7: Income Taxes” of the
Notes to Consolidated Financial Statements for
additional discussion on unrecognized tax benefits.
28
Non-GAAP Financial Measures
Regulation G, conditions for use of Non-Generally Accepted Accounting Principles (“Non-GAAP”) financial
measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial
information. Generally, a Non-GAAP financial measure is a numerical measure of a company's performance,
financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in
the most directly comparable measure calculated and presented in accordance with GAAP. We closely monitor two
financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We
define EBITDA as net income before income taxes, interest income, depreciation and amortization. We define
EBITDAS as EBITDA before stock-based compensation. We regard EBITDA and EBITDAS as useful measures of
operating performance and cash flow to complement operating income, net income and other GAAP financial
performance measures. Additionally, management believes that EBITDA and EBITDAS provide meaningful
comparisons of past, present and future operating results. These measures are used to evaluate our financial results,
develop budgets and determine employee compensation. These measures, however, should be considered in addition
to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance
prepared in accordance with GAAP. A reconciliation of the Non-GAAP measures to the nearest comparable GAAP
measure is set forth below.
The following table shows EBITDA as a percentage of revenues before reimbursements for fiscal years 2015, 2014
and 2013:
(in thousands, except percentages)
2015
Fiscal Years
2014
2013
Revenues before reimbursements
$ 295,705
$ 289,209
$ 280,043
EBITDA
$ 76,405
$ 73,219
$ 68,769
EBITDA as a % of revenues
before reimbursements
25.8%
25.3%
24.6%
The increase in EBITDA as a percentage of revenues before reimbursements for fiscal 2015 as compared to fiscal
2014 was primarily due to the increase in revenues before reimbursements and low expense growth.
The increase in EBITDA as a percentage of revenues before reimbursements for fiscal 2014 as compared to fiscal
2013 was primarily due to an increase in utilization. Utilization for fiscal 2014 increased to 72% as compared to
71% during fiscal 2013 due to strong demand for our consulting services from a diverse set of clients for both
reactive and proactive projects and our management of headcount to align resources with anticipated demand.
29
The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net
income, for fiscal 2015, 2014 and 2013:
(in thousands)
2015
Fiscal Years
2014
2013
Net Income
$
43,599
$
40,701
$
38,640
Add back (subtract):
Income taxes
Interest income, net
Depreciation and
amortization
EBITDA
Stock-based compensation
27,534
(207)
5,479
76,405
12,959
27,264
(150)
5,404
73,219
13,079
25,305
(127)
4,951
68,769
13,168
EBITDAS
$
89,364
$
86,298
$
81,937
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk
Exponent is exposed to interest rate risk associated
with our balances of cash, cash equivalents and short-
term investments. We manage our interest rate risk
by maintaining an investment portfolio primarily
consisting of debt instruments with high credit
relatively short average effective
quality and
maturities
the Company’s
investment policy. The maximum effective maturity
of any issue in our portfolio of cash equivalents and
short-term investments is 3 years and the maximum
average effective maturity of the portfolio cannot
exceed 12 months.
in accordance with
If interest rates were to instantaneously increase or
decrease by 100 basis points, the change in the fair
value of our portfolio of cash equivalents and short-
term investments would not have a material impact
on our financial statements. We do not use derivative
financial instruments in our investment portfolio.
Notwithstanding our efforts to manage interest rate
risk, there can be no assurances that we will be
adequately protected against the risks associated with
interest rate fluctuations.
We have foreign currency risk related to our revenues
and expenses denominated in currencies other than
the U.S. dollar, primarily the British Pound, the Euro,
and the Chinese Yuan. Accordingly, changes in
exchange rates may negatively affect the revenues
and net income of our foreign subsidiaries as
expressed in U.S. dollars. Our foreign currency risk is
primarily in our Environmental and Health operating
segment.
At January 1, 2016, we had net assets of
functional
approximately $5.9 million with a
the British Pound, net assets of
currency of
approximately $2.5 million with a
functional
currency of the Euro, and net assets of approximately
$2.5 million with a functional currency of the
Chinese Yuan associated with our operations in the
United Kingdom, Germany, and China, respectively.
We also have foreign currency risk related to foreign
transactions and monetary assets and
currency
liabilities denominated in currencies that are not the
functional currency. We have experienced and will
continue to experience fluctuations in our net income
as a result of gains (losses) on these foreign currency
transactions and the re-measurement of monetary
assets and liabilities. At January 1, 2016, we had net
assets denominated in the non-functional currency of
approximately $3.0 million. As such, a ten percent
change in the value of the local currency would result
in $0.3 million foreign currency gain or loss in our
results of operations.
We do not use foreign exchange contracts to hedge
any foreign currency exposures. To date, the impacts
of foreign currency exchange rate changes on our
consolidated revenues and consolidated net income
30
have not been material. However, our continued
international expansion increases our exposure to
exchange rate fluctuations and as a result such
fluctuations could have a significant impact on our
future results of operations.
Item 8. Financial Statements and Supplementary
Data
See Item 15 of this Form 10-K for required financial
statements and supplementary data.
Item 9. Changes in and Disagreements with
Accountants on Accounting and Financial
Disclosure
None.
Item 9A. Controls and Procedures
KPMG LLP, an
independent registered public
accounting firm, has audited the internal control over
financial reporting of Exponent, Inc., as stated in
their report which is included in Part IV, Item 15 of
this Form 10-K.
(a) Conclusion Regarding the Effectiveness of
Disclosure Controls and Procedures.
Under the supervision and with the participation of
our management, including our principal executive
officer and principal financial officer, we conducted
an evaluation of our disclosure controls and
procedures, as such term is defined under Rule 13(a)-
15(e) promulgated under the Securities Exchange Act
of 1934, as amended (the “Exchange Act”). Based on
this evaluation, our principal executive officer and
our principal financial officer concluded that our
disclosure controls and procedures were effective as
of the end of the period covered by this annual report.
(b) Management’s Report on Internal Control
Over Financial Reporting.
is designed
Our management is responsible for establishing and
maintaining adequate internal control over financial
reporting, as such term is defined in Exchange Act
Rule 13a-15(f). Our internal control over financial
reasonable
reporting
assurance, but not absolute assurance, regarding the
reliability of financial reporting and the preparation
of financial statements in accordance with U.S.
generally accepted accounting principles. There are
inherent limitations to the effectiveness of any system
of internal control over financial reporting. These
limitations include the possibility of human error, the
to provide
that
limitations, our
in conditions, or
circumvention or overriding of the system and
reasonable resource constraints. Because of
its
inherent
internal control over
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk
that controls may become inadequate because of
changes
the degree of
compliance with the policies or procedures may
deteriorate. Under the supervision and with the
participation of our management, including our
principal executive officer and principal financial
officer, we conducted an evaluation of
the
effectiveness of our internal control over financial
reporting based on the framework in Internal Control
the
- Integrated Framework (2013)
issued by
Committee of Sponsoring Organizations of
the
Treadway Commission. Based on our evaluation
under the framework in Internal Control - Integrated
Framework (2013), our management concluded that
our internal control over financial reporting was
effective at the reasonable assurance level as of
January 1, 2016.
(c) Changes in Internal Control Over Financial
Reporting.
There have not been any changes in the Company’s
internal control over financial reporting, as such term
is defined in Rule 13a-15(f) under the Exchange Act,
during the most recent fiscal quarter that have
materially affected, or are reasonably likely to
materially affect, the Company’s internal control over
financial reporting.
Item 9B. Other Information
None.
PART III
Certain information required by Part III is omitted
from this Annual Report on Form 10-K. We intend to
file a definitive Proxy Statement pursuant
to
Regulation 14A not later than 120 days after the end
of the fiscal year covered by this Annual Report on
Form 10-K, and certain information included therein
is incorporated herein by reference.
Item 10. Directors, Executive Officers and
Corporate Governance
The information required by this item is incorporated
by reference to the Company’s definitive Proxy
Statement
its 2016 Annual Meeting of
Stockholders (the "Proxy Statement"). See Item 1 for
for
31
information regarding the executive officers of the
Company.
table on the Company’s share repurchases in Part II,
Item 5 above.
Item 11. Executive Compensation
The information required by this item is incorporated
by reference to the Proxy Statement.
Item 12. Security Ownership of Certain Beneficial
and Related
Owners
Stockholder Matters
and Management
The information required by this item is incorporated
by reference to the Proxy Statement. See also the
Item 13. Certain Relationships and Related
Transactions, and Director Independence
The information required by this item is incorporated
by reference to the Proxy Statement.
Item 14. Principal Accounting Fees and Services
The information required by this item is incorporated
by reference to the Proxy Statement.
32
PART IV
Item 15. Exhibits, Financial Statement Schedules
(a) The following documents are filed as part of this Annual Report on Form 10-K.
1. Financial Statements
The following consolidated financial statements of Exponent, Inc. and subsidiaries and the
Report of Independent Registered Public Accounting Firm are included herewith:
Report of Independent Registered Public Accounting Firm
Consolidated Statements of Income for the years ended January 1, 2016,
January 2, 2015 and January 3, 2014
Consolidated Statements of Comprehensive Income for the years ended
January 1, 2016, January 2, 2015 and January 3, 2014
Consolidated Balance Sheets as of January 1, 2016 and January 2, 2015
Consolidated Statements of Stockholders’ Equity for the years ended January 1, 2016,
January 2, 2015 and January 3, 2014
Consolidated Statements of Cash Flows for the years ended January 1, 2016,
January 2, 2015 and January 3, 2014
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Page
34
36
37
38
39
41
42
The following financial statement schedule of Exponent, Inc. for the years ended January 1, 2016,
January 2, 2015 and January 3, 2014 is filed as part of this Report and should be read in conjunction with the
consolidated financial statements of Exponent, Inc. and subsidiaries:
Schedule II - Valuation and Qualifying Accounts
Page
61
Schedules other than those listed above have been omitted since they are either not required, not applicable,
or the information is otherwise included elsewhere in the report.
3. Exhibits
(a)
Exhibit Index
Page
63
33
Report of Independent Registered Public Accounting Firm
The Board of Directors and Stockholders
Exponent, Inc.:
We have audited the accompanying consolidated balance sheets of Exponent, Inc. and subsidiaries as of January 1,
2016 and January 2, 2015, and the related consolidated statements of income, comprehensive income, stockholders’
equity, and cash flows for each of the years in the three-year period ended January 1, 2016. In connection with our
audits of the consolidated financial statements, we have also audited the accompanying financial statement schedule II.
We also have audited the internal control over financial reporting of Exponent, Inc. as of January 1, 2016, based on
Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO). The management of Exponent, Inc. is responsible for these consolidated financial
statements, for maintaining effective internal control over financial reporting, and for its assessment of the
effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on
Internal Control over Financial Reporting, appearing under Item 9A(b). Our responsibility is to express an opinion on
these consolidated financial statements and financial statement schedule II, and an opinion on the internal control over
financial reporting of Exponent, Inc. based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board
(United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about
whether the financial statements are free of material misstatement and whether effective internal control over financial
reporting was maintained in all material respects. Our audits of the consolidated financial statements included
examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and evaluating the overall financial
statement presentation. Our audit of internal control over financial reporting included obtaining an understanding of
internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating
the design and operating effectiveness of internal control based on the assessed risk. Our audits also included
performing such other procedures as we considered necessary in the circumstances. We believe that our audits provide
a reasonable basis for our opinions.
A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding
the reliability of financial reporting and the preparation of financial statements for external purposes in accordance
with generally accepted accounting principles. A company’s internal control over financial reporting includes those
policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly
reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance with generally
accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance
with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding
prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have
a material effect on the financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements.
Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become
inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may
deteriorate.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of Exponent, Inc. and subsidiaries as of January 1, 2016 and January 2, 2015, and the results of their
operations and their cash flows for each of the years in the three-year period ended January 1, 2016, in conformity
with U.S. generally accepted accounting principles. Also in our opinion the related financial statement schedule, when
considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material
respects, the information set forth therein. Also in our opinion, Exponent, Inc. and subsidiaries maintained, in all
34
material respects, effective internal control over financial reporting as of January 1, 2016, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission (COSO).
/s/ KPMG LLP
San Francisco, California
February 26, 2016
35
Exponent, Inc. and Subsidiaries
Consolidated Statements of Income
(In thousands, except per share data)
Revenues:
Revenues before reimbursements
Reimbursements
Revenues
Operating expenses:
Compensation and related expenses
Other operating expenses
Reimbursable expenses
General and administrative expenses
Operating income
Other income:
Interest income
Miscellaneous income, net
Income before income taxes
Provision for income taxes
Net income
Net income per share:
Basic
Diluted
Shares used in per share computations:
Basic
Diluted
2015
Fiscal Years
2014
2013
$ 295,705
17,127
312,832
$ 289,209
15,495
304,704
$ 280,043
16,125
296,168
184,502
26,975
17,127
15,295
243,899
68,933
183,533
26,285
15,495
15,842
241,155
63,549
184,084
25,299
16,125
14,714
240,222
55,946
207
1,993
71,133
150
4,266
67,965
127
7,872
63,945
27,534
$ 43,599
27,264
$ 40,701
25,305
$ 38,640
$
$
1.64
1.60
$
$
1.51
1.47
$
$
1.42
1.38
26,606
27,298
26,910
27,666
27,232
28,050
Cash dividends declared per common share
$
0.60
$
0.50
$
0.30
See accompanying notes to the Consolidated Financial Statements.
36
Exponent, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive income (loss), net of tax:
Foreign currency translation adjustments, net of tax
of $(38), $304, and $(187), respectively
Unrealized gain (loss) arising during the period
on investments, net of tax of $53, $(3), and
$10, respectively
Comprehensive income
See accompanying notes to the Consolidated Financial Statements.
2015
Fiscal Years
2014
2013
$ 43,599
$ 40,701
$ 38,640
(822)
(1,017)
373
(79)
$ 42,698
4
$ 39,688
(14)
$ 38,999
37
Exponent, Inc. and Subsidiaries
Consolidated Balance Sheets
(In thousands, except par value)
Assets
Current assets:
Cash and cash equivalents
Short-term investments
Accounts receivable, net of allowance for contract losses and
doubtful accounts of $2,792 and $3,386, respectively
Prepaid expenses and other assets
Total current assets
Property, equipment and leasehold improvements, net
Goodwill
Deferred income taxes
Deferred compensation plan assets
Other assets
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities
Accrued payroll and employee benefits
Deferred revenues
Total current liabilities
Other liabilities
Deferred compensation
Deferred rent
Total liabilities
Commitments and contingencies (Note 12)
Stockholders’ equity:
Preferred stock, $.001 par value; 2,000 shares authorized;
no shares outstanding
Common stock, $.001 par value; 80,000 shares authorized;
32,853 shares issued
Additional paid-in capital
Accumulated other comprehensive income (loss)
Investment securities, available for sale
Foreign currency translation adjustments
Retained earnings
Treasury stock, at cost: 7,133 and 7,111 shares held, respectively
Total stockholders’ equity
See accompanying notes to the Consolidated Financial Statements.
38
January 1,
2016
January 2,
2015
$ 125,751
45,842
$ 129,490
24,913
88,577
12,616
272,786
28,485
8,607
39,456
36,522
1,651
$ 387,507
$ 10,580
62,092
7,802
80,474
1,913
40,322
1,994
124,703
86,368
14,727
255,498
28,264
8,607
35,614
36,195
1,121
$ 365,299
$
8,935
62,184
8,226
79,345
1,862
37,745
2,059
121,011
-
-
33
179,816
33
160,208
(65)
(1,740)
(1,805)
269,259
(184,499)
262,804
$ 387,507
14
(918)
(904)
246,961
(162,010)
244,288
$ 365,299
Exponent, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
Balance at
December 28, 2012
Employee stock
purchase plan
Exercise of stock options,
net of swaps
Excess tax benefit for
equity incentive plans
Amortization of unrecognized
stock-based compensation
Purchase of treasury shares
Foreign currency translation
adjustments
Grant of restricted stock units
to settle accrued bonus
Settlement of restricted
stock units
Unrealized loss
on investments
Dividends and
dividend equivalent rights
Net income
Balance at
January 3, 2014
Employee stock
purchase plan
Exercise of stock options,
net of swaps
Excess tax benefit for
equity incentive plans
Amortization of unrecognized
stock-based compensation
Purchase of treasury shares
Foreign currency translation
adjustments
Grant of restricted stock units
to settle accrued bonus
Settlement of restricted
stock units
Unrealized gain
on investments
Dividends and
dividend equivalent rights
Net income
Balance at
January 2, 2015
Additional
Accumulated
other
Common Stock
Shares Amount
paid-in
capital
Treasury Stock
comprehensive Retained
income (loss) earnings Shares Amount
Total
32,853 $
33 $123,676
$
(250)
$ 206,057
6,442 $ (113,087) $ 216,429
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
648
(302)
4,267
7,107
-
-
-
-
-
-
-
373
-
-
5,807
(273)
-
303
-
-
(38)
518
1,166
(1,031)
(122)
1,627
294
-
-
-
-
-
-
876
-
-
-
4,267
-
(25,011)
7,107
(25,011)
-
-
373
5,807
(9,352)
(431)
3,597
(6,028)
(14)
-
-
-
(8,274)
38,640
-
-
-
-
-
-
(14)
(7,971)
38,640
32,853 $
33 $141,233
$
109
$ 226,040
6,727 $ (132,356) $ 235,059
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
810
67
5,100
6,792
-
-
-
-
-
-
-
(1,017)
6,008
(343)
-
541
-
-
-
4
-
-
-
-
-
-
-
-
(32)
(84)
-
-
850
-
-
337
1,147
893
960
-
5,100
-
(30,921)
6,792
(30,921)
-
-
(1,017)
6,008
(6,050)
(350)
37
(6,356)
-
(13,730)
40,701
-
-
-
-
-
-
4
(13,189)
40,701
32,853 $
33 $160,208
$
(904)
$ 246,961
7,111 $ (162,010) $ 244,288
See accompanying notes to the Consolidated Financial Statements.
39
(In thousands)
Balance at
January 2, 2015
Employee stock
purchase plan
Exercise of stock options,
net of swaps
Excess tax benefit for
equity incentive plans
Amortization of unrecognized
stock-based compensation
Purchase of treasury shares
Foreign currency translation
adjustments
Grant of restricted stock units
to settle accrued bonus
Settlement of restricted
stock units
Unrealized loss
on investments
Dividends and
dividend equivalent rights
Net income
Balance at
January 1, 2016
Additional
Accumulated
other
Common Stock
Shares Amount
paid-in
capital
comprehensive Retained
Treasury Stock
income (loss) earnings Shares Amount
Total
32,853 $
33 $160,208
$
(904)
$ 246,961
7,111 $ (162,010) $ 244,288
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
836
(94)
6,396
6,618
-
-
-
-
-
-
-
(822)
-
-
6,169
(975)
-
658
-
-
-
-
-
-
-
(27)
350
1,186
(150)
1,922
1,828
-
-
530
-
-
-
6,396
-
(23,314)
6,618
(23,314)
-
-
(822)
6,169
(4,943)
(331)
(1,447)
(7,365)
(79)
-
-
-
(16,358)
43,599
-
-
-
-
-
-
(79)
(15,700)
43,599
32,853 $
33 $179,816
$ (1,805)
$ 269,259
7,133 $ (184,499) $ 262,804
See accompanying notes to the Consolidated Financial Statements.
40
Exponent, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
(In thousands)
Cash flows from operating activities:
Net income
Adjustments to reconcile net income to net cash
provided by operating activities:
2015
Fiscal Years
2014
2013
$ 43,599
$ 40,701
$ 38,640
Depreciation and amortization of property, equipment
and leasehold improvements
5,479
5,404
4,951
Amortization of premiums and accretion of discounts
on short-term investments
Deferred rent expense
Provision for doubtful accounts and contract losses
Stock-based compensation
Deferred income tax provision
Excess tax benefit for equity incentive plans
Changes in operating assets and liabilities:
Accounts receivable
Prepaid expenses and other assets
Accounts payable and accrued liabilities
Accrued payroll and employee benefits
Deferred revenues
Net cash provided by operating activities
Cash flows from investing activities:
Capital expenditures
Purchase of short-term investments
Maturity of short-term investments
Sale of short-term investments
Net cash (used in) provided by
investing activities
Cash flows from financing activities:
Excess tax benefit for equity incentive plans
Payroll taxes for restricted stock units
Repurchase of common stock
Exercise of share-based payment awards
Dividends and dividend equivalent rights
Net cash used in financing activities
595
(65)
929
12,959
(3,827)
(6,396)
(3,138)
421
7,718
2,639
(424)
60,489
885
(273)
1,718
13,079
(6,077)
(5,100)
(11,106)
(5,320)
6,142
6,744
1,455
48,252
340
800
1,705
13,168
(3,398)
(4,267)
6,676
(4,596)
3,002
4,665
106
61,792
(5,379)
(43,946)
22,290
-
(4,947)
(5,260)
11,642
1,000
(6,226)
(33,422)
19,190
1,578
(27,035)
2,435
(18,880)
6,396
(7,365)
(23,314)
3,014
(15,647)
(36,916)
5,100
(6,356)
(30,921)
2,107
(13,058)
(43,128)
4,267
(6,402)
(25,519)
1,812
(7,927)
(33,769)
Effect of foreign currency exchange rates on cash
and cash equivalents
(277)
(1,017)
537
Net (decrease) increase in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
(3,739)
129,490
$ 125,751
6,542
122,948
$ 129,490
9,680
113,268
$ 122,948
See accompanying notes to the Consolidated Financial Statements.
41
Exponent, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
Note 1: Summary of Significant Accounting
Policies
its
Inc.
Basis of Presentation
Exponent,
subsidiaries
together with
(collectively referred to as the “Company”) is a
science and engineering consulting firm that provides
solutions to complex problems. The accompanying
consolidated
the
accounts of the Company and its wholly owned
intercompany
subsidiaries.
transactions and balances have been eliminated in
consolidation.
statements
significant
financial
include
All
The Company operates on a 52-53 week fiscal year
with each year ending on the Friday closest to
December 31st. Fiscal periods 2015 and 2014
included 52 weeks of activity and ended on January
1, 2016 and January 2, 2015, respectively. Fiscal
period 2013 included 53 weeks of activity and ended
on January 3, 2014. Fiscal period 2016 will end on
December 30, 2016.
incorporation
Stock Split
On May 28, 2015, the Company’s stockholders
approved an amendment to the Company’s certificate
of
the number of
to (i) amend
authorized shares of common stock to 80,000,000,
(ii) amend the number of authorized shares of
preferred stock to 2,000,000, and (iii) effect a two-
for-one stock split. As a result of the stock split, each
shareholder of record at the close of business on May
28, 2015, received one additional share of common
stock. Restricted stock unit awards and stock option
awards have also been adjusted to reflect the two-for-
one stock split. For periods prior to the stock split, all
the Company’s
share and per share data
consolidated financial statements and related notes
have been retroactively adjusted to reflect the stock
split.
in
Use of Estimates
The preparation of financial statements in conformity
with accounting principles generally accepted in the
United States of America requires management to
make estimates and assumptions that affect the
reported amounts of assets and
liabilities and
disclosure of contingent assets and liabilities at the
date of the financial statements and the reported
amounts of revenues and expenses during the period.
Actual results could differ from those estimates.
42
Revenue Recognition
The Company derives its revenues primarily from
professional fees earned on consulting engagements,
fees earned for the use of its equipment and facilities,
and reimbursements for outside direct expenses
associated with the services that are billed to its
clients. Any taxes assessed on revenues relating to
services provided to its clients are recorded on a net
basis.
The Company reports service revenues net of
subcontractor fees. The Company has determined that
it is not the primary obligor with respect to these
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;
•
•
•
•
•
•
the Company does not believe that there are
reliable milestones to measure progress
toward completion;
if the contract is terminated 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.
Product revenue is recognized when both title and
risk of loss transfer to the customer and customer
acceptance has occurred, provided that no significant
obligations remain.
Gross revenues and reimbursements for the fiscal
years ended January 1, 2016, January 2, 2015 and
January 3, 2014, respectively, were:
(In thousands)
Fiscal Years
2014
2013
2015
Gross revenues
Less: Subcontractor fees
Revenues
$ 320,404 $ 313,723 $ 302,742
6,574
312,832 304,704 296,168
7,572
9,019
Reimbursements:
Out-of-pocket
reimbursements
5,967
5,862
6,619
Other outside
direct expenses
Revenues before
11,160
9,506
17,127 15,495 16,125
9,633
reimbursements
$ 295,705 $ 289,209 $ 280,043
Significant management judgments and estimates
must be made in connection with the revenues
recognized
in any accounting period. These
judgments and estimates include an assessment of
collectability and, for fixed-price engagements, an
estimate as to the total effort required to complete the
project. If the Company made different judgments or
utilized different estimates, the amount and timing of
its revenue for any period could be materially
different.
All consulting contracts are subject to review by
management, which requires a positive assessment of
43
the collectability of contract amounts. If, during the
course of the contract, the Company determines that
collection of revenue is not reasonably assured, it
does not recognize the revenue until its collection
becomes
those
reasonably assured, which
situations would generally be upon receipt of cash.
The Company assesses collectability based on a
number of factors, including past transaction history
with the client, as well as the credit-worthiness of the
client. Losses on fixed-price contracts are recognized
during the period in which the loss first becomes
evident. Contract losses are determined to be the
amount by which the estimated total costs of the
contract exceeds the total fixed price of the contract.
in
Foreign Currency Translation
The Company translates the assets and liabilities of
foreign subsidiaries, whose functional currency is the
local currency, at exchange rates in effect at the
balance sheet date. Revenues and expenses are
translated at the average rates of exchange prevailing
during the year. The adjustment resulting from
translating the financial statements of such foreign
subsidiaries
in accumulated other
comprehensive income, which is reflected as a
separate component of stockholders’ equity.
included
is
Cash Equivalents
Cash equivalents consist of highly liquid investments
such as money market mutual funds, commercial
paper and debt securities with original remaining
maturities of three months or less from the date of
purchase.
Short-term Investments
Short-term investments consist of debt securities
classified as available-for-sale and are carried at their
fair value as of the balance sheet date. Short-term
investments generally mature between three months
and three years from the purchase date. Investments
with maturities beyond one year are classified as
short-term based on their highly liquid nature and
because
represent
investments readily available for current operations.
such marketable
securities
The amortized cost of securities is adjusted for
amortization of premiums and accretion of discounts
to maturity. Such amortization is included in interest
income. Realized gains or losses are determined on
the specific identification method and are reflected in
other income. Net unrealized gains and losses are
recorded
other
in
comprehensive income except for unrealized losses
that are deemed to be other-than-temporary, which
are reflected in net income.
accumulated
directly
investments
Investments are reviewed on a regular basis to
evaluate whether or not any security has experienced
an other-than temporary decline in fair value. When
assessing
for other-than-temporary
declines in fair value, the Company considers the
significance of the decline in value as a percentage of
the original cost, how long the market value of the
investment has been less than its original cost, any
news that has been released specific to the investee,
and the Company’s intent to sell, or whether it is
more likely than not it will be required to sell the
investment before recovery of the investment’s cost
basis.
Allowances for Doubtful Accounts and Contract
Losses
The Company maintains allowances for estimated
losses resulting from the inability of customers to
meet their financial obligations or for disputes that
affect the Company’s ability to fully collect amounts
due. In circumstances where the Company is aware
of a specific customer’s inability to meet its financial
obligations or aware of a dispute with a specific
customer, a specific allowance is recorded to reduce
the net recognized receivable to the amount the
Company reasonably believes will be collected. For
recognizes
all other customers
the Company
for doubtful accounts based upon
allowances
concentration,
historical write-offs,
customer
economic
conditions, aging of amounts due and changes in
customer payment terms.
credit-worthiness,
customer
current
Property, Equipment and Leasehold
Improvements
Property, equipment and leasehold improvements are
stated at cost less accumulated depreciation and
amortization. Depreciation and amortization are
recognized using the straight-line method. Buildings
are depreciated over their estimated useful lives
ranging from thirty to forty years. Equipment is
depreciated over its estimated useful life, which
generally ranges from two to seven years. Leasehold
improvements are amortized over the shorter of their
estimated useful lives, generally seven years, or the
term of the related lease.
events or
long-lived assets
changes
Impairment of Long-Lived Assets
for
The Company evaluates
impairment whenever
in
circumstances indicate that the carrying amount of an
asset may not be recoverable. Recoverability of
assets to be held and used is measured by a
comparison of the carrying amount of the assets to
future undiscounted cash flows to be generated by the
asset. If such assets are considered to be impaired, the
44
impairment to be recognized is measured as the
amount by which the carrying amount of the assets
exceeds the fair value of the assets. The Company
has not recognized impairment losses on any long-
lived assets in fiscal 2015, 2014 or 2013.
the
to perform
Goodwill
The Company assesses the impairment of goodwill
annually and whenever events or changes
in
circumstances indicate that the carrying amount may
be
impaired. The Company’s annual goodwill
impairment review is completed during the fourth
quarter of each year. The Company evaluates
goodwill for each reporting unit for impairment by
assessing qualitative factors to determine whether it
is necessary
two-step goodwill
impairment test. The Company considers events and
circumstances,
to,
including but not
industry and market
macroeconomic conditions,
factors, overall
considerations,
financial
performance, changes
in management or key
personnel, changes in strategy, changes in customers,
a change in the composition or carrying amount of a
reporting unit’s net assets and changes in the price of
its common stock. If, after assessing the totality of
events or circumstances, the Company determines
that it is more likely than not that the fair value of a
reporting unit is greater than its carrying amount,
then the two-step goodwill impairment test is not
performed.
limited
cost
If the two-step goodwill test is performed, the
Company determines the existence of impairment by
assessing the fair value of the applicable reporting
unit, including goodwill, using expected future cash
flows to be generated by the reporting unit. If the
carrying amount of a reporting unit exceeds its fair
value, an impairment loss is recognized for any
excess of the carrying amount of the reporting unit’s
goodwill over the implied fair value of the goodwill.
The implied fair value of goodwill is determined by
allocating the fair value of the reporting unit in a
manner similar to a purchase price allocation. The
residual fair value after this allocation is the implied
value of the reporting unit goodwill.
the
The Company completed its annual assessment for all
reporting units with goodwill for fiscal 2015 and
the
determined, after assessing
qualitative factors, that it is more likely than not that
the fair value of each reporting unit is greater than its
respective carrying amount. Accordingly there was
no indication of impairment of goodwill for any of
the Company’s reporting units and the two-step
goodwill impairment test was not performed. The
totality of
Company did not recognize any goodwill impairment
losses in fiscal years 2015, 2014 or 2013.
Deferred Revenues
Deferred revenues represent amounts billed to clients
in advance of services provided.
Income Taxes
Income taxes are accounted for under the asset and
liability method. Deferred tax assets and liabilities
are recognized for the expected tax consequences of
temporary differences between the tax basis and the
financial reporting basis of assets and liabilities.
Deferred tax assets and liabilities are measured using
the enacted tax rates and laws in effect when the
differences are expected to reverse. The effect on
deferred tax assets and liabilities from changes in tax
rates is recognized in income in the period that
includes the enactment date. A valuation allowance is
recorded for deferred tax assets if it is more likely
than not that some portion or all of the deferred tax
assets will not be realized. U.S. income taxes are
provided on the earnings of foreign subsidiaries
unless the subsidiaries’ earnings are considered
permanently reinvested outside the U.S. An uncertain
tax position is recognized if it is determined that it is
to be sustained upon
more
examination. The tax position is measured as the
largest amount of benefit that is greater than fifty
percent
likely of being realized upon ultimate
settlement. The Company’s policy is to recognize
interest and penalties related to unrecognized tax
benefits as income tax expense. Accrued interest and
penalties are insignificant at January 1, 2016 and
January 2, 2015.
than not
likely
short-term
investments,
Fair Value of Financial Instruments
Financial instruments consist of cash and cash
equivalents,
accounts
receivable, other assets and accounts payable. Cash,
cash equivalents and short-term investments are
recorded at fair value. The carrying amount of the
Company’s accounts receivable, other assets and
accounts payable approximates their fair values due
to their short maturities.
Stock-Based Compensation
Stock-based compensation is measured at the grant
date based on the fair value of the award and is
recognized as expense on a straight-line basis over
the requisite service period of the entire award. The
Company estimates the number of awards that are
expected to vest and revises the estimate as actual
forfeitures differ from
that estimate. Estimated
forfeiture rates are based on the Company’s historical
experience.
45
Net Income Per Share
Basic per share amounts are computed using the
weighted-average number of
shares
outstanding during the period. Dilutive per share
amounts are computed using the weighted-average
shares outstanding and
number of common
potentially dilutive securities, using the treasury stock
method if their effect would be dilutive.
common
The following schedule reconciles the denominators
of the Company’s calculation for basic and diluted
net income per share:
(In thousands)
Shares used in basic
Fiscal Years
2014
2015
2013
per share computation
26,606 26,910 27,232
Effect of dilutive common
stock options outstanding
135
136
164
Effect of unvested restricted
stock units outstanding
Shares used in diluted
557
620
654
per share computation
27,298 27,666 28,050
There were no equity awards excluded from the
diluted per share calculation for the fiscal years
ended January 1, 2016, January 2, 2015 and January
3, 2014.
Recently Adopted Accounting Pronouncements
On November 20, 2015, the Financial Accounting
Standards Board (“FASB”) issued ASU No. 2015-17,
Balance Sheet Classification of Deferred Taxes,
requiring all deferred tax assets and liabilities, and
any related valuation allowance, to be classified as
noncurrent on the balance sheet. The classification
change for all deferred taxes as noncurrent simplifies
entities’ processes as it eliminates the need to
separately identify the net current and net noncurrent
deferred tax asset or liability in each jurisdiction and
allocate valuation allowances. We elected
to
retrospectively adopt the accounting standard in the
beginning of our fourth quarter of fiscal 2015. Prior
periods in our Consolidated Financial Statements
were retrospectively adjusted. Deferred income taxes
at January 2, 2015 of $11,002,000 previously
classified as current assets were reclassified as
noncurrent assets.
Recent Accounting Pronouncements Not Yet
Effective
On May 28, 2014, the FASB issued ASU No. 2014-
09, Revenue from Contracts with Customers, which
requires an entity to recognize the amount of revenue
to which it expects to be entitled for the transfer of
revenue
promised goods or services to customers. The ASU
will replace most existing revenue recognition
guidance in U.S. generally accepted accounting
principles (“GAAP”) when it becomes effective. In
August 2015 the FASB issued ASU No. 2015-14,
which deferred by one year the effective date for the
new
for entities
recognition standard
reporting under U.S. GAAP. In accordance with the
deferral, the new standard will be effective for the
Company on the first day of fiscal 2018 (December
30, 2017). Early application is permitted beginning
fiscal 2017. The standard permits the use of either the
retrospective or cumulative effect transition method.
The Company is evaluating the effect that ASU No.
2014-09 will have on its consolidated financial
statements and related disclosures. The Company has
not yet selected a transition method nor has it
determined the effect of the standard on its ongoing
financial reporting.
On February 25, 2016 the FASB issued ASU No.
2016-02, Leases, which requires lessees to recognize
most leases on their balance sheet. The new standard
will be effective for the Company on the first day of
fiscal 2019 (December 29, 2018). Early adoption is
permitted. The standard requires use of the modified
retrospective transition method, with elective relief,
which requires application of the guidance for all
periods presented. The Company is evaluating the
effect ASU No. 2016-02 will have on its consolidated
financial statements and related disclosures. The
Company has not yet selected a transition method nor
has it determined the effect of the standard on its
ongoing financial reporting.
46
Note 2: Cash, cash equivalents and short-term investments
Cash, cash equivalents and short-term investments consisted of the following as of January 1, 2016:
(In thousands)
Classified as current assets:
Cash
Cash equivalents:
Money market securities
Total cash equivalents
Total cash and cash equivalents
Short-term investments:
U.S. Agency securities
State and municipal bonds
Total short-term investments
Total cash, cash equivalents
and short-term investments
Amortized Unrealized Unrealized Estimated
Fair Value
Losses
Gains
Cost
$ 115,221
$
-
$
-
$ 115,221
10,530
10,530
125,751
41,946
4,002
45,948
-
-
-
1
-
1
-
-
-
10,530
10,530
125,751
(106)
(1)
(107)
41,841
4,001
45,842
$ 171,699
$
1
$
(107)
$ 171,593
Cash, cash equivalents and short-term investments consisted of the following as of January 2, 2015:
(In thousands)
Classified as current assets:
Cash
Cash equivalents:
Money market securities
Total cash equivalents
Total cash and cash equivalents
Short-term investments:
State and municipal bonds
Total short-term investments
Total cash, cash equivalents
and short-term investments
Amortized Unrealized Unrealized Estimated
Fair Value
Losses
Gains
Cost
$ 84,012
$
-
$
-
$ 84,012
45,478
45,478
129,490
24,890
24,890
-
-
-
27
27
-
-
-
45,478
45,478
129,490
(4)
(4)
24,913
24,913
$ 154,380
$
27
$
(4)
$ 154,403
47
Note 3: Fair Value Measurements
The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-
for-sale fixed income securities, trading fixed income and equity securities held in its deferred compensation plan
and the liability associated with its deferred compensation plan. There have been no transfers between fair value
measurement levels during the years ended January 1, 2016 and January 2, 2015. Any transfers between fair value
measurement levels would be recorded on the actual date of the event or change in circumstances that caused the
transfer. The fair value of these certain financial assets and liabilities was determined using the following inputs at
January 1, 2016 (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Money market
securities (1)
Fixed income available
for sale securities (2)
Fixed income trading
securities held in deferred
compensation plan (3)
Equity trading securities
held in deferred
compensation plan (3)
$
10,530
$
10,530
$
-
$
45,842
-
45,842
9,295
9,295
33,645
33,645
-
-
Total
$
99,312
$
53,470
$
45,842
$
Liabilities
Deferred compensation
plan (4)
46,740
46,740
Total
$
46,740
$
46,740
$
-
-
$
-
-
-
-
-
-
-
(1) Included in cash and cash equivalents on the Company’s consolidated balance sheet.
(2) Included in short-term investments on the Company’s consolidated balance sheet.
(3) Included in other current assets and deferred compensation plan assets on the Company’s consolidated balance
sheet.
(4) Included in accrued liabilities and deferred compensation on the Company’s consolidated balance sheet.
48
The fair value of these certain financial assets and liabilities was determined using the following inputs at January 2,
2015 (in thousands):
Fair Value Measurements at Reporting Date Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Total
Assets
Money market
securities (1)
Fixed income available
for sale securities (2)
Fixed income trading
securities held in deferred
compensation plan (3)
Equity trading securities
held in deferred
compensation plan (3)
$
45,478
$
45,478
$
-
$
24,913
-
24,913
9,672
9,672
34,176
34,176
-
-
Total
$ 114,239
$
89,326
$
24,913
$
Liabilities
Deferred compensation
plan (4)
45,394
45,394
Total
$
45,394
$
45,394
$
-
-
$
-
-
-
-
-
-
-
(1) Included in cash and cash equivalents on the Company’s consolidated balance sheet.
(2) Included in short-term investments on the Company’s consolidated balance sheet.
(3) Included in other current assets and deferred compensation plan assets on the Company’s consolidated balance
sheet.
(4) Included in accrued liabilities and deferred compensation on the Company’s consolidated balance sheet.
Fixed income available-for-sale securities as of January 1, 2016 and January 2, 2015 represent primarily obligations
of United States agencies and state and local government agencies. Fixed income and equity trading securities
represent mutual funds held in the Company’s deferred compensation plan. See Note 11 for additional information
about the Company’s deferred compensation plan.
The following table summarizes the cost and estimated fair value of short-term fixed income securities classified as
short-term investments based on remaining effective maturities as of January 1, 2016:
(In thousands)
Due within one year
Due between one and two years
Total
Amortized
Cost
$
$
19,948
26,000
45,948
Estimated
Fair Value
$ 19,950
25,892
$ 45,842
49
At January 1, 2016 and January 2, 2015, the Company did not have any assets or liabilities valued using significant
unobservable inputs.
The following financial instruments are not measured at fair value on the Company's consolidated balance sheet at
January 1, 2016, but require disclosure of their fair values: accounts receivable, other assets and accounts payable.
The estimated fair value of such instruments at January 1, 2016 approximates their carrying value as reported on the
consolidated balance sheet.
There were no other-than-temporary impairments or credit losses related to available-for-sale securities during the
years ended January 1, 2016, January 2, 2015 and January 3, 2014.
Note 4: Property, Equipment and Leasehold Improvements
(In thousands)
Property:
Land
Buildings
Construction in progress
Equipment:
Machinery and equipment
Office furniture and equipment
Leasehold improvements
Less accumulated depreciation and amortization
Property, equipment and leasehold improvements, net
Fiscal Years
2015
2014
$ 4,450
35,817
1,457
37,520
7,824
13,580
100,648
72,163
$ 28,485
$ 4,450
35,570
12
35,131
7,714
13,169
96,046
67,782
$ 28,264
Depreciation and amortization for the fiscal years ended January 1, 2016, January 2, 2015 and January 3, 2014, was
$5,479,000, $5,404,000 and $4,951,000, respectively.
Note 5: Goodwill
Below is a breakdown of goodwill, reported by segment as of January 1, 2016 and January 2, 2015:
(In thousands)
Goodwill
Environmental
and Health
Engineering and
Other Scientific
Total
$ 8,099
$
508
$ 8,607
There were no changes in the carrying amount of goodwill for the fiscal years ended January 1, 2016, January 2,
2015 and January 3, 2014. There were no goodwill impairments or gains or losses on disposals for any portion of the
Company’s reporting units during the fiscal years ended January 1, 2016, January 2, 2015 and January 3, 2014.
50
Note 6: Other Significant Balance Sheet
Components
(In thousands)
2015
Fiscal Years
2014
2013
Account receivable, net
(In thousands)
Billed accounts receivable
Unbilled accounts receivable
Allowance for contract losses
and doubtful accounts
Total accounts
Fiscal Years
2015
2014
$ 62,360
29,009
$ 63,331
26,423
(2,792)
(3,386)
receivable, net
$ 88,577
$ 86,368
Accounts payable and accrued liabilities
(In thousands)
Fiscal Years
2015
2014
Accounts payable
Accrued liabilities
Total accounts payable and
other accrued liabilities
$ 3,622
6,958
$ 2,230
6,705
$ 10,580
$ 8,935
Accrued payroll and employee benefits
(In thousands)
Accrued bonuses payable
Accrued 401(k) contributions
Accrued vacation
Deferred compensation
Other accrued payroll
and employee benefits
Total accrued payroll and
employee benefits
Fiscal Years
2015
2014
$ 38,042
7,323
8,836
6,418
$ 37,010
6,887
8,277
7,648
1,473
2,362
$ 62,092
$ 62,184
Other accrued payroll and employee benefits consist
primarily of accrued wages, payroll
taxes and
disability insurance programs. A portion of accrued
bonuses payable will be settled by issuing fully
vested restricted stock units. See Note 9 and Note 15
for additional information.
Note 7: Income Taxes
Income before income taxes includes income from
foreign operations of $6,656,000, $4,157,000 and
$6,007,000
fiscal 2015, 2014 and 2013,
respectively.
for
Total income tax expense for the fiscal years ended
January 1, 2016, January 2, 2015 and January 3, 2014
consisted of the following:
Current
Federal
Foreign
State
Deferred
Federal
State
Total
$ 25,081
1,385
4,895
31,361
$ 26,647
896
5,798
33,341
$ 22,468
1,411
4,824
28,703
(3,411)
(5,059)
(416) (1,018)
(3,827) (6,077)
$ 27,264
$ 27,534
(2,703)
(695)
(3,398)
$ 25,305
The Company’s effective tax rate differs from the
statutory federal tax rate of 35% as shown in the
following schedule:
(In thousands)
Fiscal Years
2014
2013
2015
Tax at federal statutory rate $24,897 $23,788 $22,381
State taxes, net of federal
benefit
Tax exempt interest income
Non-deductible expenses
Non-deductible
stock-based compensation
Other
Tax expense
(79)
(6)
$27,534 $27,264 $25,305
2,910
(23)
261
2,819
(36)
226
3,226
(44)
289
(42)
(469)
-
5
Effective tax rate
38.7% 40.1% 39.6%
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at January 1, 2016 and January
2, 2015 are presented in the following schedule:
(In thousands)
Deferred tax assets:
Accrued liabilities
and allowances
Deferred compensation
Other
Total deferred tax assets
Fiscal Years
2015
2014
$ 17,780
27,425
43
45,248
$ 17,244
26,873
28
44,145
Deferred tax liabilities:
State taxes
Deductible goodwill
Property, equipment and
leasehold improvements
Unrealized gain of deferred
compensation plan assets
Other
Total deferred tax liabilities
Net deferred tax assets
(1,850)
(3,014)
(1,717)
(2,978)
(205)
(459)
(723)
-
(5,792)
$ 39,456
(3,377)
-
(8,531)
$ 35,614
51
results of
Management believes it is more likely than not that
the
future operations will generate
sufficient taxable income to realize the net deferred
tax assets.
The Company is entitled to a deduction for federal
and state tax purposes with respect to employees’
stock award activity. The net deduction in taxes
otherwise payable arising from that deduction has
been credited to additional paid-in capital. For the
fiscal years ended January 1, 2016, January 2, 2015
and January 3, 2014, the net deduction in tax payable
arising from employees’ stock award activity was
$6,396,000, $5,100,000 and $4,267,000, respectively.
The Company and its subsidiaries file income tax
returns in the United States federal jurisdiction,
California and various other state and foreign
jurisdictions. The Company is no longer subject to
United States federal income tax examination for
years prior to 2012. The Company is no longer
subject to California franchise tax examinations for
years prior to 2011. With few exceptions, the
Company is no longer subject to state and local or
non-United States income tax examination by tax
authorities for years prior to 2011.
A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows:
Balance at January 3, 2014
Additions based on tax positions
related to the current year
Additions for tax positions
of prior years
Reductions due to lapse of
statute of limitations
Reductions due to change in
accounting method
Settlements
Balance at January 2, 2015
Additions based on tax positions
related to the current year
Additions for tax positions
of prior years
Reductions due to lapse of
statute of limitations
Reductions due to change in
accounting method
Settlements
$ 1,147,000
486,000
-
(87,000)
-
-
$ 1,546,000
406,000
80,000
(154,000)
-
-
Balance at January 1, 2016
$ 1,878,000
Unrecognized tax benefits are included in other
liabilities in the accompanying balance sheet. To the
extent these unrecognized tax benefits are ultimately
recognized, they will impact the effective tax rate by
$1,296,000 in a future period. There are no uncertain
tax positions whose resolution in the next 12 months
is expected to materially affect operating results.
Deferred income taxes have not been provided on the
undistributed earnings of foreign subsidiaries in the
United Kingdom, Germany, China and Hong Kong.
The amount of such earnings at January 1, 2016 was
$7,736,000. These earnings have been permanently
reinvested and the Company does not plan to initiate
any action that would precipitate the payment of
income taxes thereon. The unrecognized deferred tax
liability for
to be
approximately $1,478,000.
these earnings
is estimated
Note 8: Stockholders’ Equity
Preferred Stock
The Company has authorized 2,000,000 shares of
undesignated preferred stock with a par value of
$0.001 per share. None of the preferred shares were
issued and outstanding at January 1, 2016 and
January 2, 2015.
Dividends
The Company declared and paid cash dividends per
common share during the periods presented as
follows:
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2015
Dividends
Per Share
$ 0.15
$ 0.15
$ 0.15
$ 0.15
Amount
(in thousands)
$ 3,858
3,887
3,870
3,867
$ 15,482
Fiscal Year 2014
Dividends
Per Share
$ 0.125
$ 0.125
$ 0.125
$ 0.125
Amount
(in thousands)
$ 3,262
3,270
3,262
3,216
$ 13,010
On February 3, 2016 the Company’s Board of
Directors announced a cash dividend of $0.18 per
share of the Company’s common stock, payable
March 25, 2016, to stockholders of record as of
March 4, 2016. The Company expects to continue
52
paying quarterly dividends in the future, subject to
declaration by the Company’s Board of Directors.
Treasury Stock
Net losses related to the re-issuance of treasury stock
to settle restricted stock unit and stock option awards
of $4,943,000, $6,050,000 and $10,383,000 were
recorded as a reduction to retained earnings during
fiscal 2015, 2014 and 2013, respectively.
Repurchase of Common Stock
The Company repurchased 530,000 shares of its
common stock for $23,314,000 during the fiscal year
ended January 1, 2016. The Company repurchased
850,000 shares of its common stock for $30,921,000
during the fiscal year ended January 2, 2015. The
Company repurchased 876,000 shares of its common
stock for $25,011,000 during the fiscal year ended
January 3, 2014. On October 20, 2015 the Board of
Directors authorized an additional $35,000,000 for
the repurchase of Exponent’s common stock. On
May 29, 2014 the Board of Directors authorized an
repurchase of
additional $35,000,000
Exponent’s common stock. On February 15, 2013 the
Board of Directors authorized $35,000,000 for the
repurchase of Exponent’s common stock. These
repurchase programs have no expiration dates. As of
January 1, 2016,
the Company had remaining
authorization under its stock repurchase plan of
$46,765,000 to repurchase shares of common stock.
the
for
Note 9: Stock-Based Compensation
On May 29, 2008, the Company’s stockholders
approved the 2008 Equity Incentive Plan and the
2008 Employee Stock Purchase Plan (“ESPP”). The
2008 Equity
Incentive Plan and ESPP were
previously adopted by the Company’s Board of
Directors on April 8, 2008, subject to stockholder
approval. Upon stockholder approval of the 2008
Equity Incentive Plan and ESPP each of
the
following plans were terminated: the 1999 Stock
Option Plan, the Restricted Stock Award Plan, the
1998 Stock Option Plan and the Employee Stock
Purchase Plan established in 1992.
The 2008 Equity Incentive Plan allows for the award
of stock options, stock awards (including stock units,
stock grants and stock appreciation rights or other
similar equity awards) and cash awards to officers,
employees, consultants and non-employee members
of the Board of Directors. The total number of shares
reserved for issuance under the 2008 Equity Incentive
Plan was 4,828,150 shares of common stock, subject
to adjustment resulting from a stock split or the
payment of a stock dividend or any other increase or
53
decrease in the number of issued shares of the
Company’s stock effected without
receipt of
consideration by the Company. As of January 1,
2016, 1,077,325 shares were available for grant under
the 2008 Equity Incentive Plan.
The ESPP allows for officers and employees to
purchase common stock through payroll deductions
of up to 15% of a participant’s eligible compensation.
Shares of common stock are purchased under the
ESPP at 95% of the fair market value of the
Company’s common stock on each purchase date.
Subject to adjustment resulting from a stock split or
the payment of a stock dividend or any other increase
or decrease in the number of issued shares of the
Company’s stock effected without
receipt of
consideration by the Company, the total number of
shares reserved for issuance under the ESPP was
400,000 shares of common stock. As of January 1,
2016, 66,030 shares were available for grant.
Weighted average purchase prices for shares sold
under the ESPP plan in fiscal 2015, 2014 and 2013
were $43.88, $35.68 and $30.32, respectively.
Restricted Stock Units
The Company grants restricted stock units
to
employees and outside directors. These restricted
stock unit grants are designed to attract and retain
employees, and to better align employee interests
with those of the Company’s stockholders. For a
select group of employees, up to 40% of their annual
bonus is settled with fully vested restricted stock unit
awards. Under these fully vested restricted stock unit
awards, the holder of each award has the right to
receive one share of the Company’s common stock
for each fully vested restricted stock unit four years
from the date of grant. Each individual who received
a fully vested restricted stock unit award is granted a
matching number of unvested restricted stock unit
awards. These unvested restricted stock unit awards
cliff vest four years from the date of grant, at which
time the holder of each award will have the right to
receive one share of the Company’s common stock
for each restricted stock unit award, provided the
holder of each award has met certain employment
conditions. In the case of retirement at 59 ½ years or
older, all unvested restricted stock unit awards will
continue to vest provided the holder of each award
does all consulting work through the Company and
does not become an employee for a past or present
client, beneficial party or competitor of the Company.
All restricted stock units granted have dividend
equivalent rights (“DER”), which entitle holders of
restricted stock units to the same dividend value per
share as holders of common stock. DER are subject
to the same vesting and other terms and conditions as
the corresponding unvested RSUs. DER are
accumulated and paid in additional restricted stock
units when the underlying shares vest and are
forfeited if the underlying shares are forfeited.
the market price of
The value of these restricted stock unit awards is
determined based on
the
Company’s common stock on the date of grant. The
value of fully vested restricted stock unit awards
issued is recorded as a reduction to accrued bonuses.
The portion of bonus expense that the Company
expects to settle with fully vested restricted stock unit
awards is recorded as stock-based compensation
during the period the bonus is earned. For the fiscal
years ended January 1, 2016, January 2, 2015 and
January 3, 2014, the Company recorded stock-based
compensation expense associated with accrued bonus
awards of $6,341,000, $6,287,000 and $6,061,000,
respectively.
The Company recorded stock-based compensation
expense associated with the unvested restricted stock
and
awards of $6,066,000 $6,103,000
unit
$6,030,000 during the fiscal years ended January 1,
2016, January 2, 2015 and January 3, 2014,
respectively. The total fair value of restricted stock
unit awards vested during the fiscal years ended
January 1, 2016, January 2, 2015 and January 3,
2014, was $18.6 million, $16.5 million and $15.4
million, respectively. The weighted-average grant
date fair values of restricted stock unit awards
granted during the fiscal years ended January 1,
2016, January 2, 2015 and January 3, 2014 were
$43.76, $37.29 and $27.09, respectively.
The number of unvested restricted stock unit awards outstanding as of January 1, 2016 is as follows (1):
Number Weighted-average
of awards
outstanding
grant date
fair value
Weighted-average
remaining
contractual
term (years)
Aggregate
intrinsic value
(in thousands) (2)
Balance as of January 2, 2015
Awards granted
Awards vested
Awards forfeited
886,780
331,191
(428,878)
(9,116)
Balance as of January 1, 2016
779,977
$ 26.40
43.76
29.72
32.25
$ 31.88
Expected to vest as of
January 1, 2016
769,883
$ 31.94
1.5
1.5
$ 38,960
$ 38,456
(1) Does not include employee stock purchase plans or stock option plans.
(2) The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global
Select Market, the market value as of January 1, 2016 was $49.95.
54
Stock Options
The Company currently grants stock options under
the 2008 Equity Incentive Plan. Options are granted
for terms of ten years and generally vest ratably over
a four-year period from the grant date. The Company
grants options at exercise prices equal to the fair
value of the Company’s common stock on the date of
grant. All stock options have dividend equivalent
rights (“DER”), which entitle holders of stock
options to the same dividend value per share as
Option activity is as follows(1):
holders of common stock. DER are subject to the
same vesting terms as the corresponding stock
options. DER are accumulated and paid in cash when
the underlying stock options vest and are forfeited if
the underlying stock options do not vest. During the
fiscal years ended January 1, 2016, January 2, 2015
and January 3, 2014, the Company recorded stock-
based compensation expense of $552,000, $689,000
and $1,077,000, respectively, associated with stock
options.
Balance as of January 2, 2015
Options granted
Options forfeited and expired
Options exercised
Balance as of January 1, 2016
Vested and expected to vest
as of January 1, 2016
Weighted-
average
remaining
contractual
term (years)
Aggregate
intrinsic
value
(in
thousands)
Number
of shares
outstanding
395,000
40,000
-
(150,000)
Weighted-
average
exercise
price
$ 19.21
44.20
-
12.18
285,000
$ 26.42
6.59
$ 6,706
281,263
$ 26.28
6.57
$ 6,657
Exercisable at January 1, 2016
171,250
$ 20.89
5.65
$ 4,977
(1) Does not include restricted stock or employee stock purchase plans.
The total intrinsic value of options exercised during
the fiscal years ended January 1, 2016, January 2,
2015 and January 3, 2014 was $5,524,000,
$1,975,000 and $3,177,000,
respectively. The
aggregate intrinsic value in the table above represents
the total pre-tax intrinsic value (the difference
between the Company’s closing stock price on the
last trading day of the fiscal year ended January 1,
2016, and the exercise price, multiplied by the
number of in-the-money options) that would have
been received by the option holders had all option
holders exercised their options on January 1, 2016.
This amount changes based on the fair-value of the
Company’s stock.
The Company uses the Black-Scholes option-pricing
model to determine the fair value of options granted.
The determination of the fair value of stock-based
payment awards on the date of grant using an option-
pricing model is affected by the Company’s stock
price as well as assumptions regarding a number of
complex and subjective variables. These variables
include expected stock price volatility over the term
of the award, actual and projected employee stock
55
option exercise behaviors, the risk-free interest rate
and expected dividends.
The Company used historical exercise and post-
vesting forfeiture and expiration data to estimate the
expected term of options granted. The historical
volatility of the Company’s common stock over a
period of time equal to the expected term of the
options granted was used to estimate expected
volatility. The risk-free interest rate used in the
option-pricing model was based on United States
Treasury zero coupon issues with remaining terms
similar to the expected term on the options. The
dividend yield assumption considers the expectation
of continued declaration of dividends, offset by
option holders’ dividend equivalent rights. The
Company is required to estimate forfeitures at the
time of grant and revise those estimates in subsequent
those
if actual forfeitures differ from
periods
estimates. Historical data was used to estimate pre-
vesting
stock-based
forfeitures
compensation expense was recorded only for those
awards that are expected to vest. All share-based
payment awards are recognized on a straight-line
basis over the requisite service periods of the awards.
option
and
The assumptions used to value option grants for the fiscal years ended January 1, 2016, January 2, 2015 and January
3, 2014 are as follows:
Expected life (in years)
Risk-free interest rate
Volatility
Dividend yield
2015
6.1
1.69%
27%
0%
Stock Option Plan
2014
6.1
1.8%
32%
0%
2013
6.4
1.4%
36%
0%
The weighted-average grant date fair value of options granted during the fiscal years ended January 1, 2016, January
2, 2015 and January 3, 2014 were $13.30, $12.23 and $9.39, respectively.
The amount of stock-based compensation expense and the related income tax benefit recognized in the Company’s
consolidated statements of income for the fiscal years ended January 1, 2016, January 2, 2015 and January 3, 2014 is
as follows:
(In thousands)
Compensation and related expenses:
Restricted stock units
Stock option grants
Sub-total
General and administrative expenses:
Restricted stock units
Sub-total
$
Total stock-based compensation expense
$
2015
2014
2013
11,907
552
12,459
500
500
12,959
$
$
11,889
689
12,578
501
501
13,079
$
$
11,680
1,077
12,757
411
411
13,168
Income tax benefit
$
5,068
$
5,141
$
5,195
As of January 1, 2016, there was $6,331,000 of unrecognized compensation cost, expected to be recognized over a
weighted average period of 2.4 years, related to unvested restricted stock unit awards and $331,000 of unrecognized
compensation cost, expected to be recognized over a weighted average period of 2.4 years, related to unvested stock
options. Total unrecognized compensation costs will be adjusted for future changes in estimated forfeitures.
Note 10: Retirement Plans
Note 11: Deferred Compensation Plans
The Company provides a defined contribution
retirement plan for its employees whereby the
Company contributes to each eligible employee’s
account 7% of the employee’s eligible base salary
plus overtime. The employee does not need to make a
contribution to the plan to be eligible for the
Company’s 7% contribution. To be eligible under the
plan, an employee must be at least 21 years of age
and be either a full-time or part-time salaried
employee. The 7% Company contribution will vest
20% per year for the first 5 years of employment and
then
thereafter. The Company’s
expenses related to this plan were $7,317,000,
$6,954,000, and $6,564,000 in fiscal 2015, 2014, and
2013, respectively.
immediately
The Company maintains nonqualified deferred
compensation plans for the benefit of a select group
of highly compensated employees. Under these plans,
participants may elect to defer up to 100% of their
compensation. Company assets that are earmarked to
pay benefits under the plans are held in a rabbi trust
and are subject to the claims of the Company’s
creditors. As of January 1, 2016 and January 2, 2015
totaled
the
$42,940,000 and $43,848,000, respectively. These
assets are classified as trading securities and are
recorded at fair market value with changes recorded
as adjustments to other income and expense.
invested amounts under
the plans
As of January 1, 2016 and January 2, 2015, vested
amounts due under the plans totaled $46,740,000 and
56
However, due to the risks and uncertainties inherent
in legal proceedings, actual results could differ from
current expected results. All legal costs associated
with litigation are expensed as incurred.
Note 13: Miscellaneous Income, Net
Miscellaneous income, net, consisted of the
following:
(In thousands)
Rental income
(Loss) gain on deferred
compensation
investments
Fiscal Years
2014
2015
2013
2,015
2,003
1,913
(325)
2,525
6,044
Gain (loss) on foreign
exchange
Other
Total
255
48
$ 1,993
(293)
31
$ 4,266
(89)
4
$ 7,872
Note 14: Industry and Client Credit Risk
The Company serves clients in various segments of
the economy. During fiscal 2015 the Company
provided services representing approximately 20% of
revenues to clients in the energy and utilities
industries. During fiscal 2015 the Company provided
services representing approximately 18% of revenues
to clients in the consumer products industry. During
fiscal 2015
services
representing approximately 15% of revenues to
clients in the transportation industry.
the Company provided
No single customer comprised more than 10% of the
Company’s revenues for the years ended January 1,
2016, January 2, 2015 and January 3, 2014. No single
customer comprised more
the
Company’s accounts receivable at January 1, 2016
and January 2, 2015.
than 10% of
the Company
recorded as adjustments
$45,394,000, respectively. Changes in the liability
are
to compensation
expense. During the fiscal years 2015, 2014 and
2013,
recognized compensation
expense of $(325,000), $2,525,000, and $6,044,000,
respectively, as a result of changes in the market
value of the trust assets with the same amount being
recorded as other income, net.
Note 12: Commitments and Contingencies
The following is a summary of the future minimum
payments, required under non-cancelable operating
leases, with terms in excess of one year, as of January
1, 2016:
(In thousands)
Fiscal year
2016
2017
2018
2019
2020
Thereafter
$
Lease
commitments
7,919
5,780
3,221
2,062
1,151
1,444
$ 21,577
Total rent expense from property leases in fiscal
2015, 2014, and 2013 was $6,202,000, $5,951,000
and $5,929,000, respectively. Total expense from
other operating leases in fiscal 2015, 2014, and 2013
and $1,704,000,
was $1,794,000, $1,965,000
respectively. The Company had $432,000
in
outstanding purchase commitments as of January 1,
2016. These commitments are expected to be fulfilled
by the end of fiscal 2016.
On December 14, 2015, the Company entered into an
agreement to purchase a 1.1 acre parcel of land with
27,000 square feet of warehouse storage space in
Menlo Park, California adjacent to the Company’s
owned office and lab facilities. The Company has
leased this warehouse storage space for the past 25
years. The total purchase price is $8,250,000. On
February 18, 2016, all of the purchase contingencies
were released and the Company expects the sale to
close in the next year.
The Company is a party to various legal actions from
time to time and may be contingently liable in
connection with claims and contracts arising in the
normal course of business, the outcome of which the
Company believes, after consultation with legal
counsel, will not have a material adverse effect on its
financial condition, results of operations or liquidity.
57
Note 15: Supplemental Cash Flow Information
Operating Income
(In thousands)
Fiscal Years
2014
2013
2015
Engineering and
Other Scientific
Environmental and Health
$ 76,817 $ 72,207 $ 67,070
25,072
25,145
21,810
Total segment operating
income
98,627
97,352
92,142
Corporate operating
expense
Total operating
income
Capital Expenditures
(In thousands)
(29,694)
(33,803)
(36,196)
$ 68,933 $ 63,549 $ 55,946
Fiscal Years
2014
2013
2015
Engineering and
Other Scientific
Environmental and Health
$ 3,197
164
$ 3,719 $ 5,180
148
211
Total segment capital
expenditures
Corporate capital
expenditures
Total capital
expenditures
3,361
3,930 5,328
2,018
1,017
898
$ 5,379
$ 4,947 $ 6,226
Depreciation and Amortization
(In thousands)
Engineering and
Other Scientific
Environmental and Health
Total segment depreciation
and amortization
Corporate depreciation and
amortization
Fiscal Years
2014
2013
2015
$ 3,919
182
$ 3,637 $ 3,097
299
197
4,101
3,834 3,396
1,378
1,570 1,555
Total depreciation and
amortization
$ 5,479
$ 5,404 $ 4,951
The following is supplemental disclosure of cash
flow information:
(In thousands)
Cash paid during the year:
Fiscal Years
2014
2013
2015
Income taxes
$24,651 $27,421 $24,701
Non-cash investing and
financing activities:
Unrealized gain (loss) on
Investments
$
(79) $
4 $
(14)
Vested stock unit awards
granted to settle
accrued bonus
Accrual for capital
expenditures
$ 6,169 $ 6,008 $ 5,807
$ 321 $
- $
-
Note 16: Segment Reporting
technical consulting
The Company has two reportable operating segments
two primary areas of service. The
based on
Engineering and Other Scientific segment is a broad
service group providing
in
different practices primarily in engineering. The
Environmental and Health segment provides services
in the area of environmental, epidemiology and
health risk analysis. This segment provides a wide
range of consulting services relating to environmental
hazards and risks and the impact on both human
health and the environment.
Segment information is presented for selected data
from the statements of income and statements of cash
flows for fiscal years 2015, 2014 and 2013. Segment
information for selected data from the balance sheets
is presented for the fiscal years ended January 1,
2016 and January 2, 2015. Our CEO, the chief
operating decision maker, does not review total assets
in his evaluation of segment performance and capital
allocation.
Revenues
(In thousands)
Engineering and
Other Scientific
Environmental and Health
Fiscal Years
2014
2013
2015
$ 237,959 $ 223,384 $ 215,972
80,196
74,873
81,320
Total revenues
$ 312,832 $ 304,704 $ 296,168
58
Information regarding the Company’s operations in
different geographical areas:
Property, Equipment and Leasehold Improvements, net
(In thousands)
Fiscal Years
2015
2014
Revenues (1)
(In thousands)
United States
Foreign Countries
2015
Fiscal Years
2014
2013
$ 281,618 $ 273,635 $ 263,341
32,827
31,214
31,069
United States
Foreign Countries
$ 27,775
710
$ 27,761
503
Total
$ 28,485
$ 28,264
Total
$ 312,832 $ 304,704 $ 296,168
(1) Geographic revenues are allocated based on
location of the client.
the
59
Comparative Quarterly Financial Data (unaudited)
Summarized quarterly financial data is as follows:
Fiscal 2015
(In thousands, except per share data)
April 3,
2015
July 3,
2015
October 2,
2015
January 1,
2016
Revenues before reimbursements
Revenues
Operating income
Income before income taxes
$ 76,141
80,293
15,028
17,071
$ 75,272
79,864
18,705
19,292
$ 74,503
78,994
20,921
18,773
$ 69,789
73,681
14,279
15,997
Net income
$ 10,333
$ 11,697
$ 11,719
$ 9,850
Net income per share
Basic
Diluted
Shares used in per share computations
Basic
Diluted
$
$
0.39
0.38
$
$
0.44
0.43
$
$
0.44
0.43
$
$
0.37
0.36
26,622
27,390
26,714
27,368
26,597
27,268
26,491
27,133
Fiscal 2014
(In thousands, except per share data)
April 4,
2014
July 4,
2014
October 3,
2014
January 2,
2015
Revenues before reimbursements
Revenues
Operating income
Income before income taxes
$ 72,967
75,962
14,094
15,365
$ 72,331
76,574
16,084
18,398
$ 74,264
78,557
19,238
18,375
$ 69,647
73,611
14,133
15,827
Net income
$ 9,154
$ 11,264
$ 11,040
$ 9,243
Net income per share
Basic
Diluted
Shares used in per share computations
Basic
Diluted
$
$
0.34
0.33
$
$
0.42
0.41
$
$
0.41
0.40
$
$
0.35
0.34
27,074
27,880
27,040
27,746
26,938
27,648
26,586
27,318
60
Schedule II
Valuation and Qualifying Accounts
(In thousands)
Year Ended January 1, 2016
Allowance for bad debt
Allowance for contract losses
Year Ended January 2, 2015
Allowance for bad debt
Allowance for contract losses
Year Ended January 3, 2014
Allowance for bad debt
Allowance for contract losses
Additions
Balance at
Provision
Provision
Beginning of Charged to Charged to
Revenues
Expense
Year
Deletions (1)
Accounts
Written-off
Net of
Recoveries
Balance
at End of
Year
$ 1,016
$ 2,370
$
$
284
-
$
$
-
645
$
(462)
$ (1,061)
$
838
$ 1,954
$
942
$ 1,829
$
$
264
-
$
-
$ 1,454
$
$
(190)
(913)
$ 1,016
$ 2,370
$
933
$ 1,733
$
$
515
-
$
-
$ 1,189
$
(506)
$ (1,093)
$
942
$ 1,829
(1) Balance includes currency translation adjustments.
Recoveries of accounts receivable previously written off were $7,000, $135,000 and $50,000 for the years ended
January 1, 2016, January 2, 2015 and January 3, 2014, respectively.
Schedules other than above have been omitted since they are either not required, not applicable, or the information is
otherwise included in the Report.
61
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant
has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
EXPONENT, INC.
(Registrant)
Date: February 26, 2016
/s/ Richard L. Schlenker, Jr.
Richard L. Schlenker, Jr., Executive Vice President,
Chief Financial Officer and Corporate Secretary
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by
the following persons on behalf of the registrant and in the capacities and on the dates indicated:
Signature
Title
Date
/s/ Paul R. Johnston
Paul R. Johnston, Ph.D.
President, Chief Executive Officer and Director
(Principal Executive Officer)
February 26, 2016
/s/ Richard L. Schlenker, Jr.
Richard L. Schlenker, Jr.
Executive Vice President, Chief Financial Officer and
Corporate Secretary (Principal Financial and
Accounting Officer)
February 26, 2016
/s/ Michael R. Gaulke
Michael R. Gaulke
/s/ Karen A. Richardson
Karen A. Richardson
/s/ Stephen C. Riggins
Stephen C. Riggins
/s/ John B. Shoven
John B. Shoven, Ph.D.
/s/ Debra L. Zumwalt
Debra L. Zumwalt
Chairman of the Board of Directors
February 26, 2016
Director
Director
Director
Director
February 26, 2016
February 26, 2016
February 26, 2016
February 26, 2016
62
EXHIBIT INDEX
The following exhibits are filed as part of, or incorporated by reference into (as indicated parenthetically),
the Annual Report on Form 10-K. Unless otherwise indicated all filings are under SEC File Number 000-18655:
3.1(i) Restated Certificate of Incorporation of the Company (incorporated by reference from the Company’s
Registration Statement on Form S-1 as filed on June 25, 1990, registration number 33-35562).
3.1(ii) Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by
reference from the Company’s Current Report on Form 8-K filed on May 24, 2006).
3.1(iii) Certificate of Amendment of Restated Certificate of Incorporation of the Company (incorporated by
reference from the Company’s Current Report on Form 8-K filed on May 28, 2015).
3.2(i) Amended and Restated Bylaws of the Company, as amended and restated May 29, 2014 (incorporated by
reference from the Company’s Current Report on Form 8-K as filed on May 30, 2014).
4.1
Specimen copy of Common Stock Certificate of the Company (incorporated by reference from the
Company’s Registration Statement on Forms S-1 as filed on June 25, 1990, registration number 33-
35562).
*10.6
Exponent, Inc. 1998 Non Statutory Stock Option Plan dated October 24, 1998 (incorporated by reference
from the Company’s Annual Report on Form 10-K for the fiscal year ended January 1, 1999).
10.10 Exponent, Inc. 1999 Stock Option Plan (incorporated by reference from the Company’s Annual Report
on Form 10-K for the fiscal year ended December 31, 1999).
*10.11 Exponent, Inc. 1999 Restricted Stock Plan (incorporated by reference from the Company’s Annual
Report on Form 10-K for the fiscal year ended December 31, 1999).
10.15 Commercial Lease No. 03-53542 between the Company and the Arizona State Land Department,
effective January 17, 1998 (incorporated by reference from the Company’s Annual Report on Form 10-K
for the fiscal year ended January 3, 2003).
*10.17 Exponent Nonqualified Deferred Compensation Plan (incorporated by reference from the Company’s
Annual Report on Form 10-K for the fiscal year ended December 31, 2004).
*10.19
Form of Indemnification Agreement entered into or proposed to be entered into between the Company
and its officers and directors (incorporated by reference from the Company’s Quarterly Report on Form
10-Q for the fiscal quarter ended March 31, 2006).
10.20
Services Agreement between the Company and Exponent Engineering P.C. (incorporated by reference
from the Company’s Quarterly Report on Form 10-Q for the fiscal period ended March 31, 2006).
10.24 Amendment No. 1 to Exponent, Inc. 1998 Nonstatutory Stock Option Plan dated January 29, 2007
(incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
December 29, 2006).
10.25 Amendment No. 1 to Exponent, Inc. 1999 Stock Option Plan dated January 29, 2007 (incorporated by
reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 29,
2006).
10.26 Amendment No. 1 to Exponent, Inc. 1999 Restricted Stock Plan dated January 29, 2007 (incorporated by
reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 29,
2006).
10.28
2008 Employee Stock Purchase Plan (incorporated by reference from the Company’s Annual Report on
Form 10-K for the fiscal year ended January 1, 2009).
63
*10.31
*10.32
*10.33
Form of Restricted Stock Unit Employee Bonus Grant Agreement under the 2008 Equity Incentive Plan
(incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
January 1, 2009).
Form of Restricted Stock Unit Employee Matching Grant Agreement under the 2008 Equity Incentive
Plan (incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year
ended January 1, 2009).
Form of Restricted Stock Unit Director Grant Agreement under the 2008 Equity Incentive Plan
(incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
January 1, 2009).
*10.34 Amended and Restated Restricted Stock Unit Bonus Grant Agreement under the 1999 Restricted Stock
Plan (incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year
ended January 1, 2009).
*10.35 Amended and Restated Restricted Stock Unit Matching Grant Agreement under the 1999 Restricted
Stock Plan (incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal
year ended January 1, 2009).
*10.36 Amended and Restated Restricted Stock Unit Director Grant Agreement under the 1999 Restricted Stock
Plan (incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year
ended January 1, 2009).
*10.37 Exponent, Inc. Amended and Restated 2008 Equity Incentive Plan (filed as Appendix A to the
Company’s Schedule 14A filed on April 19, 2012).
10.38
10.39
10.40
Exponent, Inc. 401(k) Savings Plan, as amended and restated effective January 1, 2010 (incorporated by
reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 31,
2010).
First Amendment to the Exponent, Inc. 401(k) Savings Plan (as amended and restated January 1, 2010)
(incorporated by reference from the Company’s Quarterly Report on Form 10-Q for the fiscal period
ended July 1, 2011).
Second Amendment to the Exponent, Inc. 401(k) Savings Plan (as amended and restated January 1,
2010) (incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year
ended December 30, 2011).
*10.41
Form of Stock Option Agreement under the 2008 Equity Incentive Plan (incorporated by reference from
the Company’s Annual Report on Form 10-K for the fiscal year ended December 30, 2011).
10.42 Third Amendment to the Exponent, Inc. 401(k) Savings Plan (as amended and restated January 1, 2010)
(incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
December 28, 2012).
*10.43 Amendment to Form of Stock Option Agreement under the 2008 Equity Incentive Plan (incorporated by
reference from the Company’s Annual Report on Form 10-K for the fiscal year ended December 28,
2012).
10.44
Fourth Amendment to the Exponent, Inc. 401(k) Savings Plan (as amended and restated January 1, 2010)
(incorporated by reference from the Company’s Annual Report on Form 10-K for the fiscal year ended
January 3, 2014).
10.45
Form of Indemnification Agreement entered into or proposed to be entered into between the Company
and its officers and directors (incorporated by reference from the Company’s Current Report on Form 8-
K as filed on May 30, 2014).
21.1
List of subsidiaries.
64
23.1
Consent of Independent Registered Public Accounting Firm.
31.1
31.2
Certification of Chief Executive Officer pursuant to Rule 13a – 14(a) of the Securities Exchange Act of
1934.
Certification of Chief Financial Officer pursuant to Rule 13a – 14(a) of the Securities Exchange Act of
1934.
32.1
Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.
32.2
Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.
101.INS XBRL Instance Document
101.SCH XBRL Taxonomy Schema Document
101.CAL XBRL Taxonomy Calculation Linkbase Document
101.LAB XBRL Taxonomy Label Linkbase Document
101.PRE XBRL Taxonomy Presentation Linkbase Document
101.DEF XBRL Taxonomy Definition Linkbase Document
* Indicates management compensatory plan, contract or arrangement
65