2018
Annual Report
Dear Fellow Stockholders:
I’m honored to be writing my first shareholder letter as CEO of Exponent. For those who don’t know
me, I’ve been with the firm for more than 22 years and from early in my tenure I recognized that I was
part of a truly unique organization. Consistent with our CEO succession plan, Dr. Paul Johnston passed
me the baton on May 31st and moved into the role of Executive Chairman. I am grateful for Paul’s
mentorship and vision of excellence which formed the foundation for a smooth leadership transition.
It’s been a powerful experience to witness the strength of our differentiated market position, adaptable
business model and strong client relationships through different lenses as I have moved through the
organization. I will continue to leverage these experiences as a consultant, manager and leader to guide
the firm into the future. I am excited to lead our team of scientists and engineers as we empower clients
with solutions for a safe, healthy, sustainable and technologically complex world.
In 2018, we grew net revenues 8% and expanded our EBITDA margin 77 basis points to 27.3% of net
revenues for the year. During the year, we improved our depth and breadth of expertise as we grew our
consulting staff by 7%. We continued to see increased demand from several industries and geographies.
Exponent had strong demand for design consulting services as the consumer electronics industry
continued to innovate and face manufacturability challenges. Increasingly clients from the energy,
mining and infrastructure sectors with technical and construction management issues on large capital
projects engaged our inter-disciplinary teams to evaluate these claims. Our highly credentialed
scientists were engaged to assess the increasing concerns regarding the impact of chemicals on human
health and the environment.
As technologies become increasingly complex, the need to better understand the interactivity between
sophisticated products and their users grows. In addition to the large human factors study, which was
completed in August of 2018, we experienced increased demand from the consumer products industry
for similar engagements. Recent projects include assessing virtual reality technologies and evaluating
the performance of automated vehicles. As we look ahead, we are confident in Exponent’s strategy to
uncover growth opportunities across practices, industries and geographies.
We closed 2018 with $209 million in cash, cash equivalents and short-term investments, net of $27.9
million of common stock repurchases and $27.2 million in dividend payments. We recently announced
a 23% increase in our quarterly dividend and a $75 million addition to our stock repurchase program.
These actions demonstrate our confidence in our long-term financial performance, the strength of our
balance sheet and our commitment to deliver increasing value to our shareholders.
I offer my most sincere thanks to the Exponent team for their hard work and dedication, to our clients
for the trust they hold in our scientific solutions and advice, and to our shareholders for their continued
support.
With Regards,
Catherine Corrigan, Ph.D.
Chief Executive Officer and President
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 December 28, 2018.
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,
a smaller reporting company, or an emerging growth company. See definitions of “large accelerated filer”,
“accelerated filer”, “smaller reporting company” and “emerging growth company” in Rule 12b-2 of the Exchange
Act.
Large accelerated filer [X] Accelerated filer [ ]
Non-accelerated filer [ ]
Smaller reporting company [ ]
Emerging growth company [ ]
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended
transition period for complying with any new or revised financial accounting standards provided pursuant to Section
13(a) of the Exchange Act. [ ]
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 June 29, 2018, the last business
day of the registrant’s most recently completed second quarter, was $2,136,924,922. 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 June 29, 2018 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 15, 2019 was 51,498,369.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant’s Definitive Proxy Statement for the registrant’s 2019 Annual Meeting of Stockholders to
be held on May 30, 2019 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 DECEMBER 28, 2018
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
18
18
19
19
19
21
21
31
32
32
32
32
PART III
32
Item 10. Directors, Executive Officers and Corporate Governance
Item 11. Executive Compensation
33
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters 33
33
Item 13. Certain Relationships and Related Transactions, and Director Independence
33
Item 14. Principal Accounting Fees and Services
PART IV
Item 15. Exhibits, Financial Statement Schedules
Exhibit Index
Signatures
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
34
64
67
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, 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 product
development, product recall, regulatory compliance,
and the discovery of potential problems related to
products, people, property and impending litigation.
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 chemical, construction,
consumer products, energy, food, beverage and
technology,
lawyers or
life sciences,
insurance,
nutrition, government,
manufacturing,
industrial equipment,
transportation and other sectors of the economy.
Many of our engagements are initiated directly by
large corporations or by
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. During fiscal 2018, we
provided services representing approximately 27% of
revenues to clients in the consumer products industry.
services
During
representing approximately 16% of revenues to
clients in the transportation industry. During fiscal
2018, we
representing
approximately 15% of revenues to clients in the
energy and utilities industries. One client accounted
for 12% of our revenues during 2018. The same
client accounted for 14% of our consolidated
revenues for 2017. No client accounted for more than
10% of our consolidated revenues for 2016.
2018, we
provided
provided
services
fiscal
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 $180 to
$825 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
18 practices in two reportable operating segments,
Engineering and Other Scientific and Environmental
and Health:
ENGINEERING AND OTHER SCIENTIFIC
• Biomechanics
• Biomedical Engineering
• Buildings & Structures
• Civil Engineering
4
Industrial Structures
• Construction Consulting
• Electrical Engineering & Computer Science
• Human Factors
•
• Materials & Corrosion Engineering
• Mechanical Engineering
• Polymer Science & Materials Chemistry
• Statistical & Data Sciences
• Thermal Sciences
• Vehicle Analysis
testing, help
approval, we perform preclinical
formulate related regulatory strategy, and conduct
design verification and validation. We also assist
with design and manufacturing failure analyses,
recall management, and medical device explant
analysis. In addition, our staff performs analysis of
clinical outcomes for medical devices and related
procedures using administrative claims databases.
Our expertise is also utilized in product liability,
intellectual property litigation, technology acquisition
and due diligence matters.
ENVIRONMENTAL AND HEALTH
Buildings & Structures
• Chemical Regulation & Food Safety
• Ecological & Biological Sciences
• Environmental & Earth Sciences
• Health Sciences
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.
the past year, our biomechanics staff
During
performed analyses of human injuries which occurred
while individuals were utilizing 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. Our
consultants also evaluated product designs for
performance, hazards, and injury risks to assist
clients with design modifications, address consumer
feedback, and respond to regulators.
Biomedical Engineering
to medical
Our Biomedical Engineering Practice applies
engineering principles
technologies,
including the evaluation of designs and performance
of medical devices, pharmaceuticals, and biologics.
Our engineers and scientists assist clients with
characterization of biomaterials, medical devices, and
their interactions with pharmaceuticals, cells, and
in regulatory clearance and
tissues. To assist
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, structural engineers, and
material scientists have been investigating such
failures for decades, and we use this experience to
solve problems with building
and
components, including finding the best repair options
and mitigating the risk of future failures.
to perform
systems
its
include property
During the past year, we have evaluated numerous
problems with residential, commercial and industrial
structures for owners, designers, and builders. Our
evaluations often
inspections,
laboratory or on site 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,
pipeline failures, dam and
levee failures, and
construction claims. We also provide peer review
services for complicated structures. Over the past
year, our consultants have been engaged in a number
of investigations related to wildland fires, debris
flows, landslides, retaining wall, reinforced earth
slope and foundation failures, large construction
claims, flooding and sediment transport. This practice
5
provided services for property owners, contractors,
design professionals, attorneys and insurance carriers.
the transportation industry on the reliability and
robustness of computer controlled equipment for user
safety.
Construction Consulting
Our Construction Consulting Practice provides
expertise in the areas of project advisory, risk
analysis, strategic planning, dispute resolution, delay
analysis and financial damages. During the past year,
we expanded the practice by leveraging key client
relationships in several construction sectors including
utilities, infrastructure and oil and gas. The practice
has been retained on numerous complex international
arbitrations in Asia Pacific, Europe and the Middle
East. Our multi-disciplinary staff, which includes
engineers, project managers, schedulers, quantity
surveyors, and financial specialists, provides these
services to both the public and private sectors for
clients who represent a diverse mix of corporations,
law firms and agencies. Our projects include many
sectors of the construction and engineering industry
which include power plants, electric and gas utilities,
systems,
petrochemical
tunnels, airports, and sporting arenas.
transportation
facilities,
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,
computer
and
and
communications,
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
6
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,
attention, 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.
that
We review warnings and labeling issues related to
consumer products, pharmaceuticals, motor vehicles,
medical devices and industrial products – supporting
the development of safety information to accompany
products and assessing claims
the safety
information provided was inadequate. We apply our
expertise in human behavior, warnings, and decision
making in class actions suits, and in evaluating
claims seeking to establish a class. In addition, we
assist manufacturers with compliance with regulatory
guidelines related to products and work with them
regarding analysis of adverse event reports and
consumer complaints in publicly available databases
overseen by
the Consumer Product Safety
Commission and the Food and Drug Administration.
We examine the role that attention plays in human
perception, memory, and behavior, and how
attention, inattention, and distraction may affect
safety in a wide range of settings and activities (e.g.,
operating vehicles and machinery, walking, and using
consumer products). We address the reliability of
human memory and retrospective reporting in the
gathering of fact-based evidence. We utilize scientific
investigations and research (e.g., human perception,
reaction time, and looking behavior) to assess driver
behavior in both accident investigations and during
the design of automotive systems. Exponent’s Human
Factors scientists have been actively engaged in
research and project work with Advanced Driver
Assistive System (ADAS) and automated vehicle
technology, in order to understand and advise our
clients on how these technologies may change the
nature and dynamic of driving, and the role and
performance of the driver.
We provide user experience research, including focus
groups, usability testing, and complex user studies
with custom-tailored designs, across a wide range of
industries, including consumer electronics, medical
devices, and vehicle technologies. Our state-of-the-
art Phoenix User Research Center, with 5,000 square
feet of research space, has six lab suites, including a
dedicated focus group room, an ophthalmological
lab, a motion capture lab, and wearable eye tracking
technology, plus connectivity to our vehicle test
track. The scope of human factors engagements
range from consulting on our clients’ research to
providing turnkey research solutions.
We perform incident investigations and root cause
analyses of near-misses and accidents involving
human error in occupational and industrial settings.
Our Human Factors scientists have advanced
technical systems training and experience required to
understand how humans contribute to the initiation
of, and emergency response to, explosions, fires,
chemical releases, and major equipment failures in
the manufacturing, utility, oil and gas, and
industries, among others. We also
construction
capitalize on this knowledge to conduct human error
risk and culture assessments
to help clients
proactively control human performance gaps,
safety
improve
performance, and create administrative controls and
procedures. In addition to helping clients address the
frequency and severity of incidents related to human
error, fatigue, and performance, these and other
similar project activities can be leveraged to improve
efficiency, reliability, and maintainability of normal
operations.
occupational
process
and
Industrial Structures
Our
in
Industrial Structures Practice, based
Düsseldorf, Germany with offices in Hamburg and
Berlin, provides specialized engineering expertise
required for industrial structures subject to extreme
conditions. We have provided planning, condition
assessment, rehabilitation design, failure analysis and
engineered demolition and dismantling for more than
1,000 industrial facilities around the world. Much of
our Industrial Structures Practice centers on three
types of facilities: antenna masts and towers, power
plants, and specialized industrial structures such as
against high process
refractories
temperatures
potentially
containing
dangerous products. Each year we provide quality
assurance, including both inspection and engineering
analysis, on almost 1,000 tower structures for a
variety of facilities including telecommunications,
overhead lines, wind energy, and industrial chimneys.
In addition, our consultants provide
inspection
services to assist our clients with on-time, quality
construction on their projects.
to protect
tanks
or
We have developed in-house, specialized computer
software for non-linear material behavior that can
provide realistic performance assessment of a wide
variety of specialized structures such as cracked
reinforced
components, multi-layer
refractories and masonry towers. In addition, our staff
regularly participates in the creation of consensus
engineering standards for assessment and design of
industrial facilities.
concrete
Our specialized engineers represent our company in
the decisive standard committees in Germany and
Europe for tower structure, refractory engineering
and demolition.
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, battery
systems,
chemical processing, transportation, energy, utilities,
and aerospace fields, among others. The Materials
and Corrosion Engineering Practice continues to
expand its presence in Asia with hires in our
Shanghai and Hong Kong offices.
Mechanical Engineering
We provide clients with a thorough comprehension of
current and alternative designs of mechanical systems
to identify vulnerabilities before failures occur,
develop appropriate risk mitigation methods, and
provide post-failure investigations. Our consultants
review the performance and reliability of industrial
processes, manufactured products, and engineered
systems, and we determine the root cause of failures.
We assist in legal and insurance matters, failure
investigations, product recall investigations, internal
development,
compliance
workplace
intellectual
property matters.
safety evaluations, and
programs,
product
Our staff members develop and utilize detailed and
validated computational models and
laboratory
experimental methods to evaluate products, systems,
7
and equipment. We perform field inspections, rely on
industry standards, and utilize operational data to
inform our analyses. We have performed these
activities in a broad range of industries including
transportation, heavy equipment, building systems,
medical devices, energy, and consumer products.
During the past year, our mechanical engineers
worked on a wide variety of projects ranging from
high-profile consumer product recall investigations to
industrial equipment failures and mechanical safety
issues.
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 the
chemistry, materials and processing 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, reactive chemical
systems, and electrochemical energy storage systems
when challenged by physical, chemical, thermal and
other operational stressors. Our work also includes
customized
and
rheological testing and leverages expanding internal
infrastructure for instrumented analysis and advanced
imaging capabilities.
electrochemical
chemical,
the protection of
Our consultants participate in product development
programs, perform failure analyses and provide
support to clients involved in regulatory and legal
intellectual
proceedings and
property. 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 activities addressed aspects of battery
systems, consumer electronics, wearable devices,
implantable medical devices, drug delivery systems,
medical diagnostics, building materials, water
handling systems, synthetic turf, the plastics supply
chain, fire retardancy and flammability, technology
scouting, materials science aspects of health risk,
service life prediction, sustainability, and intellectual
property related to consumer, recreational, medical,
pharmaceutical, food packaging and other products,
including trade secrets.
8
Statistical & Data Sciences
working
frequently
The Statistical and Data Sciences Practice comprises
our core capabilities in methods for the collection,
management, visualization, and inferential analysis of
in a breadth of
data. Drawing on experience
engineering, science, health, and environmental
applications—and
in
collaboration with other practices—we assist clients
at all stages of the product or process life cycle:
designing and analyzing product development
studies; improving and controlling manufacturing
process and product quality; and monitoring the
safety, reliability, and performance of products in use
by customers. We design sample surveys and
experiments, create value-added databases through
synthesis of client-supplied and public data, and
implement
for machine
learning and predictive analytics. Our approach to
studies is intended to support data-driven decision
making and to help clients measure their risks and
benefits to determine appropriate courses of action.
techniques
innovative
and
legal
clients. We
During the past year, our statisticians and data
scientists worked on diverse projects for government,
industry,
performed
assessments of manufacturing quality systems,
evaluated the durability and reliability of smart cards
for identity management and credentialing, advised
on development and safety-related testing of an
automated vehicle control system, examined the in-
and
service
components, and provided statistical analysis of
clinical data supporting the regulatory submission for
a medical device.
reliability of home
appliances
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
explosions ranging from high
loss disasters at
manufacturing facilities, energy facilities and oil and
claims.
gas
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.
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
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. Our services
include
assessing new oil well control technologies, assessing
potential fire and explosion risks and consequences,
incidents and
loss of containment
investigating
assessing the integrity of fixed assets.
these areas
in
Vehicle Analysis
analysis, component testing, failure analysis, 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 SCIENCES
Chemical Regulation & Food Safety
Our Chemical Regulation and Food Safety Practice
includes both technical and regulatory specialists
who are experienced in dealing with foods, food
ingredients, cosmetics, dietary supplements, pesticide
and biocides (including conventional chemicals,
biochemicals, microbials, antimicrobials/biocides,
and products of biotechnology), 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.
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
technological contributions
that have assisted
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
Our Test and Engineering Center located in Phoenix,
Arizona, is used for our most complex testing and
analysis. 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 insight that 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, clients 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.
Current
transportation
technologies and concepts allow our multi-
disciplinary
team of scientists, engineers, and
analysts across numerous practices to focus on the
development and
implementation of connected
vehicles, automated vehicles, connected/smart cities,
and data analyses. Whether the objective is design
emerging
advances
in
9
and
review
product
biocidal
tolerance
submissions
to product-specific dossiers
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 practice
were jointly involved with the ongoing support of
multiple new pesticide active ingredients and end-use
products. The European side of our business was
involved with many projects related
to plant
protection
regulatory
submissions, from new active substances and those
for
under
European member states. In addition, we provided
many specialist assessments relating to human and
environmental exposure and product efficacy as well
as national and international Maximum Residue
Limit/import
covering
countries such as South Korea, Taiwan and Hong
Kong. In Europe and the U.S., we continued to
provide clients with regulatory compliance support
for food contact materials, food additives, novel
foods, nutrition-related analyses, as well as
undertaking
food and
cosmetics products. We also provided proactive and
reactive product safety and litigation support. For
industrial chemicals, we continued to provide full
regulatory support for our clients who prepared and
submitted registrations and risk assessments. Our
European Offices were particularly active in the first
half of the year helping our clients with their EU
REACH regulatory requirements for
the 2018
deadline and also providing post submission support,
dealing with regulatory evaluations and decisions. In
the U.S. we continued to provide services related to
new pesticide active ingredients and end-use product
development and registrations in the U.S., Canada,
safety assessments
for
and Mexico, registration review under EPA, import
tolerances in the U.S. and Canada, due diligence
related to product and/or business sales, and data
compensation, as well as the approval of new
pesticide inert ingredients and new non-pesticide
active ingredient approvals.
Ecological & Biological Sciences
novel
Our ecological and biological scientists provide
strategic support on issues related to natural resources
damages associated with chemicals and forest fires,
international environmental disputes, ecosystem
service assessments for businesses, adverse weather
events/climate change, ecological risk assessment,
ecotoxicology,
remediation methods,
restoration of wetlands and other natural resources,
large development projects, resource utilization (such
as mineral mining, oil and gas, wood pulp, etc.),
agriculture land-use impacts, genomic assessments,
and the use of chemicals and other products in
commerce. The practice specializes in assessing the
integrated effects of chemical, biological, and
physical
terrestrial
stressors on aquatic and
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.
Environmental & Earth Sciences
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, development, and trade associations, and
to municipal and governmental clients. Our
consultants specialize in the areas of environmental
fate and transport, environmental chemistry and
forensics, hydrogeology, modeling and monitoring,
water quality, water rights and water resources,
natural resource damage assessments, data analytics,
remediation consulting, environmental engineering
and waste management, extreme weather event risk
management, and evaluation of environmental and
social risks. Our work typically involves complex
and high visibility environmental problems and
issues, often the focus of environmental or toxic tort
claims, where evaluation of contamination, historical
reconstruction of events, releases, and doses are
central to problem resolution. We provide case-
10
specific strategic and advisory consulting on risk
mitigation, planning, and environmental regulatory
and policy issues, as well as high-level technical
strategic consulting for complex matters where
understanding the long-term implications of early
technical actions is critical to managing overall
liability.
Health Sciences
industrial
hygienists,
including epidemiologists,
Our health scientists,
toxicologists,
exposure
scientists, air quality scientists, biostatisticians, risk
assessment scientists, and physicians, apply scientific
and medical principles to examine and address
complex human-health-related risk issues in a variety
of settings. Our consultants are recognized nationally
and internationally for our outstanding expertise and
in
credentials, and our decades of experience
government, academia, and industry sectors. Our
work has
included numerous community and
environmental health assessments, disease cluster
investigations, air quality investigations and analyses,
survey research, cohort and case-control studies,
exposure
studies,
and
biologically-based modeling, meta-analyses, and
We have
state-of-the-art
addressed critical issues for clients on industrial
chemicals, pesticides, mineral fibers, drugs, medical
devices, consumer products, nanotechnology, and
other agents and products as they relate to human
health risk.
assessment
simulation
literature
reviews.
Our multidisciplinary team has extensive experience
investigating a broad variety of health concerns such
as claims of adverse health effects from exposures to
a wide range of physical agents (e.g., ionizing
radiation, low- and radio-frequency electromagnetic
fields); chemical agents (e.g., volatile organic
compounds, metals, dusts, air pollutants, mineral
fibers, fumes, nanoparticles, and pharmaceuticals);
and biological agents (fungi/molds, bacteria, and
other micro-organisms). We can assess the potential
health effects of occupational and environmental
releases of
exposures;
chemicals and evaluate fate and transport of chemical
substances; characterize consumer and workplace
exposures
exposure
reconstruction; provide air quality and meteorological
modeling, permitting, and licensing support services;
develop measures of prevention and exposure
control; and assist clients with occupational safety
and health evaluations and emergency preparedness
and response.
investigate
simulation
accidental
through
and
COMPETITION
EMPLOYEES
As of December 28, 2018, we employed 1,122 full-
time, part-time and hourly employees, including 886
engineering and scientific staff, 72 technical support
staff and 164 administrative and support staff. Our
staff includes 794 employees with advanced degrees,
of which 584 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. Copies of material filed or furnished by us
with the SEC may also be obtained by writing to us at
our
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.
headquarters, Exponent,
corporate
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, 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 competitors may be able
to provide services 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.
11
EXECUTIVE OFFICERS OF THE REGISTRANT
The executive officers of Exponent and their ages as of February 22, 2019 are as follows:
Name
Age
Position
Paul R. Johnston, Ph.D.
Catherine Ford Corrigan, Ph.D.
Robert I. Haddad, Ph.D.
Harri K. Kytomaa, Ph.D.
Steven J. Murray, Ph.D.
John D. Osteraas, Ph.D.
John D. Pye, Ph.D.
Richard Reiss, Sc.D.
Richard L. Schlenker, Jr.
Sally B. Shepard
65
50
61
60
44
64
48
52
53
58
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
the Health
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
2003 he was appointed Chief Operating Officer and
added
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
was appointed Executive Chairman of the Board of
Directors in May 2018. 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.
Executive Chairman of the Board of Directors
President and Chief Executive Officer
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
Chief Human Resources Officer
joined
Catherine Ford Corrigan, Ph.D.,
the
Company in 1996. She was promoted to Principal in
the Biomechanics practice in 2002 and was appointed
Group Vice President in May 2012. Dr. Corrigan was
named President in July 2016. She was named Chief
Executive Officer and elected to the Board of
Directors in May 2018. Dr. Corrigan earned her
Ph.D. (1996) in Medical Engineering and Medical
Physics and M.S. (1992) in Mechanical Engineering
from the Massachusetts Institute of Technology and
her B.S. in Bioengineering from the University of
joining Exponent, Dr.
Pennsylvania. Prior
the Orthopaedic
Corrigan was a researcher
Biomechanics Laboratory at Beth Israel Hospital and
Harvard Medical School.
in
to
Robert I. Haddad, Ph.D., joined the Company in
May 2016 as a Corporate Vice President and
Principal Scientist. He was promoted to Group Vice
President in October 2016. Prior to joining the
Company, Dr. Haddad was Chief, Assessment &
Restoration Division, Office of Response &
Restoration at the National Oceanic and Atmospheric
Administration from 2007 to 2016 where he was
responsible for the strategic evaluation and tactical
resolution of environmental problems. From 2002 to
2007, Dr. Haddad was President and Principal
Scientist at Applied Geochemical Strategies, Inc.
where he was responsible for providing litigation
12
support and expertise in environmental forensics,
human health and ecological risk assessments, and
natural resource damage assessments to regional,
national, and
international clients. Dr. Haddad
received his Ph.D. (1989) in Chemical Oceanography
from the University of North Carolina, Chapel Hill
and B.S. (1979) in Geology from the University of
California, Los Angeles. Dr. Haddad has published in
peer-reviewed technical publications and scientific
journals, and has authored over 300 technical reports
and confidential documents for a variety of projects.
Harri K. Kytomaa, Ph.D., joined the Company in
1994. He was promoted to Principal Engineer in 1999
and was appointed Corporate Vice President in 2006.
Dr. Kytomaa was appointed Group Vice President in
October 2016. Dr. Kytomaa received his Ph.D.
(1986) in Mechanical Engineering and M.S. (1981) in
Mechanical Engineering from the California Institute
of Technology, and B.Sc. (1979) in Engineering
Science from Durham University, England. He is a
Registered Professional Engineer in 9 states and a
in
Certified Fire and Explosion
accordance with the National Association of Fire
Investigators National Certification Board. Prior to
joining Exponent, Dr. Kytomaa was Assistant
Professor and Associate Professor of Mechanical
Institute of
Engineering at
Technology, where he was head of
the Fluid
Mechanics Laboratory.
the Massachusetts
Investigator
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 from Stanford
in Civil Engineering:
University, M.S.
Structural Engineering from Stanford University and
B.S. (1976) in Civil and Environmental Engineering
from the University of Wisconsin. Dr. Osteraas is a
(1977)
Registered Professional Engineer in 19 states and is a
Fellow of the American Society of Civil Engineers.
John D. Pye, Ph.D., joined the Company in 1999. He
was promoted to Principal Engineer in 2006 and was
appointed Corporate Vice President in 2009. Dr. Pye
was appointed Group Vice President in January 2014.
Dr. Pye received his Ph.D. (1999) in Aerospace
Engineering from Stanford University, M.S. (1993)
in Aerospace Engineering from Stanford University,
and B.A.Sc. (1992) in Engineering Science from the
University of Toronto, Canada. He is a Registered
Professional Mechanical Engineer in the State of
California. Prior to joining Exponent, Dr. Pye held a
research position in the Aerospace Fluid Mechanics
Lab at Stanford University where he was responsible
for the renovation and redesign of the Stanford Low-
Speed wind tunnel as well as managing the Stanford
experimental facilities for the Stanford/NASA Ames
Joint Institute for Aeronautics and Astronautics.
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
in Environmental Engineering
(1991)
Northwestern University and B.S.
in
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
the Company
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
July 1999 and Secretary of
in
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 and was promoted
to Chief Human Resources Officer in 2017. From
2012 to 2014 she served as Vice President Human
Resources at 41st Parameter, which was acquired by
13
Experian. 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.
Shepard holds a B.S.
in Mechanical
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.
We have experienced and expect to continue to
experience employee turnover. 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.
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.
We currently derive a significant portion of our
revenues from clients in the chemical, consumer
electronics, energy, insurance, transportation and
utilities industries. The loss of any large client,
organization or insurer could have a material adverse
effect on our business, financial condition or results
of operations.
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.
14
On January 29th 2019, PG&E Corp. (“PG&E”) filed
for bankruptcy under chapter 11 of
the U.S.
bankruptcy code. Our total outstanding accounts
receivable from PG&E as of December 28, 2018 was
$5.6 million of which $2.1 million was paid during
fiscal 2019 prior to the bankruptcy filing date. We
continued to do work for PG&E during fiscal 2019
and the total outstanding accounts receivable from
PG&E on the bankruptcy filing date of January 29,
2019 was $6.0 million. Due to the uncertainties
associated with the bankruptcy process, we believe
that an impairment of the receivable is reasonably
possible, however we are unable to estimate the
amount of this receivable that will ultimately be
collected. As such, we have not recorded an
impairment charge related to this asset, but will do so
once an impairment, if any, is determined to be
probable and estimable.
We hold substantial investments that could present
liquidity risks.
investment
Our cash equivalent and short-term
portfolio as of December 28, 2018, consisted
primarily of obligations of U.S. 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
December 28, 2018, 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
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.
their enforcement. To
Tort reform can reduce demand for our services.
in
significant
Several of our practices have a
concentration
consulting
support
litigation
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
to a conflict or otherwise breached our
due
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
15
nature of our consulting services has and will
continue to 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 are subject to security breaches that may disrupt
our operations and/or lead to the inability to protect
confidential information.
We have experienced, and expect to continue to be
subjected to, security breaches and threats, none of
which have been material to us to date. 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 and/or personal 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.
Failure to protect client and employee data may
have an adverse effect on our business.
store
to numerous
sensitive or
We manage, utilize, and
confidential client or employee data,
including
personal data and protected health information. As a
result, we are subject
laws and
regulations designed to protect this information, such
as the U.S. federal and state laws governing the
protection of health or other personally identifiable
information,
Insurance
Portability and Accountability Act, and international
laws such as the European Union General Data
Protection Regulation. In addition, many states, U.S.
federal governmental authorities and non-U.S.
jurisdictions have adopted, proposed, or are
considering adopting or proposing, additional data
the Health
including
increasing
laws and regulations are
security and/or data privacy statutes or regulations.
These
in
complexity and number. If any person, including any
of our employees, negligently disregards or
intentionally breaches our established controls with
respect to client or employee data, or otherwise
mismanages or misappropriates that data, we could
be
significant monetary damages,
regulatory enforcement actions, fines, and/or criminal
prosecution. In addition, unauthorized disclosure of
sensitive or confidential client or employee data,
whether
employee
systems
negligence, fraud, or misappropriation, could damage
our reputation and cause us to lose clients and their
related revenue in the future.
through
failure,
subject
to
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, laboratory
and warehouse space in Menlo Park, California, our
test and engineering center in Phoenix, Arizona, and
our office and laboratory facilities currently under
construction in Natick, Massachusetts, 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-lived assets. In
addition, we have operating lease commitments for
office and laboratory space. 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 addition to our offices in the United States, we
the United Kingdom,
in
have physical offices
16
regulatory
Germany, Switzerland, Hong Kong, China and
Singapore and conduct business in several other
countries. We expect to continue to expand globally
and our international revenues may account for an
increasing portion of our revenues in the future. Our
financial,
international operations carry special
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;
burdensome
requirements and other
barriers to conducting business; tariffs and other trade
barriers including the United Kingdom’s decision to
leave the European Union; 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; managing the risks associated with global
privacy and data security laws and regulations
including the General Data Protection Regulation in
Europe; greater difficulties in managing and staffing
foreign operations; successful entry and execution in
new markets; restrictions on the repatriation of
earnings; potentially adverse tax consequences; and
other impending legislation that could add additional
risks to the business.
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
practices with respect
to government contracts.
Findings from an audit may result in fees being
the government or prospective
refunded
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
civil
various
administrative
include
termination of contracts,
forfeiture of profits,
suspension of payments, fines and suspensions or
debarment from doing business with other agencies
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
criminal
sanctions, which may
penalties
and
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.
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
adversely affect our revenues, revenue growth and
profitability.
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.
software algorithms
We, on occasion, 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
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
17
require that we make significant changes to our
systems, processes and controls.
management and other resources, or otherwise harm
our business.
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
Our quarterly results may vary.
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.
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.
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
to our business model. Our dividend
changes
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
The market price of our common stock may be
volatile.
None.
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.
These fluctuations are often unrelated
the
operating performance of particular companies.
These broad market fluctuations may adversely affect
the market price of our common stock. When the
market price of
stock drops
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
company's
to
to
a
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 warehouse storage space on a
1.1-acre tract of land that we also own.
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 a
21,613 square foot indoor test facility as well as a
44,053 square foot engineering and test preparation
building at the TEC.
During the first quarter of 2018, we closed on the
purchase of 2.9 acres of
in Natick,
Massachusetts on which we are constructing a 60,480
land
18
square foot building with office and laboratory
facilities.
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.”
As of February 15, 2019, there were 175 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.
In addition, we lease office and laboratory space in
21 other locations in 13 states and the District of
Columbia, as well as in Germany, China, Hong
Kong, Singapore, Switzerland and
the United
Kingdom. Leases for these offices and laboratory
facilities have terms generally ranging between one
and ten years. Aggregate lease expense in fiscal 2018
for all leased properties was $7,488,000.
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 December 28, 2018 (in thousands, except price per share):
Total Number
of Shares
Purchased
Average
Price Paid
Per Share
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
September 29 to October 26
October 27 to November 23
November 24 to December 28
Total
40
214
308
562
$ 49.14
$ 50.88
$ 48.83
$ 49.63
40
214
308
562
$43,411
$32,488
$17,462
Repurchases of the Company’s common stock were effected pursuant to a repurchase program authorized by the
Company’s Board of Directors. On October 21, 2015, the Company’s Board of Directors announced $35,000,000
for the repurchase of the Company’s common stock. On October 19, 2016, the Company’s Board of Directors
announced $35,000,000 for the repurchase of the Company’s common stock. On January 31, 2019, the Company’s
Board of Directors announced $75,000,000 for the repurchase of the Company’s common stock. These repurchase
programs have no expiration dates.
COMPANY STOCK PRICE PERFORMANCE GRAPH
The graph compares the Company’s cumulative total stockholder return calculated on a dividend-reinvested basis
from 2013 through 2018 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 2013. 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 13
Dec 14
Dec 15
Dec 16
Dec 17
Dec 18
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)
2018
2017
Fiscal Year
2016
2015
2014
Consolidated Statements of Income Data:
Revenues before reimbursements
Revenues
Operating income
Net income
Net income per share:
Basic
Diluted
$ 354,639
$ 379,523
$ 91,456
$ 72,254
$ 329,664
$ 347,799
$ 72,051
$ 41,305
$ 299,197
$ 315,076
$ 61,911
$ 47,480
$ 295,705
$ 312,832
$ 68,933
$ 43,599
$ 289,209
$ 304,704
$ 63,549
$ 40,701
$
$
1.37
1.33
$
$
0.78
0.77
$
$
0.90
0.87
$
$
0.82
0.80
$
$
0.76
0.74
Cash dividends declared per share
$
0.52
$
0.42
$
0.36
$
0.30
$
0.25
Consolidated Balance Sheet Data:
Cash and cash equivalents
Short-term investments
Working capital
Total assets
Long-term liabilities
Total stockholders’ equity
$ 127,059
$ 81,495
$ 228,308
$ 468,936
$ 56,723
$ 313,909
$ 124,794
$ 71,604
$ 222,402
$ 439,589
$ 57,394
$ 289,088
$ 114,967
$ 58,755
$ 193,808
$ 403,744
$ 50,162
$ 273,346
$ 125,751
$ 45,842
$ 192,312
$ 387,507
$ 44,229
$ 262,804
$ 129,490
$ 24,913
$ 176,153
$ 365,299
$ 41,666
$ 244,288
Item 7. Management’s Discussion and Analysis of
Financial Condition and Results of Operations
OVERVIEW
interdisciplinary
Exponent is an engineering and scientific consulting
to complex problems.
firm providing solutions
Exponent's
of
organization
scientists, physicians, engineers, and business
consultants draws from more than 90 technical
the most pressing and
disciplines
complicated challenges facing stakeholders today.
The firm leverages over 50 years of experience in
analyzing accidents and failures to advise clients as
they innovate their technologically complex products
and processes, ensure the safety and health of their
users, and address the challenges of sustainability.
solve
to
CRITICAL ACCOUNTING ESTIMATES
In preparing our consolidated financial statements,
we make assumptions, judgments and estimates that
21
that
balance
sheet. We
the assumptions,
can have a significant impact on our revenue,
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. On a
regular basis we evaluate our assumptions, judgments
and estimates and make changes accordingly. We
believe
judgments and
revenue
estimates
recognition and estimating the allowance for contract
losses and doubtful accounts have a potential impact
on our consolidated financial 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 accounting policies, see “Note 1:
in accounting
involved
for
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 the estimate as to
the total effort required to complete fixed-price
projects.
Estimating the allowance for contract losses and
doubtful accounts. 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 contract
losses
into
consideration factors such as historical write-offs,
customer concentration, customer credit-worthiness,
current economic conditions, and aging of amounts
due.
recognized
receivable
accounts
doubtful
taking
and
to
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
the use of our
engagements, fees earned for
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.
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
2017
2018
2016
PERIOD TO
PERIOD CHANGE
2018 vs. 2017 2017 vs. 2016
Revenues
100.0%
100.0%
100.0%
9.1%
10.4%
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
56.7
8.1
6.6
4.6
76.0
24.0
0.5
24.5
5.5
60.5
8.5
5.2
5.1
79.3
20.7
3.0
23.7
11.8
61.4
9.0
5.0
4.9
80.3
19.7
2.3
22.0
6.9
2.3
3.6
37.2
(1.4)
4.5
26.9
(82.2)
13.1
(48.9)
8.7
4.0
14.2
14.8
8.9
16.4
45.0
19.4
90.4
Net income
19.0%
11.9%
15.1%
74.9%
(13.0%)
EXECUTIVE SUMMARY
in
increase
increase
in billing
Revenues for 2018 increased 9% and revenues before
reimbursements increased 8% as compared to the
prior year. The
revenues before
reimbursements was due to an increase in billable
hours and an
rates. We
experienced strong demand for our consulting
services from a diverse set of clients for both
proactive and
reactive projects across several
industries and geographies. We continue to see
demand for our proactive services in the areas of
design and regulatory consulting, specifically related
to consumer electronics as that industry continues to
innovate and face manufacturability challenges. We
also continue to see demand for our reactive services
from clients in the energy, mining and infrastructure
industries with
construction
technical
management issues on large capital projects. Clients
in these industries continue to engage our inter-
disciplinary teams to evaluate these claims. We also
continue to see demand for our scientists to assess
increasing concerns
impact of
chemicals on human health and the environment.
regarding
and
the
During 2018, we had strong growth in our human
factors, materials & corrosion engineering, thermal
23
sciences, polymer science & materials chemistry,
mechanical engineering, and chemical regulation &
food safety practices. We were engaged by clients
throughout the year to determine what happened
when a disaster occurs. These events range from
structural
to
nanoscale components. During 2018, we completed
work on a large human factors assessment for a client
in the consumer products industry. This project
represented
before
reimbursement during 2018 as compared to 6%
during 2017.
failures on major
infrastructure
revenues
our
4%
of
Net income increased to $72,254,000 during 2018 as
compared
to $41,305,000 during 2017. Diluted
earnings per share increased to $1.33 for 2018 as
compared to $0.77 for 2017. The increase in net
income and diluted earnings per share was partially
due to the impact of the U.S. tax legislation that was
signed into law during the fourth quarter of 2017.
This U.S. tax legislation lowered the U.S. corporate
income tax rate from 35% to 21% beginning in 2018,
which contributed to the decrease in income tax
expense. In addition, we recorded an income tax
expense of $16,507,000 during the fourth quarter of
2017 associated with the tax legislation. We have
domestic deferred tax assets primarily associated
with our deferred compensation plan and stock-based
compensation program, which were previously
valued at the federal corporate income tax rate of
35%. Our deferred tax assets were re-measured at the
lower enacted corporate tax rate of 21% which
contributed $15,137,000 to the fourth quarter of 2017
income
tax
tax expense associated with
legislation. We also have foreign earnings that were
subject to the mandatory repatriation tax. The total
mandatory repatriation tax, net of the benefit of our
foreign tax credits, contributed $1,370,000 to the
fourth quarter of 2017 income tax expense associated
with the tax legislation.
the
during
Income before income taxes increased 13% to
$93,317,000
to
2018
$82,509,000 during 2017. We were able to improve
pre-tax income by effectively managing headcount to
align our resources with demand.
compared
as
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. We also remain focused on capitalizing on
emerging growth areas, managing other operating
expenses,
operations,
maintaining a strong balance sheet and undertaking
activities such as share repurchases and dividends to
enhance shareholder value.
generating
from
cash
OVERVIEW OF THE YEAR ENDED
DECEMBER 28, 2018
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 December 28, 2018,
December 29, 2017 and December 30, 2016 included
52 weeks of activity. Fiscal 2019 is a 53 week fiscal
year that will end on Friday, January 3, 2020.
increased 5%
to
During 2018, billable hours
1,274,000 as compared to 1,218,000 during 2017.
Our utilization decreased to 73% for 2018 as
compared to 75% for 2017. Technical full-time
equivalent employees increased 7% to 839 during
2018 as compared to 784 during 2017 due to our
recruiting and retention efforts. We continue to
selectively hire key talent to expand our capabilities.
FISCAL YEARS ENDED DECEMBER 28, 2018,
AND DECEMBER 29, 2017
Revenues
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
Engineering
and Other Scientific $ 306,265 $ 277,603
Percentage of
10.3%
total revenues
Environmental
and Health
Percentage of
total revenues
80.7%
79.8%
73,258
70,196
4.4%
19.3%
20.2%
Total revenues
$ 379,523 $ 347,799
9.1%
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
2018, billable hours for this segment increased by
5.4% to 992,000 as compared to 941,000 during
2017. This segment had strong growth in its human
factors, materials & corrosion engineering, thermal
sciences, polymer science & materials chemistry and
mechanical engineering practices during 2018. We
continued to see strong demand for our services
related to product recalls including assignments from
the consumer products and automotive industries.
Proactive services continued to expand as companies
seek our interdisciplinary advice throughout the
product life cycle, consistent with the increased
importance placed on understanding how users
interact with complex
technologies. Utilization
decreased to 75% for 2018 as compared to 77% for
2017. The decrease in utilization was partially due to
the completion of a large human factors assessment
for a client in the consumer products industry during
the third quarter of 2018. This project represented
before
approximately
reimbursements during 2018 as compared to 6%
during 2017. Technical
equivalents
increased 8.3% to 640 for 2018 as compared to 591
for 2017 due to our recruiting and retention efforts.
revenues
full-time
our
4%
of
The increase in revenues from our Environmental and
Health segment was due to an increase in billable
hours and an increase in billing rates. During 2018,
billable hours for this segment increased by 1.8% to
282,000 as compared to 277,000 during 2017. The
increase in billable hours was due to growth in our
chemical regulation and food safety practice where
we expanded our proactive services. Utilization
decreased to 68% for 2018 as compared to 69% for
2017. The decrease in utilization was partially due to
the completion of a large human factors assessment
24
for a client in the consumer products industry during
the
third quarter of 2018. Technical full-time
equivalents increased 3.1% to 199 during 2018 as
compared to 193 for 2017 due to our recruiting and
retention efforts.
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
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
Other Operating Expenses
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
Other operating
Expenses
Percentage of
total revenues
$ 30,599
$ 29,544
3.6%
8.1%
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 $871,000 due to
our
full-time equivalent
employees. We expect other operating expense to
grow as we selectively add new talent and make
investments in our corporate infrastructure.
technical
increase
in
Compensation
and related expenses
Percentage of
total revenues
56.7%
60.5%
$ 215,052 $ 210,289
2.3%
Reimbursable Expenses
The increase in compensation and related expenses
during 2018 was due to an increase in payroll
expense, an increase in fringe benefits, an increase in
bonus expense, and an increase in stock-based
compensation expense partially offset by a change in
the value of assets associated with our deferred
compensation plan. During 2018, payroll and fringe
increased $7,188,000 and $2,043,000,
benefits
respectively, due to the increase in technical full-time
equivalent employees and our annual salary increase.
During 2018, bonus expense increased by $5,107,000
due to a corresponding increase in income before
income taxes, before bonus expense, and before
stock-based
Stock-based
compensation.
compensation increased $788,000 due primarily to an
increase in the amortization of restricted stock unit
grants. During 2018, deferred compensation expense
decreased $10,447,000 with a corresponding decrease
to other income 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
$3,900,000 during 2018 as compared to an increase
in the value of the plan assets of $6,547,000 during
2017. We expect our compensation expense,
in value of deferred
excluding
compensation plan assets,
increase as we
selectively add new talent and adjust compensation to
market conditions.
the change
to
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
Reimbursable expenses
Percentage of
$ 24,884
$ 18,135
37.2%
total revenues
6.6%
5.2%
The increase in reimbursable expenses was primarily
due to an increase in travel related costs associated
with our large human factors assessment project. The
amount of reimbursable expenses will vary from year
to year depending on the nature of our projects.
General and Administrative Expenses
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
General and
administrative expenses $ 17,532
Percentage of
$ 17,780
(1.4)%
total revenues
4.6%
5.1%
The decrease in general and administrative expenses
during 2018 was primarily due to a decrease in travel
and meals of $249,000 due to a firm-wide managers
meeting during 2017. We expect general and
administrative expenses to increase as we selectively
add new talent, expand our business development
efforts, and pursue staff development initiatives.
25
Other Income
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
Other income
Percentage of
total revenues
$ 1,861
$ 10,458
(82.2)%
0.5%
3.0%
Other income 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 in other income
was primarily due to the change in value of assets
associated with our deferred compensation plan
partially offset by an increase in interest income.
During 2018, other income decreased $10,447,000
with
to deferred
compensation expense as compared to 2017. This
change consisted of a decrease in the value of the
plan assets of $3,900,000 during 2018 as compared to
an increase in the value of the plan assets of
$6,547,000 during 2017. The increase in interest
income of $1,457,000 was due to higher interest rates
for our cash equivalents and short-term investments.
corresponding decrease
a
Income Taxes
(In thousands except
percentages)
Fiscal Years
2018
2017
Percent
Change
our foreign tax credits, contributed $1,370,000 to the
fourth quarter of 2017 income tax expense associated
with the tax legislation.
The excess tax benefit associated with share-based
payment awards decreased to $4,154,000 during
2018 as compared to $6,528,000 during 2017.
Excluding the impact of the 2017 tax expense
associated with the tax legislation and excluding the
excess tax benefit, the effective tax rate would have
been 27.0% for 2018 as compared to 37.8% for 2017.
This decrease was due to the decrease in the U.S.
to 21%
income
corporate
beginning in 2018.
tax rate from 35%
FISCAL YEARS ENDED DECEMBER 29, 2017,
AND DECEMBER 30, 2016
Revenues
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
Engineering
and Other Scientific $ 277,603 $ 248,297
Percentage of
11.8%
total revenues
Environmental
and Health
Percentage of
total revenues
79.8%
78.8%
70,196
66,779
5.1%
20.2%
21.2%
$ 21,063 $ 41,204
(48.9)%
Total revenues
$ 347,799 $ 315,076
10.4%
Income taxes
Percentage of
total revenues
Effective tax rate
5.5%
22.6%
11.8%
49.9%
The decrease in income tax expense was due to the
impact of the U.S. tax legislation that was signed into
law during the fourth quarter of 2017, partially offset
by a decrease in the excess tax benefit associated
with share-based payment awards. This U.S. tax
legislation lowered the U.S. corporate income tax rate
from 35% to 21% beginning in 2018. In addition, we
recorded income tax expense of $16,507,000 during
the fourth quarter of 2017 associated with the tax
legislation. We have domestic deferred tax assets
primarily associated with our deferred compensation
plan and stock-based compensation program, which
were previously valued at the federal corporate
income tax rate of 35%. Our deferred tax assets were
re-measured at the lower enacted corporate tax rate of
21% which contributed $15,137,000 to the fourth
quarter of 2017 income tax expense associated with
the tax legislation. We also have foreign earnings that
were subject to the mandatory repatriation tax. The
total mandatory repatriation tax, net of the benefit of
human
construction
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
2017, billable hours for this segment increased by
9.9% to 941,000 as compared to 856,000 during
2016. The increase was due to demand for services in
factors,
consulting,
our
mechanical engineering, and polymer science &
materials chemistry practices. Reactive services
continued to grow as our engineers and scientists
to address construction disputes,
were engaged
medical device litigations, and consumer product and
automobile recalls. Proactive services expanded, as
for
we performed human
factors assessments
consumer products and design consulting
for
consumer electronics. Utilization increased to 77%
for 2017 as compared to 73% for 2016. Technical
full-time equivalents increased 4.8% to 591 for 2017
from 564 for 2016 due to our recruiting and retention
efforts.
The increase in revenues from our Environmental and
Health segment was due to an increase in billable
26
hours. During 2017, billable hours for this segment
increased by 5.7% to 277,000 as compared to
262,000 during 2016. Utilization increased to 69%
for 2017 as compared to 63% for 2016. During the
year, the chemical regulation and food safety practice
grew its proactive services to meet demand, as
society remains concerned about chemicals affecting
the global ecosystem and human health.
Our
environmental health scientists provided reactive
services performing human health and environmental
assessments. This segment’s contribution to the large
ongoing human factors assessment also contributed
to the increase in billable hours and utilization.
Technical full-time equivalents decreased 3.5% to
193 during 2017 as compared to 200 for 2016 due to
our efforts
to align resources with anticipated
demand.
Compensation and Related Expenses
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
Compensation
and related expenses
Percentage of
total revenues
$ 210,289 $ 193,397
8.7%
60.5%
61.4%
The increase in compensation and related expenses
during 2017 was due to an increase in bonus expense,
an increase in payroll expense, an increase in fringe
benefits, and a change in the value of assets
associated with our deferred compensation plan.
During 2017, bonus expense increased by $7,718,000
due to a corresponding increase in income before
income taxes, before bonus expense, and before
stock-based compensation. During 2017, payroll and
fringe benefits increased $4,769,000 and $991,000,
respectively, due to the increase in technical full-time
equivalent employees and our annual salary increase.
During 2017, deferred compensation expense
increased $2,686,000 with a corresponding increase
to other income as compared with the prior year due
to the change in value of assets associated with our
deferred compensation plan. This increase consisted
of an increase in the value of the plan assets of
$6,547,000 during 2017 as compared to an increase
in the value of the plan assets of $3,861,000 during
2016.
Other Operating Expenses
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
Other operating
Expenses
Percentage of
total revenues
$ 29,544
$ 28,397
4.0%
8.5%
9.0%
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 $416,000, an
increase in computer expense of $270,000, an
increase in technical materials of $183,000, and
several individually insignificant increases, which
were associated with the increase in technical full-
time equivalent employees and investments in our
corporate infrastructure.
Reimbursable Expenses
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
Reimbursable expenses
Percentage of
$ 18,135
$ 15,879
14.2%
total revenues
5.2%
5.0%
The increase in reimbursable expenses was primarily
due to an increase in travel related costs associated
with our large human factors assessment project. The
amount of reimbursable expenses will vary from year
to year depending on the nature of our projects.
General and Administrative Expenses
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
General and
administrative expenses $ 17,780
Percentage of
$ 15,492
14.8%
total revenues
5.1%
4.9%
The increase in general and administrative expenses
during 2017 was primarily due to an increase in
travel and meals of $1,173,000, an increase in
contributions of $250,000, an increase in marketing
and promotion of $200,000 and an increase in legal
expense of $194,000. The increase in travel and
meals was due to a firm-wide managers’ meeting
which occurs every other year. The increase in
marketing and promotion was due
to several
initiatives associated with the firm’s 50th anniversary.
27
Other Income
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
Other income
Percentage of
total revenues
$ 10,458
$ 7,211
45.0%
3.0%
2.3%
Other income 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 increase in other income
was primarily due to the change in value of assets
associated with our deferred compensation plan.
During 2017, other income increased $2,686,000
deferred
with
compensation expense as compared to 2016. This
change consisted of an increase in the value of the
plan assets of $6,547,000 during 2017 as compared to
an increase in the value of the plan assets of
$3,861,000 during 2016. The increase in other
income during 2017 was also due to an increase in
interest income of $611,000 due to higher interest
rates for our cash equivalents and short-term
investments.
corresponding
increase
to
a
Income Taxes
(In thousands except
percentages)
Fiscal Years
2017
2016
Percent
Change
Income taxes
Percentage of
total revenues
Effective tax rate
$ 41,204 $ 21,642
90.4%
11.8%
49.9%
6.9%
31.3%
The increase in income tax expense was due to an
increase in pre-tax income and the impact of the tax
legislation signed into law during the fourth quarter
of 2017, partially offset by an increase in the excess
tax benefit associated with share-based payment
awards. During 2017, we recorded a tax expense of
$16,507,000 related to the tax legislation. We have
significant domestic deferred tax assets primarily
associated with our deferred compensation plan and
stock-based compensation program, which were
previously valued at the federal corporate income tax
rate of 35%. Our deferred tax assets were re-
measured at the lower enacted corporate tax rate of
21%, which contributed $15,137,000 to the increase
in income tax associated with the tax legislation. We
also have foreign earnings that were subject to the
mandatory repatriation tax. The total mandatory
repatriation tax, net of the benefit of our foreign tax
credits, contributed $1,370,000 to the increase in
income
legislation.
tax expense associated with
the
tax
The excess tax benefit associated with share-based
payment awards increased to $6,528,000 during 2017
as compared to $4,827,000 during 2016. Excluding
the impact of the tax legislation and the excess tax
benefit, the effective tax rate would have been 37.8%
for 2017 as compared to 38.3% for 2016.
LIQUIDITY AND CAPITAL RESOURCES
(In thousands)
2018
Fiscal Years
2017
2016
Net cash provided
by (used in):
Operating activities $ 91,188 $ 67,838 $ 66,946
Investing activities
$ (25,820) $ (17,722) $ (27,443)
Financing activities $ (62,500) $ (41,261) $ (49,166)
We financed our business in 2018 through available
cash and cash flows from operating activities. We
invest our excess cash in cash equivalents and short-
term investments. As of December 28, 2018, our
cash, cash equivalents and short-term investments
were $208,554,000 as compared to $196,398,000 at
December 29, 2017. We believe our existing balances
of cash, cash equivalents and short-term investments
will be sufficient to satisfy our working capital needs,
capital expenditures, outstanding commitments, stock
liquidity
repurchases,
requirements over at least the next 12 months.
dividends
other
and
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 $91.2
million for 2018 as compared to $67.8 million and
$66.9 million in 2017 and 2016, respectively. The
increase in net cash provided by operating activities
during 2018 was primarily due to the increase in net
income and a decrease in accounts receivable.
During 2018, 2017 and 2016, net cash used in
investing activities was primarily related to the
purchase and maturity of short-term investments and
capital expenditures. During 2018, we purchased 2.9
28
unrecognized tax benefits of $1,748,000, 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.
We maintain nonqualified deferred compensation
plans for the benefit of a select group of highly
compensated employees. Vested amounts due under
the plans of $52,708,000 were recorded as a long-
term liability on our consolidated balance sheet at
December 28, 2018. Vested amounts due under the
plans of $6,641,000 were recorded as a current
liability on our consolidated balance sheet at
December 28, 2018. 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 December 28, 2018,
invested
the plans of $52,286,000 were
amounts under
recorded as a long-term asset on our consolidated
balance sheet. As of December 28, 2018, invested
amounts under the plans of $5,492,000 were recorded
as a current asset on our consolidated balance sheet.
As permitted under Delaware
law, we have
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
that
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.
acres of land in Natick, Massachusetts, on which we
are currently building office and laboratory facilities.
The total purchase price for the land was $5.2 million
and our total capital expenditures during 2018
associated with the construction were $5.3 million.
During 2016, we completed the purchase of 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
had leased this warehouse storage space for the past
25 years. The total purchase price was $8,250,000.
The increase in net cash used in financing activities
during 2018 as compared to 2017 was due to an
increase in our quarterly dividend payments and an
increase in repurchases of our common stock. The
decrease in net cash used in financing activities
during 2017, as compared to 2016, was due to a
in repurchases of our common stock
decrease
partially offset by an increase in our quarterly
dividend payments.
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 December 28, 2018
(in thousands):
Fiscal
year
2019
2020
2021
2022
2023
Thereafter
Operating
lease
Purchase
commitments Obligations
$ 7,220
5,988
4,940
3,887
2,600
6,157
$ 30,792
$ 12,315
-
-
-
-
-
$ 12,315
Total
$ 19,535
5,988
4,940
3,887
2,600
6,157
$ 43,107
Purchase obligations disclosed in the table above
include $11,769,000 associated with the construction
of our office and laboratory facilities in Natick
Massachusetts. The above table does not reflect
29
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 2018, 2017
and 2016:
(in thousands, except percentages)
2018
Fiscal Years
2017
2016
Revenues before reimbursements
$ 354,639
$ 329,664
$ 299,197
EBITDA
$ 96,858
$ 87,500
$ 74,570
EBITDA as a % of revenues
before reimbursements
27.3%
26.5%
24.9%
The increase in EBITDA as a percentage of revenues before reimbursements for 2018 as compared to 2017 was due
to 8% growth in revenues before reimbursements, a 1% decrease in general and administrative expenses and a 4%
increase in other operating expenses. The decrease in general and administrative expenses was due to a firm-wide
managers’ meeting during 2017. Other operating expenses increased at a lower rate than our revenues before
reimbursements due to the leverage of our corporate infrastructure.
The increase in EBITDA as a percentage of revenues before reimbursements for 2017 as compared to 2016 was
primarily due to an increase in utilization. Utilization for 2017 was 75% as compared to 70% for the prior period.
The increase in utilization was due to strong demand for both our proactive and reactive services and the impact of
the large human factors assessments we performed for a client in the consumer products industry.
30
The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net
income, for fiscal 2018, 2017 and 2016:
(in thousands)
2018
Fiscal Years
2017
2016
Net Income
$
72,254
$
41,305
$
47,480
Add back (subtract):
Income taxes
Interest income, net
Depreciation and
amortization
EBITDA
Stock-based compensation
21,063
(2,751)
6,292
96,858
16,993
41,204
(1,294)
6,285
87,500
16,155
21,642
(683)
6,131
74,570
13,333
EBITDAS
$
113,851
$
103,655
$
87,903
Item 7A. Quantitative and Qualitative Disclosure
About Market Risk
and net income of our foreign subsidiaries as
expressed in U.S. dollars.
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
At December 28, 2018, we had net assets of
approximately $5.4 million with a
functional
the British Pound, net assets of
currency of
functional
approximately $5.4 million with a
currency of the Euro, and net assets of approximately
$5.4 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
currency
transactions and monetary assets and
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 December 28, 2018, we had
the non-functional
net assets denominated
currency of approximately $2.0 million.
in
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
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.
31
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.
to provide
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
reporting
reasonable
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
circumvention or overriding of the system and
reasonable resource constraints. Because of
its
internal control over
inherent
financial reporting may not prevent or detect
misstatements. Also, projections of any evaluation of
effectiveness to future periods are subject to the risk
limitations, our
that
in conditions, or
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
issued by
- Integrated Framework (2013)
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
December 28, 2018.
(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
for
The information required by this item is incorporated
by reference to the Company’s definitive Proxy
its 2019 Annual Meeting of
Statement
Stockholders (the "Proxy Statement"). See Part 1,
Item 1 of this Annual Report on Form 10-K for
information regarding the executive officers of the
Company.
32
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
Owners
and Related
Stockholder Matters
and Management
The information required by this item is incorporated
by reference to the Proxy Statement. See also the
table on the Company’s share repurchases in Part II,
Item 5 above.
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.
33
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 December 28, 2018,
December 29, 2017 and December 30, 2016
Consolidated Statements of Comprehensive Income for the years ended
December 28, 2018, December 29, 2017 and December 30, 2016
Consolidated Balance Sheets as of December 28, 2018 and December 29, 2017
Consolidated Statements of Stockholders’ Equity for the years ended December 28, 2018,
December 29, 2017 and December 30, 2016
Consolidated Statements of Cash Flows for the years ended December 28, 2018,
December 29, 2017 and December 30, 2016
Notes to Consolidated Financial Statements
2. Financial Statement Schedules
Page
35
37
38
39
40
42
43
The following financial statement schedule of Exponent, Inc. for the years ended December 28, 2018,
December 29, 2017 and December 30, 2016 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
63
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
64
34
Report of Independent Registered Public Accounting Firm
To the Stockholders and Board of Directors
Exponent, Inc.:
Opinions on the Consolidated Financial Statements and Internal Control Over Financial Reporting
We have audited the accompanying consolidated balance sheets of Exponent, Inc. and subsidiaries (the Company) as
of December 28, 2018 and December 29, 2017, the related consolidated statements of income, comprehensive income,
stockholders’ equity, and cash flows for each of the years in the three-year period ended December 28, 2018, and the
related notes and financial statement schedule II (collectively, the consolidated financial statements). We also have
audited the Company’s internal control over financial reporting as of December 28, 2018, based on criteria established
in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the
Treadway Commission.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the
financial position of the Company as of December 28, 2018 and December 29, 2017, and the results of its operations
and its cash flows for each of the years in the three-year period ended December 28, 2018, in conformity with U.S.
generally accepted accounting principles. Also in our opinion, the Company maintained, in all material respects,
effective internal control over financial reporting as of December 28, 2018 based on criteria established in Internal
Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
Basis for Opinions
The Company’s management 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 Report on Internal Control over Financial Reporting, appearing
under Item 9A(b). Our responsibility is to express an opinion on the Company’s consolidated financial statements and
an opinion on the Company’s internal control over financial reporting based on our audits. We are a public accounting
firm registered with the Public Company Accounting Oversight Board (United States) (PCAOB) and are required to be
independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules
and regulations of the Securities and Exchange Commission and the PCAOB.
We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and
perform the audits to obtain reasonable assurance about whether the consolidated financial statements are free of
material misstatement, whether due to error or fraud, and whether effective internal control over financial reporting
was maintained in all material respects.
Our audits of the consolidated financial statements included performing procedures to assess the risks of material
misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that
respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and
disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used
and significant estimates made by management, as well as evaluating the overall presentation of the consolidated
financial statements. 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.
Definition and Limitations of Internal Control Over Financial Reporting
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
35
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.
/s/ KPMG LLP
We have served as the Company’s auditor since 1987.
San Francisco, California
February 22, 2019
36
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
2018
Fiscal Years
2017
2016
$ 354,639
24,884
379,523
$ 329,664
18,135
347,799
$ 299,197
15,879
315,076
215,052
30,599
24,884
17,532
288,067
91,456
210,289
29,544
18,135
17,780
275,748
72,051
193,397
28,397
15,879
15,492
253,165
61,911
2,751
(890)
93,317
1,294
9,164
82,509
683
6,528
69,122
21,063
$ 72,254
41,204
$ 41,305
21,642
$ 47,480
$
$
1.37
1.33
$
$
0.78
0.77
$
$
0.90
0.87
52,906
54,168
52,724
53,972
52,976
54,332
Cash dividends declared per common share
$
0.52
$
0.42
$
0.36
See accompanying notes to the Consolidated Financial Statements.
37
Exponent, Inc. and Subsidiaries
Consolidated Statements of Comprehensive Income
(In thousands)
Net income
Other comprehensive (loss) income, net of tax:
Foreign currency translation adjustments, net of tax
of $0, $0, and $0, respectively
Unrealized gain/(loss) arising during the period
on investments, net of tax of $(63), $60, and
$53, respectively
Comprehensive income
See accompanying notes to the Consolidated Financial Statements.
2018
Fiscal Years
2017
2016
$ 72,254
$ 41,305
$ 47,480
(1,015)
1,187
(1,240)
191
$ 71,430
(90)
$ 42,402
(81)
$ 46,159
38
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 $4,066 and $3,526, 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 plan liabilities
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; 120,000 shares authorized;
65,707 shares issued
Additional paid-in capital
Accumulated other comprehensive (loss)
Investment securities, available for sale
Foreign currency translation adjustments
Retained earnings
Treasury stock, at cost: 14,208 and 14,169 shares held, respectively
Total stockholders’ equity
See accompanying notes to the Consolidated Financial Statements.
39
December 28,
2018
December 29,
2017
$ 127,059
81,495
$ 124,794
71,604
105,814
12,244
326,612
46,103
8,607
34,090
52,286
1,238
$ 468,936
$ 12,283
76,855
9,166
98,304
2,548
52,708
1,467
155,027
110,100
9,011
315,509
35,014
8,607
30,437
48,676
1,346
$ 439,589
$ 14,741
70,064
8,302
93,107
3,326
52,776
1,292
150,501
-
-
66
227,283
66
210,230
(45)
(2,808)
(2,853)
342,024
(252,611)
313,909
$ 468,936
(236)
(1,793)
(2,029)
303,990
(223,169)
289,088
$ 439,589
Exponent, Inc. and Subsidiaries
Consolidated Statements of Stockholders’ Equity
(In thousands)
Balance at
January 1, 2016
Employee stock
purchase plan
Exercise of stock options
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
Other
Net income
Balance at
December 30, 2016
Employee stock
purchase plan
Exercise of stock options
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
December 29, 2017
Additional
Accumulated
other
Common Stock
Shares Amount
paid-in
capital
Treasury Stock
comprehensive Retained
income (loss) earnings Shares Amount
Total
65,707 $
66 $179,783
$ (1,805)
$ 269,259 14,266 $ (184,499) $ 262,804
65,707 $
66 $194,599
$ (3,126)
$ 291,243 14,512 $ (209,436) $ 273,346
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
6,334
(701)
-
854
133
-
6,918
(1,017)
-
915
-
883
161
7,152
-
-
-
-
-
-
(1,240)
-
-
-
-
-
-
(46)
(60)
307
405
1,190
566
-
982
-
(24,456)
7,152
(24,456)
-
-
-
-
(1,240)
6,334
(5,791)
(630)
(1,193)
(7,685)
(81)
-
-
-
-
(19,627)
(78)
47,480
-
-
-
-
-
-
-
-
(81)
(18,773)
55
47,480
847
144
7,824
-
-
-
-
-
-
1,187
-
-
-
-
-
-
(40)
(69)
360
674
1,207
818
-
372
-
(11,931)
7,824
(11,931)
-
-
-
-
1,187
6,918
(5,667)
(606)
(2,836)
(9,520)
(90)
-
-
-
(22,891)
41,305
-
-
-
-
-
-
(90)
(21,976)
41,305
-
-
-
-
65,707 $
66 $210,230
$ (2,029)
$303,990 14,169 $ (223,169) $ 289,088
See accompanying notes to the Consolidated Financial Statements.
40
(In thousands)
Balance at
December 29, 2017
Employee stock
purchase plan
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
December 28, 2018
Additional
Accumulated
other
Common Stock
Shares Amount
paid-in
capital
comprehensive Retained
Treasury Stock
income (loss) earnings Shares Amount
Total
65,707 $
66 $210,230
$ (2,029)
$303,990 14,169 $ (223,169) $ 289,088
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
7,643
(1,107)
-
806
-
1,161
8,550
-
-
-
-
-
(1,015)
-
-
-
-
-
(32)
313
1,474
-
562
-
(27,915)
8,550
(27,915)
-
-
-
-
(1,015)
7,643
(5,892)
(491)
(1,840)
(8,839)
-
-
191
-
-
-
(28,328)
72,254
-
-
-
-
-
-
191
(27,522)
72,254
65,707 $
66 $227,283
$ (2,853)
$342,024 14,208 $ (252,611) $ 313,909
See accompanying notes to the Consolidated Financial Statements.
41
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:
2018
Fiscal Years
2017
2016
$ 72,254
$ 41,305
$ 47,480
Depreciation and amortization of property, equipment
and leasehold improvements
6,292
6,285
6,131
Amortization of premiums and accretion of discounts
on short-term investments
Deferred rent expense
Provision for contract losses and doubtful accounts
Stock-based compensation
Deferred income tax provision
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
Net cash used in investing activities
Cash flows from financing activities:
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
(114)
175
1,848
16,993
(3,715)
2,438
(11,047)
(4,620)
9,820
864
91,188
-
(362)
2,506
16,155
11,786
(25,197)
2,867
5,984
5,831
678
67,838
2
(340)
2,452
13,333
(2,602)
(1,284)
(598)
(370)
2,920
(178)
66,946
(16,298)
(52,522)
43,000
(25,820)
(4,725)
(28,997)
16,000
(17,722)
(14,393)
(51,000)
37,950
(27,443)
(8,839)
(27,915)
1,474
(27,220)
(62,500)
(9,520)
(11,931)
2,025
(21,835)
(41,261)
(7,685)
(24,456)
1,756
(18,781)
(49,166)
Effect of foreign currency exchange rates on cash
and cash equivalents
(603)
972
(1,121)
Net increase (decrease) in cash and cash equivalents
Cash and cash equivalents at beginning of year
Cash and cash equivalents at end of year
2,265
124,794
$ 127,059
9,827
114,967
$ 124,794
(10,784)
125,751
$ 114,967
See accompanying notes to the Consolidated Financial Statements.
42
Exponent, Inc. and Subsidiaries
Notes to Consolidated Financial Statements
property, equipment and leasehold improvements.
Actual results could differ from those estimates.
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 2018, 2017 and 2016
included 52 weeks of activity and ended on
December 28, 2018, December 29, 2017 and
December 30, 2016, respectively. Fiscal period 2019
is 53 weeks and will end on January 3, 2020.
Stock Split
On May 31, 2018, the Company’s stockholders
approved an amendment to the Company’s certificate
of incorporation to (i) increase the number of
authorized shares of common stock to 120,000,000
and (ii) 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 31, 2018, received one
additional share of common stock for each share of
common
stockholder.
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
share and per share data
the Company’s
consolidated financial statements and related notes
have been retroactively adjusted to reflect the stock
split.
stock owned by
such
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
liabilities and
reported amounts of assets 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.
Estimates are used for, but not limited to, revenue
losses and
recognition, allowance
doubtful
compensation,
income taxes, goodwill, and the useful life of
for contract
stock-based
accounts,
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
other
in
recorded
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
43
investment before recovery of the investment’s cost
basis.
Allowances for Contract Losses and Doubtful
Accounts
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
all other customers
recognizes
the Company
for doubtful accounts based upon
allowances
historical write-offs,
concentration,
economic
customer
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
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 years 2018, 2017 or 2016.
Goodwill
The Company assesses the impairment of goodwill
annually and whenever events or changes
in
circumstances indicate that the carrying amount may
impaired. The Company’s annual goodwill
be
44
limited
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 to perform a quantitative goodwill
impairment test. The Company considers events and
circumstances,
to,
including but not
industry and market
macroeconomic conditions,
considerations,
financial
factors, overall
in management or key
performance, changes
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 quantitative goodwill impairment test is not
performed.
cost
the
totality of
The Company completed its annual assessment for all
reporting units with goodwill for fiscal 2018 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 quantitative
goodwill impairment test was not performed. The
Company did not recognize any goodwill impairment
losses in fiscal years 2018, 2017 or 2016.
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. An uncertain tax position
is recognized if it is determined that it is more likely
than not to be sustained upon 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
December 28, 2018 and December 29, 2017.
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 accounts for forfeitures of share-based
awards when they occur.
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
number of common
shares outstanding and
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
2017
2018
2016
per share computation
52,906 52,724 52,976
Effect of dilutive common
stock options outstanding
403
290
248
Effect of unvested restricted
stock units outstanding
Shares used in diluted
859
958 1,108
per share computation
54,168 53,972 54,332
There were no equity awards excluded from the
diluted per share calculation for fiscal years 2018,
2017 and 2016.
Recently Adopted Accounting Pronouncements
the Financial Accounting
On May 28, 2014,
Standards Board
issued Accounting
(“FASB”)
Standard Update (“ASU”) No. 2014-09, Revenue
45
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 promised
goods or services to customers. The ASU replaced
most existing revenue recognition guidance in U.S.
generally accepted accounting principles (“GAAP”).
The Company adopted the ASU as of the beginning
of its first quarter of fiscal 2018 using the modified
retrospective transition method. Under the modified
retrospective transition method, the cumulative effect
of applying the ASU is recognized at the date of
initial application. The cumulative effect of adopting
the ASU was not material and thus no cumulative
effect adjustment was recorded. The Company’s
analysis of its contracts under the ASU supports the
recognition of revenue over time, which is consistent
with the Company’s revenue recognition model prior
to the adoption of the ASU.
have
been
There
accounting
pronouncements made effective during fiscal 2018
that have significance to the Company’s consolidated
financial statements.
other
no
Recent Accounting Pronouncements Not Yet
Effective
In February 2016, the FASB established Topic 842,
Leases, by issuing ASU No. 2016-02, which requires
lessees to recognize leases on-balance sheet and
disclose key information about leasing arrangements.
Topic 842 was subsequently amended by ASU No.
2018-01, Land Easement Practical Expedient for
Transition
to Topic 842; ASU No. 2018-10,
Codification Improvements to Topic 842, Leases; and
ASU No. 2018-11, Targeted Improvements. The new
standard establishes a right-of-use model (ROU) that
requires a lessee to recognize a ROU asset and lease
liability on the balance sheet for all leases with a term
longer than 12 months. Leases will be classified as
finance or operating, with classification affecting the
pattern and classification of expense recognition in
the income statement.
The new standard is effective for the Company on
December 29, 2018. A modified retrospective
transition approach is required, applying the new
standard to all leases existing at the date of initial
application. An entity may choose to use either (1) its
effective date or (2) the beginning of the earliest
comparative period presented
financial
statements as its date of initial application. The
Company adopted the new standard on December 29,
2018 using the effective date as the date of initial
application. Consequently, financial information will
not be updated and the disclosures required under the
the
in
new standard will not be provided for dates and
periods before December 29, 2018.
The new standard provides a number of optional
practical expedients in transition. The Company
expects to elect the ‘package of practical expedients’,
which permits it not to reassess under the new
standard prior conclusions about lease identification,
lease classification and initial direct costs.
The Company expects that this standard will have a
material effect on its financial statements. While the
Company continues to assess all of the effects of
adoption, it currently believes the most significant
effects relate to the recognition of new ROU assets
and lease liabilities on its balance sheet for office and
laboratory operating leases and providing significant
new disclosures about its leasing activities. The
Company is currently finalizing the completeness of
the lease population and determining an applicable
discount rate. The Company does not expect a
significant change in its leasing activities between
now and adoption.
Note 2: Revenue Recognition
Substantially all of the Company’s engagements are
performed under time and materials or fixed-price
arrangements. For time and materials contracts, the
Company utilizes
the practical expedient under
Accounting Standards Codification 606 – Revenue
from Contracts with Customers, which states, if an
entity has a right to consideration from a customer in
an amount that corresponds directly with the value of
the entity’s performance completed to date (for
example, a service contract in which an entity bills a
fixed amount for each hour of service provided), the
entity may recognize revenue in the amount to which
the entity has a right to invoice. During 2018, the
revenue of $312,772,000
Company
associated with time and materials contracts. These
revenues
the Company’s
consolidated revenues and
include revenues of
$243,085,000 for the Company’s Engineering and
Other Scientific segment and $69,687,000 for the
Company’s Environmental and Health segment. The
Company’s
time and materials contracts are
terminable and subject to postponement or delay at
any time by our clients, and as such, the performance
obligations for all of the Company’s time and
materials contracts have an original expected
duration of one year or less.
represent 82% of
recognized
For fixed-price contracts the Company recognizes
revenue over time because of the continuous transfer
of control to the customer. The customer typically
46
controls the work in process as evidenced either by
contractual termination clauses or by the Company’s
rights to payment for work performed to date to
deliver services that do not have an alternative use to
the Company. Revenue for fixed-price contracts is
recognized based on the relationship of incurred labor
hours at standard rates to the Company’s estimate of
the total labor hours at standard rates it expects to
incur over the term of the contract. The Company
reliable
this methodology achieves a
believes
measure of the revenue from the consulting services
it provides
its customers under fixed-price
contracts given the nature of the consulting services
the Company provides and the following additional
considerations:
to
•
•
•
•
•
•
•
•
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
to measure progress
reliable milestones
towards completion;
the customer is required to pay the Company
for time at standard rates plus materials
incurred to date if the contract is terminated
early;
the Company’s contracts do not include
award fees or bonuses;
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
the Company’s contracts are
progress billed on a monthly basis.
typically
During 2018, the Company recognized revenue of
$66,751,000 associated with fixed-price contracts.
These revenues represent 18% of the Company’s
consolidated revenues and
include revenues of
$63,180,000 for the Company’s Engineering and
Other Scientific segment and $3,571,000 for the
Company’s Environmental and Health segment. The
Company’s fixed-price contracts are terminable and
subject to postponement or delay at any time by its
clients, and as such, the performance obligations for
all of the Company’s fixed-price contracts have an
original expected duration of one year or less.
Deferred revenues represent amounts billed to clients
in advance of services provided. During 2018,
$6,067,000 of revenues were recognized that were
included in the deferred revenue balance at December
29, 2017.
Reimbursements, including those related to travel and
other out-of-pocket expenses, and other similar third
party costs such as the cost of materials and certain
subcontracts, 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 before
reimbursements. The Company reports revenues net
of subcontractor fees for certain subcontracts where
the Company has determined that it is acting as an
agent because its performance obligation is to arrange
for the provision of goods or services by another
party. The total amount of subcontractor fees not
included in revenues because the Company was
acting as an agent were $23,174,000 during 2018.
47
Note 3: Cash, cash equivalents and short-term investments
Cash, cash equivalents and short-term investments consisted of the following as of December 28, 2018:
(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. Treasury and agency securities
Total short-term investments
Total cash, cash equivalents
and short-term investments
Amortized Unrealized Unrealized Estimated
Fair Value
Losses
Gains
Cost
$ 120,846
$
-
$
-
$ 120,846
6,213
6,213
127,059
81,634
81,634
-
-
-
91
91
-
-
-
6,213
6,213
127,059
(230)
(230)
81,495
81,495
$ 208,693
$
91
$
(230)
$ 208,554
Cash, cash equivalents and short-term investments consisted of the following as of December 29, 2017:
(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. Treasury and agency securities
Total short-term investments
Total cash, cash equivalents
and short-term investments
Amortized Unrealized Unrealized Estimated
Fair Value
Losses
Gains
Cost
$ 115,052
$
-
$
-
$ 115,052
9,742
9,742
124,794
71,997
71,997
-
-
-
-
-
-
-
-
9,742
9,742
124,794
(393)
(393)
71,604
71,604
$ 196,791
$
-
$
(393)
$ 196,398
48
Note 4: 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 fiscal years 2018, 2017 and 2016. 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 December 28, 2018 (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)
$
6,213
$
6,213
$
-
$
81,495
-
81,495
18,618
18,618
39,160
39,160
-
-
Total
$ 145,486
$
63,991
$
81,495
$
Liabilities
Deferred compensation
plan (4)
59,349
59,349
Total
$
59,349
$
59,349
$
-
-
$
-
-
-
-
-
-
-
(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 plan liabilities on the Company’s consolidated balance
sheet.
49
The fair value of these certain financial assets and liabilities was determined using the following inputs at December
29, 2017 (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)
$
9,742
$
9,742
$
-
$
71,604
-
71,604
13,686
13,686
39,664
39,664
-
-
Total
$ 134,696
$
63,092
$
71,604
$
Liabilities
Deferred compensation
plan (4)
59,050
59,050
Total
$
59,050
$
59,050
$
-
-
$
-
-
-
-
-
-
-
(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 plan liabilities on the Company’s consolidated balance
sheet.
Fixed income available-for-sale securities as of December 28, 2018 and December 29, 2017 represent primarily
obligations of the United States Treasury and other United States 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 December 28, 2018:
(In thousands)
Due within one year
Due between one and two years
Total
Amortized
Cost
$
$
32,986
48,648
81,634
Estimated
Fair Value
$ 32,826
48,669
$ 81,495
50
At December 28, 2018 and December 29, 2017, 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
December 28, 2018, but require disclosure of their fair values: accounts receivable, other assets and accounts
payable. The estimated fair value of such instruments at December 28, 2018 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 fiscal
years 2018, 2017 and 2016.
Note 5: 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
2018
2017
$ 17,103
38,946
6,508
46,492
10,352
15,621
135,022
88,919
$ 46,103
$ 11,888
38,112
632
42,803
9,911
15,178
118,524
83,510
$ 35,014
Depreciation and amortization for fiscal years 2018, 2017 and 2016 was $6,292,000, $6,285,000 and $6,131,000,
respectively.
51
Note 6: Other Significant Balance Sheet
Components
Total income tax expense for fiscal years 2018, 2017
and 2016 consisted of the following:
Account receivable, net
(In thousands)
Billed accounts receivable
Unbilled accounts receivable
Allowance for contract losses
and doubtful accounts
Total accounts
Fiscal Years
2018
2017
$ 73,905
35,975
$ 78,139
35,487
(4,066)
(3,526)
receivable, net
$ 105,814
$ 110,100
Accounts payable and accrued liabilities
(In thousands)
2018
Fiscal Years
2017
2016
Current
Federal
Foreign
State
Deferred
Federal
State
Total
$ 16,487
1,624
6,667
24,778
$ 22,821
1,514
5,083
29,418
$ 18,877
1,085
4,282
24,244
12,570
(2,604)
(1,111)
(784)
(3,715) 11,786
$ 41,204
$ 21,063
(2,047)
(555)
(2,602)
$ 21,642
(In thousands)
Accounts payable
Accrued liabilities
Total accounts payable and
other accrued liabilities
Fiscal Years
2018
2017
$ 2,551
9,732
$ 2,784
11,957
The Company’s effective tax rate differs from the
statutory federal tax rate of 21% for 2018 and 35%
for 2017 and 2016 as shown in the following
schedule:
$ 12,283
$ 14,741
(In thousands)
Fiscal Years
2017
2016
2018
Tax at federal statutory rate $19,597 $28,878 $24,193
Re-measurement of deferred
tax assets to lower enacted
domestic tax rate
Mandatory repatriation of
foreign earnings
State taxes, net of federal
benefit
Non-deductible expenses
Non-deductible
stock-based compensation
Excess tax benefit from
equity incentive plans
Difference between statutory
rate and foreign effective
tax rate
Other
Tax expense
- 15,137
-
1,370
-
-
4,391
335
2,806
417
2,423
274
20
18
11
(3,310)
(5,831)
(4,321)
(217)
247
(889)
(49)
$21,063 $41,204 $21,642
(1,339)
(252)
Effective tax rate
22.6% 49.9% 31.3%
Accrued payroll and employee benefits
(In thousands)
Accrued bonuses payable
Accrued 401(k) contributions
Accrued vacation
Deferred compensation plan
Other accrued payroll
and employee benefits
Total accrued payroll and
employee benefits
Fiscal Years
2018
2017
$ 49,436
8,154
10,390
6,641
$ 44,752
7,691
9,707
6,274
2,234
1,640
$ 76,855
$ 70,064
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 $8,005,000, $7,707,000 and
$5,616,000 for fiscal years 2018, 2017 and 2016,
respectively.
52
The tax effects of temporary differences that give rise
to significant portions of the deferred tax assets and
deferred tax liabilities at December 28, 2018 and
December 29, 2017 are presented in the following
schedule:
(In thousands)
Fiscal Years
2018
2017
Deferred tax assets:
Accrued liabilities
and allowances
$ 13,964
Deferred compensation plan 22,944
Property, equipment and
$ 13,265
22,297
leasehold improvements
Unrealized loss on deferred
compensation plan assets
Other
Total deferred tax assets
192
288
320
34
37,454
-
98
35,948
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
(1,184)
(2,086)
(1,232)
(2,078)
-
-
-
(94)
(3,364)
$ 34,090
(2,119)
(82)
(5,511)
$ 30,437
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 Tax Legislation also includes a provision to tax
global intangible low-taxed income (“GILTI”) of
foreign subsidiaries. An accounting policy election is
available to either account for the tax effects of
GILTI in the period that is subject to such taxes or to
provide deferred taxes for book and tax basis
differences that upon reversal may be subject to such
taxes. The Company has elected to account for the
tax effects of GILTI in the period that it is subject to
such tax.
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 recorded as an income tax benefit. For fiscal
years 2018, 2017 and 2016, the net deduction in tax
payable arising from employees’ stock award activity
and $4,827,000,
was $4,154,000, $6,528,000
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 2015. The Company is no longer
subject to California franchise tax examinations for
years prior to 2014. 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 2014.
impact of
The Tax Cuts and Jobs Act (Tax Legislation) was
enacted on December 22, 2017 and lowers U.S.
corporate income tax rates as of January 1, 2018,
implements a territorial tax system and imposes a
repatriation tax on deemed repatriated earnings of
foreign subsidiaries. The
the Tax
Legislation to the Company was an increase in
income tax expense of $16,507,000 during 2017. The
Company’s deferred tax assets were re-measured at
the lower enacted corporate tax rate of 21% which
contributed $15,137,000 to the 2017 increase in
income
the Tax
tax expense associated with
Legislation. The Company also has foreign earnings
that were subject to the mandatory repatriation tax.
The total mandatory repatriation tax, net of the
benefit of
tax credits,
the Company’s foreign
contributed $1,370,000 to the 2017 increase in
the Tax
income
tax expense associated with
Legislation. The Company elected
the
mandatory repatriation tax over a period of eight
years.
to pay
53
A reconciliation of the beginning and ending amount
of unrecognized tax benefits is as follows:
Balance at December 30, 2016
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 for tax positions of
prior years
Settlements
Balance at December 29, 2017
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 for tax positions of
prior years
Settlements
$ 1,956,000
597,000
11,000
(338,000)
(437,000)
-
$ 1,789,000
599,000
-
(257,000)
(383,000)
-
Balance at December 28, 2018
$ 1,748,000
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
$1,423,000 in a future period. There are no uncertain
tax positions whose resolution in the next 12 months
is expected to materially affect operating results.
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 December 28, 2018 and
December 29, 2017.
Dividends
The Company declared and paid cash dividends per
common share during the periods presented as
follows:
Fiscal Year 2018
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Dividends
Per Share
$ 0.13
$ 0.13
$ 0.13
$ 0.13
Amount
(in thousands)
$ 6,700
6,764
6,765
6,723
$ 26,952
First Quarter
Second Quarter
Third Quarter
Fourth Quarter
Fiscal Year 2017
Dividends
Per Share
$ 0.105
$ 0.105
$ 0.105
$ 0.105
Amount
(in thousands)
$ 5,374
5,424
5,424
5,416
$ 21,638
On January 31, 2019, the Company’s Board of
Directors announced a cash dividend of $0.16 per
share of the Company’s common stock, payable
March 22, 2019, to stockholders of record as of
March 8, 2019. The Company expects to continue
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 $5,892,000, $5,667,000 and $5,791,000 were
recorded as a reduction to retained earnings during
2018, 2017 and 2016, respectively.
Repurchase of Common Stock
The Company repurchased 562,000 shares of its
common stock for $27,915,000 during 2018. The
Company repurchased 372,000 shares of its common
stock for $11,931,000 during 2017. The Company
repurchased 982,000 shares of its common stock for
$24,456,000 during 2016. On October 18, 2016 the
Board of Directors authorized $35,000,000 for the
repurchase of Exponent’s common stock. On October
the Board of Directors authorized
20, 2015
$35,000,000 for
the repurchase of Exponent’s
common stock. These repurchase programs have no
expiration dates. As of December 28, 2018, the
Company had remaining authorization under its stock
repurchase plan of $17,462,000 to repurchase shares
of common stock.
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.
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
54
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 restricted stock units.
DER are accumulated and paid 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 2018, 2017
and 2016,
the Company recorded stock-based
compensation expense associated with accrued bonus
awards of $8,443,000, $8,331,000 and $6,181,000,
respectively.
2017
during
The Company recorded stock-based compensation
expense associated with the unvested restricted stock
and
awards of $7,653,000, $7,075,000
unit
$6,583,000
2016,
2018,
respectively. The total fair value of restricted stock
unit awards vested during 2018, 2017, and 2016 was
$23.2 million, $21.3 million and $18.5 million,
respectively. The weighted-average grant date fair
values of restricted stock unit awards granted during
2018, 2017 and 2016 were $40.61, $29.50 and
$24.14, respectively.
and
of the Board of Directors. The total number of shares
reserved for issuance under the 2008 Equity Incentive
Plan was 11,856,300 shares of common stock,
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. As of December 28,
2018, 2,472,419 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
1,200,000 shares of common stock. As of December
28, 2018, 414,275 shares were available for grant.
Weighted average purchase prices for shares sold
under the ESPP plan in fiscal 2018, 2017 and 2016
were $45.26, $30.67 and $25.99, 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
55
The number of unvested restricted stock unit awards outstanding as of December 28, 2018 is as follows (1):
Balance as of December 29, 2017
Awards granted
Awards vested
Awards forfeited
Number
of awards
outstanding
1,185,184
421,463
(571,257)
(851)
Balance as of December 28, 2018
1,034,539
Weighted-average
grant date
fair value
Weighted-average
remaining
contractual
term (years)
Aggregate
intrinsic value
(in thousands) (2)
$ 22.96
40.61
27.28
24.60
$ 27.76
1.6
$
51,644
(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 December 28, 2018 was $49.92.
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
Option activity is as follows (1):
corresponding
stock options. DER
rights, which entitle holders of stock options to the
same dividend value per share as holders of common
stock. DER are subject to the same vesting terms as
the
are
accumulated and paid in cash when the underlying
stock options vest and are forfeited if the underlying
stock options do not vest. During 2018, 2017 and
2016,
stock-based
compensation expense of $897,000, $749,000 and
$569,000, respectively, associated with stock options.
the Company
recorded
Weighted- Weighted-average
Number
of shares
outstanding
average
exercise
price
remaining
contractual
term (years)
Aggregate
intrinsic value
(in thousands)
Balance as of December 29, 2017
Options granted
Options forfeited and expired
Options exercised
680,000
98,000
-
-
$ 18.39
37.45
-
-
Balance as of December 28, 2018
778,000
$ 20.80
5.73
$
22,659
Exercisable at December 28, 2018
512,000
$ 15.76
4.47
$
17,488
(1) Does not include restricted stock or employee stock purchase plans.
56
The total intrinsic value of options exercised during
2018, 2017 and 2016 was $0, $1,461,000, and
$999,000, 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 December 28, 2018, 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
December 28, 2018. 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
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. All share-
based payment awards are recognized on a straight-
line basis over the requisite service periods of the
awards.
The assumptions used to value option grants for 2018, 2017 and 2016 are as follows:
Expected term (in years)
Risk-free interest rate
Volatility
Dividend yield
2018
5.9
2.74%
23%
0%
Stock Option Plan
2017
5.9
2.11%
24%
0%
2016
6.0
1.28%
25%
0%
The weighted-average grant date fair value of options granted during 2018, 2017 and 2016 were $10.59, $8.09 and
$6.54, respectively.
The amount of stock-based compensation expense and the related income tax benefit recognized in the Company’s
consolidated statements of income for 2018, 2017 and 2016 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
$
2018
2017
2016
15,561
897
16,458
535
535
16,993
$
$
14,809
749
15,558
597
597
16,155
$
$
12,225
569
12,794
539
539
13,333
Income tax benefit
$
4,467
$
6,331
$
5,214
As of December 28, 2018, there was $8,681,000 of unrecognized compensation cost, expected to be recognized over
a weighted average period of 2.5 years, related to unvested restricted stock unit awards and $931,000 of
57
unrecognized compensation cost, expected to be recognized over a weighted average period of 2.5 years, related to
unvested stock options.
Note 10: Retirement Plans
Note 12: Commitments and Contingencies
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 $8,419,000,
$7,914,000, and $7,761,000 in 2018, 2017, and 2016,
respectively.
immediately
Note 11: Deferred Compensation Plans
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 December 28, 2018 and December
29, 2017 the invested amounts under the plans totaled
$57,778,000 and $53,350,000, respectively. These
assets are classified as trading securities and are
recorded at fair market value with changes recorded
as adjustments to other income.
the plans
As of December 28, 2018 and December 29, 2017,
vested amounts due under
totaled
$59,349,000 and $59,050,000, respectively. Changes
in the liability are recorded as adjustments to
compensation expense. During fiscal years 2018,
2017
recognized
compensation expense of ($3,900,000), $6,547,000,
and $3,861,000, respectively, as a result of changes
in the market value of the trust assets with the same
amount being recorded as other income.
the Company
2016,
and
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
December 28, 2018:
(In thousands)
Fiscal year
2019
2020
2021
2022
2023
Thereafter
$
Lease
commitments
7,220
5,988
4,940
3,887
2,600
6,157
$ 30,792
Total rent expense from property leases in fiscal
2018, 2017, and 2016 was $7,488,000, $6,712,000
and $6,478,000, respectively. The Company had
$12,315,000 in outstanding purchase commitments as
of December 28, 2018, which includes $11,769,000
associated with the construction of our office and
laboratory facilities in Natick, Massachusetts. These
commitments are expected to be fulfilled by the end
of fiscal 2019.
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.
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.
58
Note 13: Miscellaneous Income, Net
Note 15: Supplemental Cash Flow Information
Miscellaneous income, net, consisted of the
following:
The following is supplemental disclosure of cash
flow information:
Fiscal Years
2017
2018
2016
(In thousands)
Fiscal Years
2017
2016
2018
2,823
2,655
2,435
Cash paid during the year:
Income taxes
$28,636 $25,849 $22,280
(In thousands)
Rental income
Gain (loss) on deferred
compensation
investments
Gain (loss) on foreign
exchange
Other
Total
(3,900)
6,547
3,861
167
20
$ (890)
(19)
(19)
224
8
$ 6,528
$ 9,164
Note 14: Industry and Client Credit Risk
The Company serves clients in various segments of
the economy. During fiscal 2018, the Company
provided services representing approximately 27% of
revenues to clients in the consumer products industry.
During fiscal 2018, the Company provided services
representing approximately 16% of revenues to
clients in the transportation industry. During fiscal
2018, the Company provided services representing
approximately 15% of revenues to clients in the
energy and utilities industries.
One client comprised 12% of
the Company’s
revenues during 2018. The same client comprised
14% of the Company’s revenues during 2017. No
other single client comprised more than 10% of the
Company’s revenues during 2018 or 2017. No single
client comprised more than 10% of the Company’s
revenues during 2016. No single client comprised
the Company’s accounts
more
receivable at December 28, 2018.
One client
comprised 24% of
the Company’s accounts
receivable at December 29, 2017. No other single
client comprised more than 10% of the Company’s
accounts receivable at December 29, 2017.
than 10% of
Non-cash investing and
financing activities:
Unrealized gain (loss) on
investments
$ 191 $
(90) $
(81)
Vested stock unit awards
granted to settle
accrued bonus
Accrual for capital
expenditures
$ 7,643 $ 6,910 $ 6,334
$ 1,231 $ 148 $ 284
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 2018, 2017 and 2016. Segment
information for selected data from the balance sheets
is presented for the fiscal years ended December 28,
2018 and December 29, 2017. Our CEO, the chief
operating decision maker, does not review total assets
in her evaluation of segment performance and capital
allocation.
Revenues
(In thousands)
Engineering and
Other Scientific
Environmental and Health
Fiscal Years
2017
2016
2018
$ 306,265 $ 277,603 $ 248,297
66,779
70,196
73,258
Total revenues
$ 379,523 $ 347,799 $ 315,076
59
Corporate operating
expense
Total operating
income
Capital Expenditures
(In thousands)
Operating Income
(In thousands)
Fiscal Years
2017
2018
2016
(In thousands)
Fiscal Years
2017
2016
2018
Depreciation and Amortization
Engineering and
Other Scientific
Environmental and Health 23,824
$100,307 $ 93,451 $ 80,494
18,650
22,340
Total segment operating
income
124,131
115,791
99,144
(32,675)
(43,740)
(37,233)
Engineering and
Other Scientific
Environmental and Health
Total segment depreciation
and amortization
Corporate depreciation and
amortization
Total depreciation and
$ 4,435 $ 4,449 $ 4,429
181
179
171
4,606 4,628
4,610
1,686 1,657
1,521
$ 91,456 $ 72,051 $ 61,911
amortization
$ 6,292 $ 6,285 $ 6,131
Fiscal Years
2017
2018
2016
Information regarding the Company’s operations in
different geographical areas:
Property, Equipment and Leasehold Improvements, net
Engineering and
Other Scientific
Environmental and Health
$ 4,528 $
199
3,648 $ 4,309
124
218
(In thousands)
Fiscal Years
2018
2017
Total segment capital
expenditures
Corporate capital
expenditures
Total capital
4,727
3,866
4,433
12,654
859
9,960
expenditures
$ 17,381 $
4,725 $ 14,393
United States
Foreign Countries
$ 44,181
1,922
$ 33,771
1,243
Total
$ 46,103
$ 35,014
Revenues (1)
(In thousands)
United States
Foreign Countries
2018
Fiscal Years
2017
2016
$ 334,422 $ 308,406 $ 281,223
33,853
45,101
39,393
Total
$ 379,523 $ 347,799 $ 315,076
(1) Geographic revenues are allocated based on
location of the client.
the
Below is a breakdown of goodwill, reported by segment as of December 28, 2018 and December 29, 2017:
(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 2018, 2017 and 2016. There were no goodwill
impairments or gains or losses on disposals for any portion of the Company’s reporting units during 2018, 2017 and
2016.
60
Note 17: Related Party Transactions
Note 18: Subsequent Event
Debra Zumwalt currently serves on the Company’s
Board of Directors. Ms. Zumwalt is the Vice
President and General Counsel
for Stanford
University. During the year ended December 28,
2018, the Company performed consulting services for
Stanford University and
revenue of
approximately $1.5 million.
recorded
On January 31, 2019, the Company announced that
its Board of Directors has declared a quarterly cash
dividend of $0.16 per share to be paid on March 22,
2019 to all common stockholders of record as of
March 8, 2019. The Board of Directors also
authorized an additional $75 million for share
repurchases.
On January 29th 2019, PG&E Corp. (“PG&E”) filed
for bankruptcy under chapter 11 of
the U.S.
bankruptcy code. The Company’s total outstanding
accounts receivable from PG&E as of December 28,
2018 was $5.6 million of which $2.1 million was
paid during fiscal 2019 prior to the bankruptcy filing
date. The Company continued to do work for PG&E
during fiscal 2019 and the total outstanding accounts
receivable from PG&E on the bankruptcy filing date
of January 29, 2019 was $6.0 million. Due to the
uncertainties associated with the bankruptcy process
the Company believes that an impairment of the
receivable is reasonably possible, however it is
unable to estimate the amount of this receivable that
will ultimately be collected. As such, the Company
has not recorded an impairment charge related to this
asset, but will do so once an impairment, if any, is
determined to be probable and estimable.
61
Comparative Quarterly Financial Data (unaudited)
Summarized quarterly financial data is as follows:
Fiscal 2018
(In thousands, except per share data)
March 30,
2018
June 29,
2018
September 28, December 28,
2018
2018
Revenues before reimbursements
Revenues
Operating income
Income before income taxes
$ 90,684
96,457
21,598
22,450
$ 89,972
95,621
22,478
24,919
$ 88,714
95,302
20,594
23,989
$ 85,269
92,143
26,786
21,959
Net income
$ 20,340
$ 18,425
$ 17,453
$ 16,036
Net income per share
Basic
Diluted
Shares used in per share computations
Basic
Diluted
$
$
0.39
0.38
$
$
0.35
0.34
$
$
0.33
0.32
$
$
0.30
0.30
52,744
54,012
53,008
54,195
53,032
54,302
52,839
54,119
Fiscal 2017
(In thousands, except per share data)
March 31,
2017
June 30,
2017
September 29, December 29,
2017
2017
Revenues before reimbursements
Revenues
Operating income
Income before income taxes
$ 80,467
84,122
14,634
17,410
$ 84,120
87,840
20,317
22,348
$ 82,359
87,555
19,305
22,030
$ 82,718
88,282
17,795
20,721
Net income (loss)
$ 16,576
$ 13,791
$ 14,643
$ (3,705) (1)
Net income per share
Basic
Diluted
Shares used in per share computations
Basic
Diluted
$
$
0.32
0.31
$
$
0.26
0.26
$
$
0.28
0.27
$ (0.07)
$ (0.07)
52,604
53,962
52,830
53,936
52,740
53,926
52,726
52,726
(1) The decrease in net income and diluted earnings per share during the fourth quarter of 2017 was due to the
impact of the tax legislation. During the fourth quarter of 2017, the Company recorded a tax expense of
$16,507,000 related to the tax legislation signed into law during the fourth quarter of 2017. The Company has
domestic deferred tax assets primarily associated with its deferred compensation plan and stock-based compensation
program, which were previously valued at the federal corporate income tax rate of 35%. The Company’s deferred
tax assets were re-measured at the lower enacted corporate tax rate of 21% which contributed $15,137,000 to the
increase in income tax associated with the tax legislation. The Company also has foreign earnings that were subject
to the mandatory repatriation tax. The total mandatory repatriation tax, net of the benefit of its foreign tax credits,
contributed $1,370,000 to the increase in income tax expense associated with the tax legislation.
62
Schedule II
Valuation and Qualifying Accounts
(In thousands)
Year Ended December 28, 2018
Allowance for bad debt
Allowance for contract losses
Year Ended December 29, 2017
Allowance for bad debt
Allowance for contract losses
Year Ended December 30, 2016
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
$
917
$ 2,609
$
$
293
-
$
-
$ 1,940
$
(363)
$ (1,330)
$
847
$ 3,219
$
923
$ 2,494
$
$
473
-
$
-
$ 2,033
$
(479)
$ (1,918)
$
917
$ 2,609
$
838
$ 1,954
$
$
443
-
$
-
$ 2,009
$
(358)
$ (1,469)
$
923
$ 2,494
(1) Balance includes currency translation adjustments.
Recoveries of accounts receivable previously written off were $28,000, $84,000 and $114,000 for fiscal years 2018,
2017 and 2016, 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.
63
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).
3.1(iv) 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 31, 2018).
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).
64
*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).
65
*10.46 Executive Compensation Clawback Policy (incorporated by reference from the Company’s Quarterly
Report on Form 10-Q for the fiscal period ended September 30, 2016).
*10.47 Exponent, Inc. Amended and Restated 2008 Equity Incentive Plan (filed as Appendix A to the
Company’s Schedule 14A on April 18, 2017).
*10.48 Exponent, Inc. Amended and Restated 2008 Employee Stock Purchase Plan (filed as Appendix B to the
Company’s Schedule 14A on April 18, 2017).
21.1
List of subsidiaries.
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
66
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 22, 2019
By: /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/ Catherine Ford Corrigan
Catherine Ford Corrigan, Ph.D.
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Richard L. Schlenker, Jr.
Richard L. Schlenker, Jr.
Executive Vice President, Chief Financial Officer and
Corporate Secretary (Principal Financial and
Accounting Officer)
February 22, 2019
February 22, 2019
/s/ Paul R. Johnston
Paul R. Johnston, Ph.D.
/s/ Carol Lindstrom
Carol Lindstrom
/s/ Karen A. Richardson
Karen A. Richardson
/s/ John B. Shoven
John B. Shoven, Ph.D.
/s/ Debra L. Zumwalt
Debra L. Zumwalt
Executive Chairman of the Board of Directors
February 22, 2019
Director
Director
Director
Director
February 22, 2019
February 22, 2019
February 22, 2019
February 22, 2019
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