UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
_________________
(Mark
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| x | | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934 | |
For the quarterly period ended September 28, 2001
March 29, 2002
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
| ¨ | | 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
(Exact name of registrant as specified in its charter)
DELAWARE | | 77-0218904
-------- ----------
(State |
(State or other jurisdiction of incorporation) (I.R.S. | | (I.R.S. Employer Identification Number) |
149 COMMONWEALTH DRIVE, MENLO PARK, CALIFORNIA | | 94025
- ---------------------------------------------- -----
(Address |
(Address of principal executive office) (Zip | | (Zip Code)
Registrant's telephone number, including area code (650) 326-9400
--------------
Former name, former address and former fiscal year, if changed since last report N/A
---
|
Registrant’s telephone number, including area code: (650) 326-9400
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X No__________
-----
x No¨
Indicate the number of shares outstanding of each of the
issuer'sissuer’s classes of common stock, as of the latest practicable date.
Class Outstanding at November 2, 2001
- ---------------------------- -------------------------------
Common Stock $.001 par value 6,470,960 shares
Class
| | Outstanding at May 3, 2002
|
| Common Stock $.001 par value | | 6,688,990 shares |
PART I - I—FINANCIAL INFORMATION
Item 1. Financial Statements
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September
March 29, 2002 and December 28, 2001 and December 29, 2000
(in
(in thousands, except share data)
(unaudited)
September 28, December 29,
2001 2000
------------- ------------
Assets
Current assets:
Cash and cash equivalents ......................................... $ - $ 6,379
Accounts receivable, net .......................................... 41,654 32,257
Prepaid expenses and other assets ................................. 3,282 2,892
Deferred income taxes ............................................. 1,908 1,908
----------- -----------
Total current assets .......................................... 46,844 43,436
Property, equipment and leasehold improvements, net ................... 33,212 34,007
Goodwill .............................................................. 6,634 7,250
Other assets .......................................................... 800 933
----------- -----------
$ 87,490 $ 85,626
=========== ===========
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities .......................... $ 4,522 $ 4,232
Current installments of long-term obligations ..................... 534 839
Accrued payroll and employee benefits ............................. 10,182 13,275
Deferred revenues ................................................. 670 1,057
----------- -----------
Total current liabilities ..................................... 15,908 19,403
Long-term obligations, net of current installments .................... 1,799 227
Other obligations ..................................................... 691 659
----------- -----------
Total liabilities ............................................. 18,398 20,289
----------- -----------
Stockholders' equity:
Common stock ...................................................... 8 8
Additional paid-in capital ........................................ 32,351 33,016
Accumulated other comprehensive losses ............................ (115) (97)
Retained earnings ................................................. 47,243 42,252
Treasury shares, at cost, 1,451,058 and 1,454,741 shares at
September 28, 2001 and December 29, 2000, respectively .......... (10,395) (9,842)
----------- -----------
Total stockholders' equity .................................... 69,092 65,337
----------- -----------
$ 87,490 $ 85,626
=========== ===========
| | | March 29, 2002
| | | December 28, 2001
| |
Assets | | | | | | | | |
| Current assets: | | | | | | | | |
| Cash and cash equivalents | | $ | 7,055 | | | $ | 7,815 | |
| Accounts receivable, net of allowance for doubtful accounts of $1,784 and $1,865, respectively | | | 38,048 | | | | 38,607 | |
| Prepaid expenses and other assets | | | 3,922 | | | | 2,471 | |
| Deferred income taxes | | | 1,815 | | | | 2,165 | |
| | |
|
|
| |
|
|
|
| Total current assets | | | 50,840 | | | | 51,058 | |
|
| Property, equipment and leasehold improvements, net | | | 32,140 | | | | 32,640 | |
| Goodwill | | | 6,616 | | | | 6,576 | |
| Other assets | | | 769 | | | | 760 | |
| | |
|
|
| |
|
|
|
| | | $ | 90,365 | | | $ | 91,034 | |
| | |
|
|
| |
|
|
|
|
Liabilities and Stockholders’ Equity | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable and accrued liabilities | | $ | 5,101 | | | $ | 4,646 | |
| Current installments of long-term obligations | | | 167 | | | | 359 | |
| Accrued payroll and employee benefits | | | 9,863 | | | | 12,897 | |
| Deferred revenues | | | 868 | | | | 1,409 | |
| | |
|
|
| |
|
|
|
| Total current liabilities | | | 15,999 | | | | 19,311 | |
|
| Long-term obligations, net of current installments | | | 73 | | | | 81 | |
| Deferred income taxes | | | 414 | | | | 414 | |
| Other obligations | | | 707 | | | | 697 | |
| | |
|
|
| |
|
|
|
| Total liabilities | | | 17,193 | | | | 20,503 | |
| | |
|
|
| |
|
|
|
|
| Stockholders’ equity: | | | | | | | | |
| Common stock | | | 8 | | | | 8 | |
| Additional paid-in capital | | | 32,254 | | | | 32,509 | |
| Accumulated other comprehensive losses | | | (113 | ) | | | (116 | ) |
| Retained earnings | | | 50,293 | | | | 48,374 | |
| Treasury shares, at cost, 1,338,924 and 1,435,314 shares at March 29, 2002 and December 28, 2001, respectively | | | (9,270 | ) | | | (10,244 | ) |
| | |
|
|
| |
|
|
|
| Total stockholders’ equity | | | 73,172 | | | | 70,531 | |
| | |
|
|
| |
|
|
|
| | | $ | 90,365 | | | $ | 91,034 | |
| | |
|
|
| |
|
|
|
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed Consolidated Financial Statements.
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters Ended March 29, 2002 and Nine Months Ended September 28,March 30, 2001 and September 29, 2000
(in
(in thousands, except per share data)
(unaudited)
Quarters Ended Nine Months Ended
--------------------------------- ---------------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
--------------- ---------------- --------------- ---------------
Revenues .............................................. $ 26,446 $ 25,474 $ 79,633 $ 77,219
--------------- ---------------- --------------- ---------------
Operating expenses:
Compensation and related expenses ................ 16,834 16,071 51,715 48,658
Other operating expenses ......................... 4,517 4,231 13,234 12,373
General and administrative expenses .............. 2,475 2,266 6,895 7,147
--------------- ---------------- --------------- ---------------
23,826 22,568 71,844 68,178
--------------- ---------------- --------------- ---------------
Operating income ............................... 2,620 2,906 7,789 9,041
Other income (expense):
Interest income (expense), net ................... (3) 4 50 (19)
Miscellaneous income, net ........................ 175 447 805 1,368
--------------- ---------------- --------------- ---------------
172 451 855 1,349
Income from continuing operations
before income taxes .......................... 2,792 3,357 8,644 10,390
Income taxes .......................................... 1,179 1,391 3,653 4,304
--------------- ---------------- --------------- ---------------
Income from continuing operations .............. 1,613 1,966 4,991 6,086
Discontinued operations:
Loss from operation of BCS Wireless, Inc.
(net of taxes of ($69)) ........................ - - - (97)
Gain on disposition of BCS Wireless, Inc.
(net of taxes of $320) ......................... - - - 451
--------------- ---------------- --------------- ---------------
- - - 354
--------------- ---------------- --------------- ---------------
Net income $ 1,613 $ 1,966 $ 4,991 $ 6,440
=============== ================ =============== ===============
Income per share from continuing operations:
Basic ............................................ $ 0.25 $ 0.30 $ 0.77 $ 0.91
Diluted .......................................... $ 0.23 $ 0.28 $ 0.69 $ 0.86
Income per share from discontinued operations:
Basic ............................................ $ - $ - $ - $ 0.05
Diluted .......................................... $ - $ - $ - $ 0.05
Net income per share:
Basic ............................................ $ 0.25 $ 0.30 $ 0.77 $ 0.97
Diluted .......................................... $ 0.23 $ 0.28 $ 0.69 $ 0.91
Shares used in per share computations:
Basic ............................................ 6,527 6,606 6,519 6,659
Diluted .......................................... 7,148 7,104 7,217 7,096
| | | Three Months Ended
|
| | | March 29, 2002
| | March 30, 2001
|
| Revenues | | $ | 28,231 | | $ | 27,861 |
| | |
|
| |
|
|
|
| Operating expenses: | | | | | | |
| Compensation and related expenses | | | 18,478 | | | 18,179 |
| Other operating expenses | | | 4,033 | | | 4,070 |
| General and administrative expenses | | | 1,818 | | | 1,899 |
| | |
|
| |
|
|
| | | | 24,329 | | | 24,148 |
| | |
|
| |
|
|
| Operating income | | | 3,902 | | | 3,713 |
|
| Other income, net: | | | | | | |
| Interest income, net | | | 20 | | | 64 |
| Miscellaneous income, net | | | 92 | | | 418 |
| | |
|
| |
|
|
| | | | 112 | | | 482 |
|
| Income before income taxes | | | 4,014 | | | 4,195 |
|
| Income taxes | | | 2,095 | | | 1,770 |
| | |
|
| |
|
|
| Net income | | $ | 1,919 | | $ | 2,425 |
| | |
|
| |
|
|
|
| Net income per share: | | | | | | |
| Basic | | $ | 0.29 | | $ | 0.37 |
| Diluted | | $ | 0.26 | | $ | 0.34 |
|
| Shares used in per share computations: | | | | | | |
| Basic | | | 6,545 | | | 6,471 |
| Diluted | | | 7,361 | | | 7,174 |
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed Consolidated Financial Statements.
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Quarters Ended March 29, 2002 and Nine months Ended September 28,March 30, 2001 and September 29, 2000
(in
(in thousands)
(unaudited)
Quarters Ended Nine months Ended
--------------------------------- ---------------------------------
September 28, September 29, September 28, September 29,
2001 2000 2001 2000
---------------- --------------- ---------------- ---------------
Net income ............................................ $ 1,613 $ 1,966 $ 4,991 $ 6,440
Other comprehensive income (loss) -
foreign currency translation adjustments .......... 8 (13) (18) (20)
---------------- --------------- ---------------- ---------------
Comprehensive income .................................. $ 1,621 $ 1,953 $ 4,973 $ 6,420
================ =============== ================ ===============
| | | Three Months Ended
| |
| | | March 29, 2002
| | March 30, 2001
| |
| Net income | | $ | 1,919 | | $ | 2,425 | |
|
| Other comprehensive income (loss): | | | | | | | |
| Foreign currency translation adjustments | | | 3 | | | (25 | ) |
| | |
|
| |
|
|
|
| Comprehensive income | | $ | 1,922 | | $ | 2,400 | |
| | |
|
| |
|
|
|
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed Consolidated Financial Statements.
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine MonthsQuarters Ended September 28,March 29, 2002 and March 30, 2001 and September 29, 2000
(in
(in thousands)
(unaudited)
Nine Months Ended
---------------------------------
September 28, September 29,
2001 2000
------------- -------------
Cash flows from operating activities:
Net income ........................................................... $ 4,991 $ 6,440
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization ................................. 3,516 3,290
Gain on sale of BCS Wireless, Inc. ............................ - (451)
Provision for doubtful accounts ............................... 767 1,639
Changes in operating assets and liabilities:
Accounts receivable ....................................... (10,164) (1,819)
Prepaid expenses and other assets ......................... (862) (457)
Accounts payable and accrued liabilities .................. 290 (860)
Accrued payroll and employee benefits ..................... (3,093) (658)
Deferred revenues ......................................... (387) 2,365
Income tax payable ........................................ - (905)
Other obligations ......................................... (79) (123)
Net operating activities of discontinued operations ....... - 693
------------- -------------
Net cash provided by (used in) operating activities .... (5,021) 9,154
------------- -------------
Cash flows from investing activities:
Capital expenditures ................................................. (1,914) (6,416)
Sale of BCS Wireless, Inc. ........................................... - 1,870
Other assets ......................................................... 77 (437)
Net investing activities of discontinued operations .................. - (34)
------------- -------------
Net cash used in investing activities .................. (1,837) (5,017)
------------- -------------
Cash flows from financing activities:
Proceeds from borrowing and issuance of long-term obligations ........ 1,726 -
Repayments of borrowings and long-term obligations ................... (26) (2,781)
Repurchase of common stock ........................................... (3,646) (2,609)
Issuance of common stock ............................................. 2,425 1,238
Net financing activities of discontinued operations .................. - 15
------------- -------------
Net cash provided by (used in) financing activities .... 479 (4,137)
------------- -------------
Net decrease in cash and cash equivalents .......................................... (6,379) -
Cash and cash equivalents at beginning of period ................................... 6,379 -
------------- -------------
Cash and cash equivalents at end of period ......................................... $ - $ -
============= =============
| | | Three Months Ended
| |
| | | March 29, 2002
| | | March 30, 2001
| |
| Cash flows from operating activities: | | | | | | | | |
| Net income | | $ | 1,919 | | | $ | 2,425 | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | |
| Depreciation and amortization | | | 898 | | | | 1,175 | |
| Provision for doubtful accounts | | | (81 | ) | | | (390 | ) |
| Stock based compensation | | | 67 | | | | 67 | |
| Change in deferred income taxes | | | 350 | | | | — | |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | 640 | | | | (2,456 | ) |
| Prepaid expenses and other assets | | | (1,650 | ) | | | (1,147 | ) |
| Accounts payable and accrued liabilities | | | 456 | | | | 378 | |
| Accrued payroll and employee benefits | | | (3,034 | ) | | | (3,807 | ) |
| Deferred revenues | | | (541 | ) | | | (1,057 | ) |
| Other obligations | | | (38 | ) | | | (73 | ) |
| | |
|
|
| |
|
|
|
| Net cash used in operating activities | | | (1,014 | ) | | | (4,885 | ) |
| | |
|
|
| |
|
|
|
| Cash flows from investing activities: | | | | | | | | |
| Capital expenditures | | | (344 | ) | | | (711 | ) |
| Other assets | | | (68 | ) | | | (30 | ) |
| | |
|
|
| |
|
|
|
| Net cash used in investing activities | | | (412 | ) | | | (741 | ) |
| | |
|
|
| |
|
|
|
| Cash flows from financing activities: | | | | | | | | |
| Repayments of borrowings and long-term obligations | | | — | | | | (7 | ) |
| Repurchase of common stock | | | (37 | ) | | | (206 | ) |
| Issuance of common stock | | | 703 | | | | 419 | |
| | |
|
|
| |
|
|
|
| Net cash provided by financing activities | | | 666 | | | | 206 | |
| | |
|
|
| |
|
|
|
| Net decrease in cash and cash equivalents | | | (760 | ) | | | (5,420 | ) |
| Cash and cash equivalents at beginning of period | | | 7,815 | | | | 6,379 | |
| | |
|
|
| |
|
|
|
| Cash and cash equivalents at end of period | | $ | 7,055 | | | $ | 959 | |
| | |
|
|
| |
|
|
|
The accompanying notes are an integral part of these condensed consolidated
financial statements.
Condensed Consolidated Financial Statements.
EXPONENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Quarters Ended
March 29, 2002 and Nine Months Ended
September 28,March 30, 2001 and September 29, 2000
Note 1: Summary of Significant Accounting Policies
Basis of Presentation:
Presentation
Exponent, Inc. (referred to as the "Company"“Company” or “Exponent”) is a science and engineering consulting firm that provides solutions to complex problems. Our
multidisciplinary team of scientists, physicians, engineers and business
consultants perform in-depth scientific research in over 70 different
disciplines to solve complicated issues facing industry and business. In
December 2000, the Company merged its wholly owned subsidiaries, Exponent
Failure Analysis Associates, Inc. ("FaAA"), Exponent Health Group, Inc. ("EHG")
and Exponent Environmental Group, Inc. ("EEG") into Exponent, Inc., the parent
company. This change will have no effect on the reporting of the Company's
operating segments. The Company operates on a 52-53 week fiscal calendar year ending on the Friday closest to the last day of December. The Company’s fiscal quarters end on the Friday closest to the end of March, June, September and December.
The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments which are necessary for the fair presentation of the condensed consolidated financial statements have been included and all such adjustments are of a normal and recurring nature. The operating results for the fiscal quarters ended March 29, 2002 and nine months ended September 28,March 30, 2001, and September 29, 2000, are not necessarily representative of the results of future quarterly or annual periods.
Note 2: Discontinued Operations
In May 2000, the Company sold certain assets of its wholly owned
subsidiary, BCS Wireless, Inc. ("BCS"). The Company committed to a formal plan
to divest BCS effective April 2, 1999. Accordingly, the results of operations
for BCS for the nine months ended September 29, 2000 have been recorded as a
discontinued operation, net of taxes.
Note 3: Net Income Per Share
Basic per share amounts are computed using the weighted averageweighted-average number of common shares outstanding during the period. Dilutive per share amounts are computedcalculated using the weighted-average number of common shares outstanding during the period and, potentiallywhen dilutive, securities,the weighted-average number of potential common shares from the exercise of outstanding options to purchase common stock using the treasury stock method, even when antidilutive, if
their effect would be dilutive on the per share amount of income from continuing
operations.
method.
The following schedule reconciles the shares used to calculate basic and diluted net income per share:
Quarters Ended Nine Months Ended
------------------------------ ------------------------------
September 28, September 29, September 28, September 29,
(In thousands) 2001 2000 2001 2000
------------- ------------- ------------- -------------
Shares used in basic per share computation 6,527 6,606 6,519 6,659
Effect of dilutive common stock options outstanding 621 498 698 437
------------- ------------- ------------- -------------
Shares used in diluted per share computation 7,148 7,104 7,217 7,096
============= ============= ============= =============
| | | Three Months Ended
|
| | | March 29, 2002
| | March 30, 2001
|
(In thousands) | | |
| Shares used in basic per share computation | | 6,545 | | 6,471 |
| Effect of dilutive common stock options outstanding | | 816 | | 703 |
| | |
| |
|
| Shares used in diluted per share computation | | 7,361 | | 7,174 |
| | |
| |
|
Common stock options to purchase
197,75097,857 and
117,048 shares for the quarters
ended September 28, 2001 and September 29, 2000, respectively, were excluded
from the diluted per share calculation, due to their antidilutive effect. For
the nine months ended September 28, 2001 and September 29, 2000, respectively,
common stock options to purchase 125,455 and 247,60739,390 shares were excluded from the diluted per share calculation
for the fiscal quarters ended March 29, 2002 and March 30, 2001, respectively, due to their antidilutive effect.
6
Note 4:3: Recent Accounting Pronouncements
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations" and
SFAS No. 142, "Goodwill“Goodwill and Other Intangible Assets"Assets”. SFAS No. 141 addressesUnder the accounting for and reporting of business
combinations. SFAS No. 141 requires that all business combinations be accounted
for using the purchase method of accounting for acquisitions and eliminates the
use of the pooling method. This statement applies to all business combinations
initiated after June 30, 2001 and is effective immediately. The Company does not
anticipate that the adoptionprovisions of SFAS No.141 will have a material effect on its
consolidated financial statements.
SFAS No. 142, addresses financial accounting and reporting for acquired
goodwill and other intangible assets. SFAS No. 142 changes the accounting for
goodwill from an amortization method to an impairment-only method. The
amortization of goodwill, including goodwill recorded in past business
combinations will cease upon adoption of the statement, which will begin with
the Company's fiscal year beginning December 29, 2001. However, goodwill and other intangible assets from business combinations taking place after June 30,
2001 are subjectwith indefinite lives will no longer be amortized, but will instead be reviewed annually for impairment. The amortization provisions of SFAS 142 applied immediately to immediate adoption of the statement. The Company will
continue to amortize its existing goodwill and other intangible assets during
the remainder of fiscal 2001, the amount of which will be approximately $232,000
for the fourth quarter of fiscalacquired after June 30, 2001. The resulting balance for existingFor goodwill and other intangible assets aswith indefinite lives, acquired before June 30, 2001, the statement requires that amortization cease for fiscal years beginning after December 15, 2001. Exponent ceased amortization of its goodwill and other intangible assets with indefinite lives, beginning on December 28, 2001 subject to periodic
impairment testing will be approximately $6,900,000. If, in a future period,29, 2001.
As of March 29, 2002, the Company had $6.6 million in goodwill. The Company also had $63,000 of other intangible assets that it will continue to amortize over the remaining useful lives. The Company plans to perform its initial test for impairment of goodwill during the second quarter of fiscal 2002 and if it determines that goodwill or another intangible assetthere is impaired,an impairment, it will recognize such impairment as the impairment could have a material impact oncumulative effect of an accounting change in the consolidated statement of operations.
6
The following table presents comparative earnings and earnings per share data as if the non-amortization provisions of SFAS No. 142 had been adopted for that period.
all periods presented:
| | | Three Months Ended
|
| | | March 29, 2002
| | March 30, 2001
|
(In thousands, except per share data) | | |
| Reported net income | | $ | 1,919 | | $ | 2,425 |
| Add: Goodwill amortization, net of tax | | | — | | | 123 |
| | |
|
| |
|
|
| Adjusted net income | | $ | 1,919 | | $ | 2,548 |
| | |
|
| |
|
|
| Reported basic earnings per share | | $ | 0.29 | | $ | 0.37 |
| Add: Goodwill amortization, net of tax | | | — | | | 0.02 |
| | |
|
| |
|
|
| Adjusted basic earnings per share | | $ | 0.29 | | $ | 0.39 |
| | |
|
| |
|
|
| Reported diluted earnings per share | | $ | 0.26 | | $ | 0.34 |
| Add: Goodwill amortization, net of tax | | | — | | | 0.02 |
| | |
|
| |
|
|
| Adjusted diluted earnings per share | | $ | 0.26 | | $ | 0.36 |
| | |
|
| |
|
|
In October 2001, SFAS No. 144, "Accounting“Accounting for the Impairment or Disposal of Long-Lived Assets"Assets”, was issued. SFAS No. 144 applies to all long-lived assets (including discontinued operations). SFAS No. 144 develops one accounting model for long-lived assets that are to be disposed of by sale. SFAS No. 144 requires that long-lived assets that are to be disposed of by sale be measured at the lower of book value or fair value less the costs to sell. Additionally, SFAS No. 144 expands the scope of discontinued operations to include all components of an entity with operations that (1) can be distinguished from the rest of the entity and (2) will be eliminated from the ongoing operations of the entity in a disposal transaction. The Company adopted the provision of SFAS No. 144 will be
effective foras of December 29, 2001. There has been no impact on the Company in fiscal 2002. The Company has not yet determined the
impact this standard will have on itsCompany’s condensed consolidated financial statements.
statements as a result of the adoption of SFAS No. 144.
Note 5:4: Supplemental Cash Flow Information
The following is supplemental disclosure of cash flow information:
Nine Months Ended
-------------------------------
(In thousands) September 28, September 29,
2001 2000
------------- -------------
Cash paid during period:
Interest $ 95 $ 144
Income taxes $ 3,473 $ 6,269
Non-cash investing and financing activities:
Issuance of debt for financing of insurance policies $ 437 $ 977
Capital lease for equipment $ 41 $ -
7
| | | Three Months Ended
|
| | | March 29, 2002
| | March 30, 2001
|
(In thousands) | | |
| Cash paid during period: | | | | | | |
| Interest | | $ | 41 | | $ | 18 |
| Income taxes | | $ | 884 | | $ | 39 |
Note 6:5: Segment Reporting
The Company has two operating segments based on two primary areas of service. One operating segment provides services in the area of environmental, epidemiology and health risk analysis. This operating segment provides a wide range of consulting services relating to environmental hazards and risks and the impact on both human health and the environment. The Company'sCompany’s other operating segment is a broader service group providing technical consulting in different practices and primarily in the areas of impending litigation and technology development.
7
Segment information for the quarters ended March 29, 2002 and nine months ended September 28,March 30, 2001 and September 29, 2000 follows:
Revenues
| | | | | | | | |
| | | Three Months Ended
| |
| | | March 29, 2002
| | | March 30, 2001
| |
(In thousands) | | | |
| Environmental and health | | $ | 6,832 | | | $ | 6,115 | |
| Other scientific and engineering | | | 21,399 | | | | 21,746 | |
| | |
|
|
| |
|
|
|
| Total revenues | | $ | 28,231 | | | $ | 27,861 | |
| | |
|
|
| |
|
|
|
|
Operating Income
| | | | | | | | |
| | | Three Months Ended
| |
| | | March 29, 2002
| | | March 30, 2001
| |
(In thousands) | | | |
| Environmental and health | | $ | 1,515 | | | $ | 1,406 | |
| Other scientific and engineering | | | 5,351 | | | | 5,100 | |
| | |
|
|
| |
|
|
|
| Total segment operating income | | | 6,866 | | | | 6,506 | |
| Corporate operating expense | | | (2,964 | ) | | | (2,793 | ) |
| | |
|
|
| |
|
|
|
| Total operating income | | $ | 3,902 | | | $ | 3,713 | |
| | |
|
|
| |
|
|
|
|
Capital Expenditures
| | | | | | | | |
| | | Three Months Ended
| |
| | | March 29, 2002
| | | March 30, 2001
| |
(In thousands) | | | |
| Environmental and health | | $ | 31 | | | $ | 12 | |
| Other scientific and engineering | | | 287 | | | | 319 | |
| | |
|
|
| |
|
|
|
| Total segment capital expenditures | | | 318 | | | | 331 | |
| Corporate capital expenditures | | | 26 | | | | 380 | |
| | |
|
|
| |
|
|
|
| Total capital expenditures | | $ | 344 | | | $ | 711 | |
| | |
|
|
| |
|
|
|
8
|
Depreciation and Amortization
| | | | | | |
| | | Three Months Ended
|
| | | March 29, 2002
| | March 30, 2001
|
(In thousands) | | |
| Environmental and health | | $ | 47 | | $ | 61 |
| Other scientific and engineering | | | 636 | | | 652 |
| | |
|
| |
|
|
| Total segment depreciation and amortization | | | 683 | | | 713 |
| Corporate depreciation and amortization | | | 215 | | | 462 |
| | |
|
| |
|
|
| Total depreciation and amortization | | $ | 898 | | $ | 1,175 |
| | |
|
| |
|
|
9
Revenues
- --------
Quarters Ended Nine Months Ended
------------------------------- -------------------------------
(In thousands) September 28, September 29, September 28, September 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
EnvironmentalItem 2. | | Management’s Discussion and health $ 6,452 $ 6,099 $ 18,860 $ 17,228
Other scientificAnalysis of Financial Condition and engineering 19,994 19,375 60,773 59,991
------------- ------------- ------------- -------------
Total revenues $ 26,446 $ 25,474 $ 79,633 $ 77,219
============= ============= ============= =============
Operating Income
- ----------------
Quarters Ended Nine Months Ended
------------------------------- -------------------------------
(In thousands) September 28, September 29, September 28, September 29,
2001 2000 2001 2000
------------- ------------- ------------- -------------
Environmental and health $ 1,868 $ 1,606 $ 5,026 $ 3,870
Other scientific and engineering 4,208 4,461 12,916 15,257
------------- ------------- ------------- -------------
Total segment operating income 6,076 6,067 17,942 19,127
Corporate operating expense (3,456) (3,161) (10,153) (10,086)
------------- ------------- ------------- -------------
Total operating income $ 2,620 $ 2,906 $ 7,789 $ 9,041
============= ============= ============= =============
Results of Operations |
8
Capital Expenditures
- --------------------
Nine Months Ended
---------------------------------
(In thousands) September 28, September 29,
2001 2000
--------------- ---------------
Environmental and health $ 50 $ 185
Other scientific and engineering 1,328 6,047
--------------- ---------------
Total segment capital expenditures 1,378 6,232
Corporate capital expenditures 536 184
--------------- ---------------
Total capital expenditures $ 1,914 $ 6,416
=============== ===============
Depreciation and Amortization
- ------------------------------
Nine Months Ended
---------------------------------
(In thousands) September 28, September 29,
2001 2000
--------------- ---------------
Environmental and health $ 173 $ 181
Other scientific and engineering 1,947 1,722
--------------- ---------------
Total segment depreciation and
amortization 2,120 1,903
Corporate depreciation and
amortization 1,396 1,387
--------------- ---------------
Total depreciation and
amortization $ 3,516 $ 3,290
=============== ===============
9
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q contains certain "forward-looking"“forward-looking” statements (as suchthe 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) that are based on the beliefs of the Company'sCompany’s management, as well as assumptions made by and information currently available to the Company'sCompany’s management. Such
forward-lookingForward-looking statements are subject to the safe harbor created by the Private Securities Litigation Reform Act of 1995. When used in this document, the words "anticipate," "believe," "estimate," "expect"“anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to the Company or its management, are intended to identify such forward-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'sCompany’s actual results, performance, or achievements could differ materially from those expressed in, or implied by, any such forward-looking statements. Factors that could cause or contribute to such material differences include those discussed elsewhere in this Report including under the caption "Factors“Factors Affecting Operating Results and Market Price of Stock"Stock”. 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 release publicly any updates or revisions to any such forward-looking statements that may reflect events or circumstances occurring after the date of this Report.
General
The Company's revenues consist
Overview
Exponent, Inc. is a science and engineering consulting firm that provides solutions to complex problems. Our multidisciplinary team of scientists, physicians, engineers and business consultants brings together more than 70 different disciplines to solve complicated issues facing industry and business today. Our services include analysis of product development or product recall, regulatory compliance, discovery of potential problems related to products, people or property and impending litigation, as well as the development of highly technical new products.
CRITICAL ACCOUNTING POLICIES AND ESTIMATES
Our critical accounting policies are as follows:
| • | | estimating the allowance for doubtful accounts; |
| • | | accounting for income taxes; and |
| • | | valuing long-lived assets, intangible assets and goodwill. |
Revenue recognition. We derive our revenue primarily from professional fee services, fees earned on consulting engagements and fees earned for the use of the Company'sour equipment and facilities, as well as third party expenses directly associated with the services performed that are billed to the client.our clients. Third party expenses are included in revenues, net of the related costs. The majority of these activitiesour engagements are provided underperformed on time and materialsmaterial or fixed-price billing arrangements. On time and materials arrangements,material type projects, revenue is generally recognized generally atas the time services are performed. On fixed-pricefixed-fee contracts, revenue is recognized based on the basis of the estimated percentage of completion of the services rendered.
Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. Material differences may result in the amount and timing of our revenue for any period, if we made different judgments or utilized different estimates, especially on fixed-price, percentage of completion engagements. The Company's principal expensesestimate of percentage of completion is evaluated by us, in consultation with our project managers, and is based on the estimated remaining cost to complete using projected hours times standard rates and project milestones, such as the completion of scheduled phases of work.
10
All consulting contracts are professional compensationsubject to review by senior management, which requires a positive assessment of the collectability of contract amounts upon their initiation. If, during the course of the contract, we determine that collection of revenue is not reasonably assured, we reserve the revenue until its collection becomes reasonably assured, which is generally upon receipt of cash. We assess collection based on a number of factors, including past transaction history with the client and project manager, as well as the credit-worthiness of the client.
Allowance for doubtful accounts. The preparation of financial statements requires us to make estimates and assumptions that affect the reported amount of assets and disclosure of contingent liabilities as of the date of the financial statements and the reported amounts of revenue and expense during the period. We must make estimates of our ability to collect accounts receivable and our unbilled work-in-process. Specifically, we analyze billed accounts receivable and unbilled work-in-process based upon historical bad debts, customer concentration, customer credit-worthiness, current economic conditions and changes in customer payment terms when determining the allowance for doubtful accounts. As of March 29, 2002, our accounts receivable balance was $38.0 million, net of an allowance for doubtful accounts of $1.8 million.
Accounting for income taxes. In preparing our consolidated financial statements, we are required to estimate our income taxes in each of the jurisdictions where we operate. This process involves estimating actual current tax exposure together with assessing temporary differences resulting from differing treatment of items for tax and accounting purposes. These differences result in deferred tax assets and liabilities, which are included in our consolidated balance sheet. We must then assess the likelihood that our deferred tax assets will be recovered from future taxable income and to the extent that we believe that recovery is not likely, we must establish a valuation allowance. To the extent we establish a valuation allowance, we must include an expense within the tax provision of the statement of operations in each period, in which the allowance is increased.
Significant judgment is required in determining the provision for income taxes, deferred tax assets and liabilities and any valuation allowance against our deferred tax assets. In the event that actual results differ from these estimates or the estimates are adjusted in future periods, then we may need to establish an additional valuation allowance, which could materially impact our financial position and results of operations. Based on our current financial projections and operating plan for fiscal 2002, we currently believe that we will realize 100% of our deferred tax asset. In the first quarter of 2002 we wrote off $350,000, related expenses.
Resultsto an expiring capital loss carryforward, from our deferred tax asset balance. We believed that we would not be able to generate sufficient capital gains in 2002 to allow us to utilize this asset. As of Operations
March 29, 2002, we had net deferred tax assets of $2.3 million and net deferred tax liabilities of $905,000 for a net deferred tax asset of $1.4 million and a valuation allowance of $0.
Valuing long-lived assets, intangible assets and goodwill. We assess the impairment of identifiable intangible assets, long-lived assets and goodwill whenever events or changes in circumstances indicate that the carrying amount may be impaired. Factors that we consider when evaluating for possible impairment include the following:
| • | | significant under-performance relative to expected historical or projected future operating results; |
| • | | significant changes in the manner of our use of the acquired assets or the strategy for our overall business; and |
| • | | significant negative economic trends. |
When determining whether the carrying value of intangibles, long-lived assets and goodwill is impaired based upon the existence of one or more of the above factors, we determine the existence of an impairment by comparison of the carrying amount of the asset to future cash flows to be generated by the asset. If such assets are considered impaired, the impairment is measured as the amount by which the carrying value of the assets exceeds the fair value of the assets. As of March 29, 2002, net intangible assets and goodwill totaled approximately $6.7 million and our long-lived assets, consisting primarily of net property, equipment and improvements totaled, $32.1 million.
11
In 2002, the Statement of Financial Accounting Standards (“SFAS”) No. 142, “Goodwill and Other Intangible Assets” became effective. As a result, we ceased amortizing approximately $6.6 million of goodwill. In place of amortization, this standard requires an annual impairment review beginning in fiscal 2002. We expect to complete our initial review during the second quarter of 2002. We currently do not expect to record an impairment charge upon completion of the initial impairment review; however, it is possible that a material impairment will be recorded at the time of the review.
RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the attached unaudited condensed consolidated financial statements and notes thereto and with the Company'sour audited consolidated financial statements and notes thereto for the fiscal year ended December 29, 2000,28, 2001, which are contained in the
Company'sour fiscal 20002001 Annual Report on Form 10-K.
2002 Fiscal Quarter Ended March 29, 2002 compared to 2001 Fiscal Quarter and Nine Months Ended September 28,March 30, 2001 compared to 2000
Fiscal Quarter and Nine Months Ended September 29, 2000
Revenues for the thirdfirst quarter of fiscal 2001 increased 3.8% to $26.42002 were $28.2 million compared to $25.5$27.9 million for the same periodquarter in fiscal 2000.2001, or an increase of 1.3%. This increase wasis primarily the result of growth in both the environmental and health, and
other scientific and engineering segments during the quarter. Revenues for the
Company's environmental and health segment grew by 5.8% and revenues for its
other scientific and engineering segment grew by 3.2%. This revenue growth in
both segments was due to the effect of an increase in the number of professional
staff and bill rate increases. Revenues for the quarter for projects other than
technology development and vehicle analysis increased by 15%. The Company's
technology development and vehicle analysis project revenues decreased by $1.9
millionhigher billing rates as compared to the same period in the prior year. The primary reasonWe experienced 11.7% revenue growth in our environmental and health segment, which had revenues of $6.8 million for the first quarter of 2002, compared to $6.1 million for the same quarter last year. This segment’s revenue grew as a result of increased billing rates and technical staff compared to last year. Our other scientific and engineering segment’s revenues for the first quarter of 2002 were $21.4 million versus $21.7 million in the same quarter last year, or a decrease of 1.6%. This segment’s revenues declined primarily as a result of lower revenues in our technology development practice related to the Land Warrior contract. The Land Warrior project experienced lower revenues resulted from smaller
contracts indue to our entering the current yearpre-production phase of this program, which required a reduced effort by Exponent compared to the same period in the prior yearyear.
Compensation and related expenses increased 1.6% to $18.5 million for the
U.S. Army Land Warrior program. Revenues increased by 3.1% for the nine
months ended September 28, 2001 to $79.6 millionfirst quarter of fiscal 2002 compared to
$77.2$18.2 million for the same period in fiscal
2000. This2001. The increase
was also a result of revenue
growth in both of the Company's segments for the first nine months of fiscal
2001. Revenues for the Company's environmental and health segment grew by 9.5%
and revenues for its other scientific and engineering segment grew by 1.3%. The
revenue growth in both segments was due to the effect of
an increaseannual salary increases for all employees, which was partially offset by reduced staff as compared to the prior year. On June 1, 2001, we reduced staff by seventeen full-time employees and nine contract employees, primarily in
the
number of professional staff and bill rate increases. Revenues for the nine
months ended September 28, 2001 for projects other thanour technology development and vehicle analysis
increased by 10%. The
10
Company'spractices. During the first quarter of 2002, we further reduced our staff in the technology development and vehicle analysis project revenues decreasedpractices by $3.3approximately fifteen full-time employees. We anticipate that the fiscal 2002 reduction made during the first quarter will result in fiscal 2002 cost savings of approximately $1 million compared to the same periodbeginning in the prior year. The primary
reason for the decrease in technology development project revenues resulted from
smaller contracts in the current year for the U.S. Army Land Warrior program, as
mentioned above. The decrease in vehicle analysis project revenues resulted from
declines in the automotive industry.
Compensation and related expenses increased 4.7% to $16.8 million for
the thirdsecond quarter of fiscal 2001 compared to $16.1 million for the same period
in fiscal 2000.2002. As a percentage of revenue, total compensation increased to 63.7%65.5% for the thirdfirst quarter of fiscal 20012002 compared to 63.1%65.2% for the same period in fiscal 2000. The increase was due2001. Other operating expenses decreased 0.9% to annual salary increases$4.0 million for all
employees, as well as increased insurance costs. These increases were partially
offset by a reduction in the Company's accrued bonus, which is determined based
on profitability. For the nine months ended September 28, 2001, compensation and
related expenses increased by 6.3% to $51.7 millionfirst quarter of fiscal 2002 compared to $48.7$4.1 million for the same period in fiscal 2000. As a percentage2001. The decreases in other operating expenses were primarily due to reduced expenditures for computer supplies and equipment of revenue, compensation$85,000 and reduced depreciation of $83,000. In addition, we experienced reduced operating costs related expenses increased to 64.9% for the nine months ended September 28, 2001
as compared to 63.0% for the same periodspace previously occupied by our former tenant in fiscal 2000. As mentioned
previously, this increase resulted from company-wide annual salary increases, as
well as increased insurance costs.Menlo Park of approximately $77,000. These increasesreductions in other operating expenses were partially offset by a
decreaseincreased rent and facility costs in the Company's accrued bonus, which is determined based on
profitability.
Other operating expenses increased 6.8% to $4.5 million for the third
quarterour regional offices of fiscal 2001 compared to $4.2 million for the same period in fiscal
2000.$122,000. As a percentage of revenue, other operating expenses increaseddecreased to 17.1%14.3% for the thirdfirst quarter of fiscal 20012002 compared to 16.6%14.6% for the same period in fiscal 2000. The increase was primarily due to increases in occupancy costs and
computer expenses, partially offset by a decrease in office expenses. The
Company relocated its Orange County office to a larger facility in Irvine and
added additional space in its Bellevue and San Diego locations. Additionally,
the Company experienced increases in its utility costs, primarily in its Menlo
Park and Phoenix locations. Office expenses decreased as a result of reduced
spending primarily in the areas of office furniture, supplies and shipping.
Other operating expenses increased by 7.0% to $13.2 million for the nine months
ended September 28, 2001 compared to $12.4 million for the same period a year
ago. As a percentage of revenue, other operating expenses increased to 16.6% for
the nine months ended September 28, 2001 as compared to 16.0% for the same
period in fiscal 2000. The increase was attributable to the previously mentioned
increases in occupancy costs and computer expenses. Additionally, the Company's
engineering and test preparation building located in Phoenix was completed in
the fourth quarter of fiscal 2000 and depreciation commenced at that time.
2001.
General and administrative expenses increased 9.2%decreased 4.3% to $2.5$1.8 million for the thirdfirst quarter of fiscal 20012002 compared to $2.3$1.9 million for the same period in fiscal 2000. As a percentage of revenue, general and administrative expenses
increased to 9.4% of revenues for the third quarter of fiscal 2001 compared to
8.9% for the third quarter of fiscal 2000.2001. This increasedecrease was primarily a result of increasesthe elimination of amortization of our goodwill expenses related to our adoption of SFAS 142. Goodwill amortization was $212,000 in bad debt expense, employee relocation costs and business
development costs. Increased bad debt expense is consistent with increasing
revenues for the first quarter as compared to the same period a year ago. An offset to
these increases resulted from a lower accrual for sales tax inof fiscal 2001 asand would have been $227,000 in the first quarter of fiscal 2002 if SFAS 142 had not been adopted. In addition, we had approximately $81,000 in reduced outside consulting expenses in the first quarter of 2002 compared to the prior year. Dueyear primarily related to a state tax authority determination, the
Company accrued a liabilityreduced costs for our employee mentoring program, which began in the thirdfirst quarter of fiscal 2000 for sales tax2001. We also reduced expenses in Texas, which was related to prior periods. Generalthe areas of recruiting and administrative expenses
decreased 3.5% to $6.9 million for the nine months ended September 28, 2001 as
compared to $7.1 million for the same period ended September 29, 2000. As a
percentage of revenue, generalrelocation, travel and administrative expenses decreased to 8.7% for
the nine months ended September 28, 2001 from 9.3% for the same period in fiscal
2000. Decreased generalmeals, and administrative expenses resulted from reductions in
bad debt expense, legal and sales tax expenses.legal. These decreasescost savings were partially offset by increasesa smaller reduction in travel costs, outside consulting and recruiting expenses.
Badthe provision for bad debt expense decreased as a result of the reversal of reserves related to
accounts receivable for BCS Wireless, which were subsequently collected. The
decrease in legal expense was primarily the result of costs in fiscal 2000
related to the employment of a senior executive. Also, as mentioned previously
sales tax expense decreased in the first nine monthsquarter of fiscal 20012002 as compared to the same period of fiscal 2000 due2001. The bad debt provision was decreased, net of bad debt write-offs, by $10,000 and $382,000 in fiscal years 2002 and 2001, respectively, for a net change in bad debt expense of $372,000 versus the prior year. General and administrative expenses as a percentage of total revenue decreased to an accrual in6.4% for the thirdfirst quarter of fiscal 2000. These decreases were partially offset by increased travel and
outside consulting costs, which are related2002 compared to increased business development
efforts. Additionally,6.8% for the Company continues its efforts to attract key
employees and has stepped up its recruiting efforts.
first quarter of fiscal 2001.
12
Other income net,and expense consists primarily of investment income earned on available cash and cash equivalents and rental income from leasing excess space, primarily in the Company's headquarters facility located inour Silicon Valley California,headquarters building, net of interest expense on the Company'sour mortgage. Other income net,and expense decreased 61.9%76.8% to $172,000$112,000 for the thirdfirst quarter of fiscal 20012002 compared to $451,000$482,000 for the same period of 2000.fiscal 2001. This decrease was primarily due to a reduction inreduced rental income from our Silicon Valley facility. The lease of our largest tenant, who occupied 24,000 square feet of the Company'sSilicon Valley facility, ended at the end of January 2001. To date, this space has not been rented. If we are not able to lease our available space in Silicon Valley. Othera timely manner, we anticipate that our rental income net,
decreased 36.6% to $855,000will continue at this reduced level in 2002.
Exponent’s income tax provision for the
ninethree months ended
September 28,March 29, 2002 was $2.1 million, representing a 52.2% effective tax rate. The income tax provision for the three months ended March 30, 2001
comparedwas $1.8 million, representing a 42.2% effective income tax rate. The higher effective rate in 2002 is due primarily to
$1,349,000 during the
same periodeffect of a $350,000 income tax write-off, related to an expiring capital loss carryforward, which we determined would not be realized before it expired in fiscal
2000. This decrease
11
was primarily due to2002. RECENT ACCOUNTING PRONOUNCEMENTS
There were no accounting pronouncements issued in the current period that will have a reduction in rental income from the Company's facility in
Silicon Valley partially offset by reduced interest expense from lower
borrowingsmaterial future effect on the Company's revolving reducing note as comparedresults of operations of Exponent, Inc.
LIQUIDITY AND CAPITAL RESOURCES
2002 Fiscal Quarter Ended March 29, 2002 Compared to the same
period in the prior year.
Liquidity and Capital Resources 2001 Fiscal Quarter and Nine Months Ended September 28,March 30, 2001 Compared to 2000
Fiscal Quarter
We invest excess cash in short-term highly liquid investments. As of March 29, 2002, our cash and Nine Months Ended September 29, 2000
The Company's cash management policy is to use all excess operating
cash to pay down borrowings on the revolving reducing mortgage on its
headquarters building. As a result, the Company had no cash or cash equivalents as of September 28,was $7.1 million compared to $959,000 at March 30, 2001. The balance on the Company's mortgage was $1.7 million
at September 28, 2001. The CompanyWe financed itsour business for the current period principally through cash available, cash generated from operating activities and
borrowings on its revolving reducing mortgage note.
cash.
Net cash used in operating activities was $5.0$1.0 million in the first ninethree months of fiscal 2001,2002, compared to net cash providedused of $9.2$4.9 million for the comparable period in fiscal 2000.2001. This change from net cash provided, to netdecrease in cash used byfor operating activities was primarily attributable to the decrease in
net income and the changes in operating assets and liabilities, especially in accounts receivable, deferred revenue and accrued payroll and employee benefits. Accounts receivable related cash flow improved as a result of a decrease in accounts receivable, net of the allowance for doubtful accounts by $559,000 from year-end in fiscal 2002 compared to an increase from year-end of $2.8 million in accounts receivable. In addition, the Company funded its 401(k)
liabilityfiscal 2001. Accounts receivable decreased from year-end in 2002 primarily as a result of improved collections. Our accrued payroll and employee benefits payments were lower in the amountfirst quarter of $2.9fiscal 2002, as compared to the first quarter of fiscal 2001 due to lower bonus payouts in the first quarter of fiscal 2002, which were $4.9 million duringcompared to $6.4 million in fiscal 2001. Bonus payouts made in the thirdfirst quarter of fiscal 2002 were based on our profitability in fiscal 2001, which was lower as compared to fiscal 2000. Additionally, our deferred revenues were reduced to $868 and $0 in fiscal 2002 and 2001, respectively. The decrease from year-end was lower in fiscal 2002 compared to fiscal 2001. Deferred revenues decreased from year-end in fiscal 2002 by $541,000 as compared to a decrease of $1.1 million for the first quarter of fiscal 2001. The increase in accounts receivable isDeferred revenue changes are related to increasing revenues and
delayed billingsthe timing of revenue recognition on our fixed-price government contracts.
Net cash used in investing activities was $1.8 million$412,000 for the first ninethree months of fiscal 2001,2002, compared to net cash used in investing activities of $5.0 million$741,000 for the comparable period ofin fiscal 2000. The decrease2001. Cash used in cash used was primarilyinvesting activities decreased as a result of reduced capital expenditures related to the completion, in October
2000, of an engineering and test preparation building at the Company's Test and
Engineering Center in Phoenix. The Company disposed of BCS during the first nine
months of fiscal 2000 and had $1.9 million in funds provided by the sale. The
Company had no significant dispositionsour Silicon Valley headquarters facility in the first nine monthsquarter of fiscal 2001.
13
Net cash provided by financing activities was $479,000$666,000 for the first ninethree months of fiscal 2001,2002, compared to net cash usedprovided of $4.1 million$206,000 for the comparable period in fiscal 2000. This change from net cash used, to2001. The increase in net cash provided by financing activities was due primarily due to lower repaymentsthe issuance of outstanding debt and additional borrowings. The Company used $26,000 in funds to
pay downshares of our common stock for a net borrowingsamount of $666,000 during the first ninethree months of fiscal 2001 as2002, compared to net repayments of $2.8 million$213,000 during the same period of fiscal 2000.
Additionally, the Company borrowed $1.7 million in fiscal 2001 as compared to $0
in the comparable period in fiscal 2000. The Company repurchased $3.6 million in
common shares during the first nine months of fiscal 2001 as compared to $2.6
million repurchased during the same period of 2000; however, the Company's
repurchase of outstanding common shares was offset by common shares issued of
$2.4 million in the first nine months of fiscal 2001 as compared to common
shares issued of $1.2 million for the same period in fiscal 2000.
The Company's2001.
At March 29, 2002, our other long-term obligations at September 28, 2001were $707,000, which consisted primarily of the obligation on thedeferred rent and deferred compensation.
Exponent has a revolving reducing mortgage note with a total available borrowing amount of $1.7$26.0 million and the long-term portionan outstanding balance of capital leases for office equipment in the amount$0 as of $74,000.
Management believesApril 30, 2002. We believe that itsour existing revolving note, together with funds generated from operations, will provide adequate cash to fund the Company'sour anticipated cash needs through at least the next twelve-month period.
Additionally,
management believeswe believe that
itsthe funds available under the revolving
reducing mortgage note, together with funds generated from operations, will provide adequate cash to fund
the
Company'sour anticipated long-term cash needs beyond the next twelve-month period; however,
management intendswe intend to grow
theour business by pursuing potential acquisitions,
the funding of which could increase the need for additional sources of funds over the long-term.
12
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
The Company
Exponent operates in a rapidly changing environment that involves a number of uncertainties, some of which are beyond the Company'sour control. These uncertainties include, but are not limited to, those mentioned elsewhere in this report and the following:
Absence of Backlog
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.
Attraction and Retention of Key Employees
The Company's
Exponent’s business involves the delivery of professional services and is labor intensive. The Company'slabor-intensive. Our success depends in large part upon itsour 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. There can be noWe cannot provide any assurance that the Companywe can continue to attract sufficient numbers of highly qualified technical and managerial personnel and to retain existing employees. The loss of a significant number of the Company'sour employees could have a material adverse impact on the Company,our business, including itsour ability to secure and complete engagements.
Absence of Backlog
Revenues are primarily derived from services provided in response to
client requests or events that occur without notice, and engagements, generally
billed as
Competition
The markets for our services are performed,highly competitive. In addition, there are terminable at any time by clients. Asrelatively 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 result, backlog at any particular time is small in relation to the Company's
quarterly revenuesmaterial adverse effect on our business, financial condition or results of operations.
Customer Concentration
We currently derive 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, timing and size of engagements.
Customer Concentration
The Company currently derives, and believesbelieve that itwe will continue to derive, a significant portion of itsour revenues from clients, organizations and insurers related to the transportation industry and the government sector. The loss of any large client, organization or insurer related to either the transportation industry or government sector could have a material adverse effect on the Company'sour business, financial condition or results of operations.
Competition
The markets for the Company's services are highly competitive. In
addition, there are relatively low barriers to entry into the Company's markets
and the Company has faced and expects to continue to face, additional
competition from new entrants into its markets. The Company's various
disciplines face competition ranging from individual consultants to
multi-national scientific and engineering firms. Competitive pressure could
reduce the market acceptance of the Company's services and result in price
reductions that could have a material adverse effect on the Company's business,
financial condition and results of operations.
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Economic Uncertainty
The markets that
the CompanyExponent serves are cyclical and subject to general economic conditions. If the economy in which
the Company operates,we operate, which is predominately in the
United States,U.S., were to experience a prolonged slowdown then demand for
the Company'sour services could be reduced considerably. The terrorist attacks of September 11, 2001 and the subsequent
United StatesU.S. military campaign has not resulted in any significant current economic impact to the
firm. The
CompanyCompany. However, Exponent is unable to predict the economic effect that these events will have on its business over the long-term.
Other Income
The Company currently leases excess facilities, primarily in its
Silicon Valley headquarters building in Menlo Park, California, which have lease
terms that expire between 2001 and 2003. In the first nine months of fiscal 2001
and 2000, miscellaneous rental income associated with these facilities amounted
to approximately 8.6% and 10.2%, respectively, of income from continuing
operations before income taxes. In the quarter ended March 30, 2001, the
Company's largest lease, consisting of 24,000 square feet in its Silicon Valley
building, was not renewed. To date, the
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available space has not been rented. If the Company is not able to rent the
available space in a timely manner, the loss of rental income could have a
material adverse effect on the Company's income.
Regulation
Public concern over health, safety and preservation of the environment has resulted in the enactment of a broad range of environmental laws and regulations by local, state and federal lawmakers and agencies. These laws and the relatedimplementing regulations affect nearly every industry, as well as the agencies of federal, state and local governments charged with their enforcement. To the extent that 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 environmental services may be significantly reduced.
Variability of Quarterly Financial Results
Variations in the Company'sour revenues and operating results occur from time to time, as a result of a number of factors, such as the significance of client engagements commenced and completed during a quarter, the number of working days in a quarter, employee hiring and utilization rates, and integration of companies acquired. Because a high percentage of the Company'sour expenses, particularly personnel and facilities related, are relatively fixed in advance of any particular quarter, a variation in the timing of the initiation or the completion of our client assignments, at or near the end of any quarter, can cause significant variations in operating results from quarter to quarter.
Item 3. Quantitative and Qualitative Disclosure About Market Risk
The Company is exposed to some interest rate risk associated with the
long-term debt obligation on
Exponent has a revolving reducing mortgage note (the “Mortgage Note”) secured by its Silicon Valley headquarters building. The mortgage note
consists of a revolving reducing note, secured by the Company's headquarters
building, with aMortgage Note, which had an initial borrowing amount up to $30.0 million. The $30.0 million,
revolving reducing note is subject to automatic annual reductions in the amount available to be borrowed of approximatelybetween $1.3 million to $2.1 million approximately per year until January 31, 2008.2008, as scheduled in the Mortgage Note agreement. As of September 28, 2001, $25.7 million wasMarch 29, 2002, we had $0 outstanding balance and available to
be borrowed. The Company has no other material borrowings.borrowings of $26.0 million. Any outstanding amounts on the revolving reducing noteMortgage Note are due and payable in full on January 31, 2009. The CompanyWe may from time to time during the term of the noteMortgage Note borrow, partially or wholly repay its outstanding borrowings and re-borrow up to the maximum principal amounts, subject to the reductions in availability contained in the note. The noteMortgage Note is also subject to two interest rate options of either prime less 1.5% or the fixed LIBOR plus 1.25% with a term option of one month, two months, three months, six months, nine months, or twelve months. Interest is
payablewill be paid on a monthly basis. Principal amounts subject to the prime interest rate may be repaid at any time without penalty. Principal amounts subject to the fixed LIBOR rate may also be repaid at any time but are subject to a prepayment penalty if paid before the fixed rate term, or additional interest if paid after the fixed rate term.
The Company's
Exponent is exposed to some interest rate risk associated with our revolving reducing mortgage note secured by our headquarters building. Our general policy for selecting among the interest rate options and related terms
iswill be to minimize interest expense. However, given the risk of interest rate fluctuations,
the Companywe cannot be certain that the lowest rate option will always be
obtained. The Company has not performed anyobtained, thereby consistently minimizing our interest expense. No sensitivity analysis
was performed on
itsour exposure to interest rate
fluctuations. However,fluctuations, however, given the historical low volatility of both the prime and LIBOR interest rates,
management believeswe believe that any exposure would be minimal.
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Exponent is exposed to some interest rate risk associated with our balances of cash and cash equivalents. Given the historical low volatility of interest rates on these balances, we believe that any exposure would be minimal.
Exponent is exposed to some foreign currency exchange rate risk associated with its foreign operations. Given the limited nature of these activities and the historical low volatility of such exchange rates, we believe that any exposure would be minimal.
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PART II - II—OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
None
(b) Reports on Form 8-K
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
EXPONENT, INC.
--------------
(Registrant)
Date: November 9, 2001 /s/ Richard L. Schlenker
---------------------------------------------
Richard L. Schlenker, Chief Financial Officer
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| | | | EXPONENT, INC. (Registrant) |
|
| Date: May 10, 2002 | | | | By: | | /s/ RICHARD L. SCHLENKER
|
| | | | | | | | Richard L. Schlenker, Chief Financial Officer |
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