<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
___________________________
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended September 29, 2000
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)
<TABLE>
<CAPTION>
<S> <C>
DELAWARE 77-0218904
-------- ----------
(State or other jurisdiction of incorporation) (I.R.S. Employer Identification Number)
149 COMMONWEALTH DRIVE, MENLO PARK, CALIFORNIA 94025
---------------------------------------------- -----
(Address of principal executive office) (Zip Code)
Registrant's telephone number, including area code (650) 326-9400
--------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
YES X No
--- ---
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at November 3, 2000
---------------------------- -------------------------------
Common Stock $.001 par value 6,569,299 shares
<PAGE>
PART I FINANCIAL INFORMATION
Item 1. Financial Statements
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
September 29, 2000 and December 31, 1999
(in thousands, except share data)
(unaudited)
<TABLE>
September 29, December 31,
2000 1999
---------------- ----------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents..................................... $ - $ -
Accounts receivable, net...................................... 37,188 38,494
Prepaid expenses and other assets............................. 4,306 2,345
Deferred income taxes......................................... 1,389 1,389
---------------- ----------------
Total current assets...................................... 42,883 42,228
Property, equipment and leasehold improvements, net................. 32,595 29,468
Goodwill............................................................ 6,988 7,851
Deferred income taxes............................................... 365 365
Other assets........................................................ 622 540
---------------- ----------------
$ 83,453 $ 80,452
================ ================
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable and accrued liabilities...................... $ 2,176 $ 4,040
Current installments of long-term obligations................. 876 415
Accrued payroll and employee benefits......................... 10,377 11,101
Deferred revenues............................................. 2,365 -
---------------- ----------------
Total current liabilities................................. 15,794 15,556
Long-term obligations, net of current installments.................. 1,875 4,139
Other obligations................................................... 572 609
---------------- ----------------
Total liabilities......................................... 18,241 20,304
---------------- ----------------
Stockholders' equity:
Common stock.................................................. 8 8
Additional paid-in capital.................................... 33,103 33,406
Accumulated other comprehensive losses........................ (86) (66)
Retained earnings............................................. 40,906 34,470
Treasury shares, at cost, 1,334,290 and 1,223,231 shares at
September 29, 2000 and December 31, 1999, respectively.. (8,719) (7,670)
---------------- ----------------
Total stockholders' equity............................ 65,212 60,148
---------------- ----------------
$ 83,453 $ 80,452
================ ================
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
2
<PAGE>
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
For the Quarters and Nine Months Ended September 29, 2000 and October 1, 1999
(in thousands, except per share data)
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
------------------------------- ------------------------------
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
--------------- ------------ ------------- ----------
<S> <C> <C> <C> <C>
Revenues....................................... $ 25,474 $ 24,082 $ 77,219 $ 71,250
-------------- ------------ ------------- ----------
Operating expenses:
Compensation and related expenses............ 16,071 15,224 48,658 45,578
Other operating expenses..................... 4,231 3,935 12,373 11,862
General and administrative expenses.......... 2,266 2,421 7,147 7,055
-------------- ------------ ------------- ----------
22,568 21,580 68,178 64,495
-------------- ------------ ------------- ----------
Operating income............................ 2,906 2,502 9,041 6,755
Other income, net.............................. 451 195 1,349 1,061
-------------- ------------ ------------- ----------
Income from continuing operations
before income taxes....................... 3,357 2,697 10,390 7,816
Income taxes................................... 1,391 1,122 4,304 3,242
-------------- ------------ ------------- ----------
Income from continuing operations........... 1,966 1,575 6,086 4,574
Discontinued operations:
Income (loss) from operation of BCS Wireless, Inc.
(net of taxes of $63, ($69) and ($205)
respectively)............................... - 88 (97) (289)
Gain on disposition of BCS Wireless, Inc.
(net of taxes of $320)...................... - - 451 -
-------------- ------------ ------------- ----------
- 88 354 (289)
-------------- ------------ ------------- ----------
Net income................................ $ 1,966 $ 1,663 $ 6,440 $ 4,285
============== ============ ============= ==========
Income per share from continuing operations:
Basic $ 0.30 $ 0.23 $ 0.91 $ 0.67
Diluted $ 0.28 $ 0.23 $ 0.86 $ 0.65
Income (loss) per share from discontinued operations:
Basic $ - $ 0.01 $ 0.05 $ (0.04)
Diluted $ - $ 0.01 $ 0.05 $ (0.04)
Net income per share:
Basic $ 0.30 $ 0.25 $ 0.97 $ 0.62
Diluted $ 0.28 $ 0.24 $ 0.91 $ 0.61
Shares used in per share computations:
Basic 6,606 6,764 6,659 6,878
Diluted 7,104 6,953 7,096 7,017
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
3
<PAGE>
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME
For the Quarters and Nine Months Ended September 29, 2000 and October 1, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------------- --------------------------------
September 29, October 1, September 29, October 1,
2000 1999 2000 1999
-------------- ------------- ------------- ------------
<S> <C> <C> <C> <C>
Net income....................................... $ 1,966 $ 1,663 $ 6,440 $ 4,285
Other comprehensive income (loss) -
foreign currency translation adjustments....... (13) 7 (20) (26)
-------------- ------------- ------------- ------------
Comprehensive income............................. $ 1,953 $ 1,670 $ 6,420 $ 4,259
============== ============= ============= ============
</TABLE>
The accompanying notes are an integral part of these condensed consolidated
financial statements.
4
<PAGE>
EXPONENT, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
For the Nine Months Ended September 29, 2000 and October 1, 1999
(in thousands)
(unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
----------------------------------------
September 29, October 1,
2000 1999
-------------------- ------------------
<S> <C> <C>
Cash flows from operating activities:
Net income.................................................................. $ 6,440 $ 4,285
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization........................................ 3,290 3,299
Gain on disposition of BCS Wireless, Inc............................. (451) -
Gain on sale of building............................................. - (213)
Provision for doubtful accounts...................................... 1,639 2,180
Changes in operating assets and liabilities:
Accounts receivable................................................ (1,819) (10,642)
Prepaid expenses and other assets.................................. (457) 1,175
Accounts payable and accrued liabilities........................... (860) 1,822
Accrued payroll and employee benefits.............................. (658) 640
Deferred revenues.................................................. 2,365 -
Income taxes payable............................................... (905) (105)
Other obligations.................................................. (123) (90)
Net operating activities of discontinued operations................ 693 398
------------------ -----------------
Net cash provided by operating activities...................... 9,154 2,749
------------------ -----------------
Cash flows from investing activities:
Gross proceeds from sale of building........................................ - 4,411
Capital expenditures........................................................ (6,416) (4,203)
Proceeds from disposition of BCS Wireless, Inc., net........................ 1,870 -
Other assets................................................................ (437) (160)
Net investing activities of discontinued operations......................... (34) (38)
------------------- -----------------
Net cash provided by (used in) investing activities............ (5,017) 10
------------------- ------------------
Cash flows from financing activities:
Proceeds from borrowings and issuance of long-term obligations.............. - 18,946
Repayments of borrowings and long-term obligations.......................... (2,781) (24,722)
Repurchase of common stock.................................................. (2,609) (3,634)
Issuance of common stock.................................................... 1,238 569
Net financing activities of discontinued operations......................... 15 -
------------------- -----------------
Net cash used in financing activities.......................... (4,137) (8,841)
------------------- -----------------
Net decrease in cash and cash equivalents................................................ - (6,082)
Cash and cash equivalents at beginning of period......................................... - 6,082
------------------- -----------------
Cash and cash equivalents at end of period............................................... $ - $ -
=================== =================
The accompanying notes are an integral part of these condensed consolidated financial statements.
</TABLE>
5
<PAGE>
EXPONENT, INC. AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
For the Fiscal Quarters and Nine Months Ended
September 29, 2000 and October 1, 1999
Note 1: Summary of Significant Accounting Policies
Basis of Presentation
Exponent, Inc., together with its subsidiaries (referred to as the
"Company"), is a multidisciplinary organization of scientists, physicians,
engineers and business consultants performing in-depth scientific research and
analysis in over 70 technical disciplines. The accompanying consolidated
financial statements include the accounts of the Company and its wholly owned
subsidiaries, Exponent Failure Analysis Associates, Inc. ("FaAA"), Exponent
Health Group, Inc. ("EHG"). Exponent Environmental Group, Inc. ("EEG") and BCS
Wireless, Inc. ("BCS") whose results of operations have been accounted for as a
discontinued operation for the quarters and nine months ended September 29, 2000
and October 1, 1999. The Company operates on a 52 or 53 week fiscal calendar
year ending on the Friday closest to the last day of December.
The accompanying condensed consolidated financial statements have been
prepared in accordance with generally accepted accounting principles and include
the accounts of Exponent and its subsidiaries. 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 and nine month periods ended September 29, 2000 and October 1,
1999, are not necessarily representative of the results of future quarterly or
annual periods.
Reclassifications:
Certain amounts in the statement of cash flows for the nine months ended
October 1, 1999 have been reclassified in order to conform to current financial
statement presentation.
Note 2: Discontinued Operations
On May 1, 2000, the Company sold certain assets of BCS Wireless, Inc. for
$2.0 million in cash and the assumption of approximately $745,000 in
liabilities. The Company recorded a gain on the disposition of BCS of $451,000,
net of taxes of $320,000. The Company retained approximately $400,000 in net
cash and $1.4 million in net accounts receivables of BCS. As of September 29,
2000, approximately $220,000 in net accounts receivable remained outstanding.
The Company committed to a formal plan to divest BCS effective April 2, 1999.
Accordingly, the results of operations for BCS for the quarters and nine months
ending September 29, 2000 and October 1, 1999 have been recorded as a
discontinued operation in the condensed consolidated statements of income.
Note 3: Net Income Per Share
Basic per share amounts are computed using the weighted average number of
common 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, even when
antidilutive, if their effect would be dilutive on the per share amount of
income from continuing operations.
6
<PAGE>
The following schedule reconciles both the numerator and denominator of the
Company's calculation for basic and diluted net income per share:
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------------------- ----------------------------------------
September 29, October 1, September 29 October 1,
(in thousands) 2000 1999 2000 1999
--------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Shares used in basic per share computation 6,606 6,764 6,659 6,878
Effect of dilutive common stock options outstanding 498 189 437 139
--------------- ------------------ ------------------ --------------
Shares used in diluted per share computation 7,104 6,953 7,096 7,017
=============== ================== ================== ==============
</TABLE>
Common stock options to purchase 117,048 and 18,022 shares for the quarters
ended September 29, 2000 and October 1, 1999, respectively, were excluded from
the diluted per share calculation, due to their antidilutive effect. For the
nine months ended September 29, 2000 and October 1, 1999, respectively, common
stock options to purchase 247,607 and 145,309 shares, were excluded from the
diluted per share calculation, due to their antidilutive effect.
Note 5: Supplemental Cash Flow Information
The following is supplemental disclosure of cash flow information:
<TABLE>
<CAPTION>
Nine Months Ended
---------------------------
(in thousands) September 29, October 1,
2000 1999
------------- -------------
Cash paid during period:
<S> <C> <C>
Interest $ 144 $ 544
Income taxes $ 6,269 $ 3,009
Non-cash investing and financing activities:
Issuance of debt for financing of insurance policies $ 977 $ 1,073
</TABLE>
Note 6: Segment Reporting
The Company is a multidisciplinary organization of scientists, physicians,
engineers and business consultants performing in-depth scientific research and
analysis in a number of technical disciplines. The Company has two operating
segments based on two primary areas of service. One operating segment provides
services in the area of environmental and health. This operating segment
provides a wide range of consulting services relating to environmental and
occupational hazards and risks and the impact on both human health and the
environment. The Company's other operating segment is a broader service group
providing scientific and engineering consulting in different practices and
primarily in the area of impending litigation.
Segment information for the quarters and nine months ended September 29, 2000
and October 1, 1999 follows:
Revenues
--------
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
-------------------------------------- ----------------------------------------
(in thousands) September 29, October 1, September 29 October 1,
2000 1999 2000 1999
--------------- ------------------ ------------------ ---------------
<S> <C> <C> <C> <C>
Environmental and health $ 6,099 $ 5,780 $ 17,228 $ 15,901
Other scientific and engineering 19,375 18,302 59,991 55,349
--------------- ------------------ ------------------ --------------
Total revenues $ 25,474 $ 24,082 $ 77,219 $ 71,250
=============== ================== ================== ==============
</TABLE>
7
<PAGE>
Operating income (loss)
-----------------------
<TABLE>
<CAPTION>
Quarters Ended Nine Months Ended
----------------------------- -----------------------------
(in thousands) September 29, October 1, September 29, October 1,
2000 1999 2000 1999
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Environmental and health $ 1,606 $ 1,348 $ 3,870 $ 2,786
Other scientific and engineering 4,461 5,528 15,257 15,416
------------- ------------- ------------- -------------
Total segment operating income 6,067 6,876 19,127 18,202
Corporate operating loss (3,161) (4,374) (10,086) (11,447)
------------- ------------- ------------- -------------
Total operating income $ 2,906 $ 2,502 $ 9,041 $ 6,755
============= ============= ============= =============
</TABLE>
Note 7: Subsequent Event
On September 30, 2000, the Company acquired all of the outstanding capital
stock of Lockwood-Singh & Associates, Inc. for $1.035 million in cash. The
terms of the purchase also consider future payments based on the achievement of
certain performance criteria. While the amount of these payments cannot be
determined until such performance occurs, the payments will not exceed $200,000.
The acquisition will be accounted for under the purchase method of accounting
and, accordingly, the purchase price will be allocated to the net assets
acquired based on the estimated fair value at the date of acquisition. Following
the acquisition, the net assets and staff of Lockwood-Singh & Associates, Inc.
will become part of FaAA and will not be recorded as a separate entity.
8
<PAGE>
Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations
Forward Looking Statements
This Quarterly Report on Form 10-Q (this "Report", for Exponent, Inc. (the
"Company" or "Exponent")) contains 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) 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 Reform Act of 1995. Words such as "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'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. 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 derives most of its revenue from professional service
activities, generally at the time services are performed. The majority of these
activities are provided under "time and materials" or "fixed-price" billing
arrangements, with revenues consisting of professional fees and expenses and
fees for the use of the Company's equipment and facilities in connection with
the services provided. On fixed-price contracts, revenue is recognized on the
basis of the estimated percentage of completion of services rendered. The
Company's principal expenses are professional compensation and related expenses.
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's audited consolidated financial statements and notes thereto for
the fiscal year ended December 31, 1999, which are contained in the Company's
fiscal 1999 Annual Report on Form 10-K.
2000 Fiscal Quarter and Nine Months Ended September 29, 2000 compared to 1999
Fiscal Quarter and Nine Months Ended October 1, 1999
Revenues for the third quarter of fiscal 2000 increased 5.8% to $25.5
million compared to $24.1 million for the same period in fiscal 1999. This
increase was the result of growth in both the environmental and health, and
other scientific and engineering segments during the quarter. Revenues
increased by 8.4% for the nine months ended September 29, 2000 to $77.2 million
compared to $71.3 million for the same period in fiscal 1999. This increase was
also a result of growth in both of the Company's segments for the first nine
months of fiscal 2000. This growth was due to the effect of higher billable
hours due to an increase in the number of professional staff along with
maintaining constant utilization of existing professional staff, and the effect
of bill rate increases. In addition, revenues from several fixed-price
projects, including the Land Warrior project for the U.S. Army, which is an
integrated digital system for the dismounted soldier, contributed to revenue
growth for the third quarter and first nine months of fiscal 2000.
Compensation and related expenses increased 5.6% to $16.1 million for the
third quarter of fiscal 2000 compared to $15.2 million for the same period in
fiscal 1999. The increase was due to the hiring of additional employees
combined with annual salary increases for all employees, as well an increase in
accrued bonuses, which is related to increased profitability. As a percentage
of revenue, total compensation decreased to 63.1% for the third quarter of
fiscal 2000 compared to 63.2% for the same period in fiscal 1999. For the nine
months ended September 29, 2000,
9
<PAGE>
compensation and related expenses increased by 6.8% to $48.7 million compared to
$45.6 million for the nine months ended October 1, 1999. As mentioned
previously, this increase resulted from company-wide annual salary increases and
the hiring of additional employees, as well an increase in accrued bonuses,
which is related to increased profitability. As a percentage of revenue,
compensation and related expenses decreased to 63.0% for the nine months ended
September 29, 2000 as compared to 64.0% for the nine months ended October 1,
1999.
Other operating expenses increased 7.5% to $4.2 million for the third
quarter of fiscal 2000 compared to $3.9 million for the same period in fiscal
1999. As a percentage of revenue, other operating expenses increased to 16.6%
for the third quarter of fiscal 2000 compared to 16.3% for the same period in
fiscal 1999. The increase was primarily due to increases in occupancy costs and
office expenses, partially offset by a decrease in computer expenses. The
growth in occupancy costs is primarily the result of the addition of two new
regional offices in California during the second half of fiscal 1999 and a new
lease agreement for the Company's warehouse facility in Menlo Park, which took
effect in June 2000. In addition, the Company also opened six small office
"workspaces" in various parts of the country during fiscal 2000. The growth in
office expenses is related to providing support for the new offices as well as
to additional staff in existing offices. Other operating expenses increased by
4.3% to $12.4 million for the nine months ended September 29, 2000 compared to
$11.9 million for the same period a year ago. The increase was attributable to
the aforementioned increases in occupancy costs and office expenses, as well as
increases in technical supplies, which is a result of increased activity at the
Company's Test and Engineering Center in Phoenix. These increases were
partially offset by reductions in computer expenses. As a percentage of
revenue, other operating expenses decreased slightly to 16.0% for the nine month
period ended September 29, 2000 as compared to 16.6% for the nine month period
ended October 1, 1999.
General and administrative expenses decreased 6.4% to $2.3 million for the
third quarter of fiscal 2000 compared to $2.4 million for the same period in
fiscal 1999. This decrease was primarily a result of decreases in employee
relocation costs, business development costs and bad debt expense, partially
offset by increased recruiting expenses and an accrual for sales tax. General
and administrative expenses as a percentage of revenue decreased to 8.9% of
total revenues for the third quarter of fiscal 2000 compared to 10.1% for the
third quarter of fiscal 1999. General and administrative expenses stayed
constant at $7.1 million for the nine months ended September 29, 2000 and
October 1, 1999, respectively. Increases in personnel recruiting expenses, bad
debt expense and the sales tax accrual mentioned previously were offset by
decreases in employee relocation costs and business development costs during the
first nine months of fiscal 2000 as compared to the same period of fiscal 1999.
As a percentage of revenue, general and administrative expenses decreased to
9.3% for the nine months ended September 29, 2000 from 9.9% for the same period
in fiscal 1999.
Other income, net, consists primarily of investment income earned on
available cash and cash equivalents and rental income from leasing excess space
in the Company's headquarters facility located in Menlo Park, California, net of
interest expense on the Company's mortgage. Other income, net, increased 131.3%
to $451,000 for the third quarter of fiscal 2000 compared to $195,000 for the
same period of 1999. This increase was due to a decrease in interest expense
resulting from reduced borrowings on the Company's revolving reducing note and
an increase in rental income due to two new subleases in the Company's Menlo
Park facility. Other income, net, increased 27.1% to $1,349,000 for the nine
months ended September 29, 2000 compared to $1,061,000 during the same period in
fiscal 1999. The increase is also primarily due to a decrease in interest
expense resulting from reduced borrowings on the Company's revolving reducing
note partially offset by a reduction in rental income for the first half of
fiscal 2000 due to the sale of an excess facility in May of 1999. In addition,
the Company recorded a $213,000 gain on the sale of an excess facility in May of
1999.
Liquidity and Capital Resources
2000 Fiscal Quarter and Nine Months Ended September 29, 2000 Compared to 1999
Fiscal Quarter and Nine Months Ended October 1, 1999
The Company's cash management policy is to use all excess operating cash to
pay down the mortgage on the Company's headquarters building. As a result, the
Company had no cash or cash equivalents as of September 29, 2000. The balance
on the Company's mortgage was $1.5 million as of September 29, 2000. The
Company financed its business for the current period principally through
operating cash.
Net cash provided by operating activities was $9.2 million in the first
nine months of fiscal 2000, compared to $2.7 million for the comparable period
in fiscal 1999. This increase in cash provided by operating activities was
10
<PAGE>
primarily attributable to increased net income and the changes in operating
assets and liabilities, especially the increase in deferred revenues.
Net cash used in investing activities was $5.0 million for the first nine
months of fiscal 2000, compared to net cash provided by investing activities of
$10,000 for the comparable period of fiscal 1999. This increase in cash used
was primarily a result of increased capital expenditures related to the
construction of an engineering and test preparation building at the Company's
Test and Engineering Center in Phoenix, partially offset by the funds provided
by the disposition of BCS during the first nine months of fiscal 2000. In
fiscal 1999, expenditures for the construction of the Indoor Test Facility in
Phoenix were offset by funds generated by the sale of one of the Company's
properties in Menlo Park in May 1999. The new engineering and test preparation
building will be completed during the fourth quarter of fiscal 2000.
Net cash used in financing activities was $4.1 million for the first nine
months of fiscal 2000, compared to $8.8 million for the comparable period in
fiscal 1999. This decrease in cash used by financing activities was due to the
decrease in funds used for repayment of outstanding debt. The Company used $2.8
million in funds to pay down net borrowings during the first nine months of
fiscal 2000 as compared to net repayments of $5.8 million during the same period
of fiscal 1999. In addition, there was a reduction in the number of shares of
Company common stock repurchased during the period. The Company purchased $2.6
million in shares of Company common stock during the first nine months of fiscal
2000, compared to $3.6 million purchased during the same period of fiscal 1999.
The Company's long-term obligations at September 29, 2000 consisted
primarily of the obligation on the revolving mortgage note of $1.5 million and
the long-term portion of insurance financing agreements in the amount of
$283,000.
Management believes that its revolving note, together with funds generated
from operations, will provide adequate cash to fund the Company's anticipated
cash needs through at least the next twelve-month period.
11
<PAGE>
FACTORS AFFECTING OPERATING RESULTS AND MARKET PRICE OF STOCK
Exponent operates in a rapidly changing environment that involves a number
of uncertainties, some of which are beyond the Company's control. These
uncertainties include, but are not limited to, those mentioned elsewhere in this
report, and the following:
Attraction and Retention of Key Employees
The Company's business involves the delivery of professional services and
is labor intensive. The Company's success depends in large part upon its
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 no assurance
that the Company 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's employees could have a material adverse
impact on the Company, including its ability to secure and complete engagements.
Absence of Backlog
Revenues are primarily derived from services provided in response to client
request or events that occur without notice, and engagements, generally billed
as services are performed, are terminable at any time by clients. As a result,
backlog at any particular time is small in relation to the Company's quarterly
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.
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. 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.
Other Income
The Company currently subleases excess facilities, primarily in its Menlo
Park, California headquarters, that have lease terms that expire between 2000
and 2003. In the first nine months of fiscal 2000 and 1999, miscellaneous
rental income associated with these facilities amounted to approximately 17.4%
and 26.5%, respectively, of income from continuing operations before income
taxes. The sale of one of these excess facilities in May 1999 reduced the
amount of future rental income, however much of the impact of this reduction was
offset by corresponding reductions in facility operating costs, depreciation and
interest expense. Should the remaining subleases not be extended, renewed or
have their term options exercised, the loss of additional miscellaneous rental
income could have a material adverse effect on the Company's operating results.
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 related
regulations affect nearly every industry, as well as the agencies of federal,
state and local governments charged with their enforcement. To 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 environmental services may be significantly reduced.
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Variability of Quarterly Financial Results
Variations in the Company's 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's 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 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
Company's long-term debt obligation on the Company's headquarters building.
Effective February 1, 1999, the Company refinanced its headquarters building
under a new financing agreement. The new mortgage note consists of a revolving
reducing note, secured by the Company's headquarters building, with a 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
approximately $1.3 million to $2.1 million per year until January 31, 2008. As
of September 29, 2000, $27.2 million was available to be borrowed. Any
outstanding amounts on the revolving reducing note are due and payable in full
on January 31, 2009. The Company may from time to time during the term of the
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 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 payable 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 general policy for selecting among the interest rate options
and related terms is to minimize interest expense. However, given the risk of
interest rate fluctuations, the Company cannot be certain that the lowest rate
option will always be obtained. The Company has not performed any sensitivity
analysis on its exposure to interest rate fluctuations. However, given the
historical low volatility of both the prime and LIBOR interest rates, the
Company believes any exposure would be minimal.
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PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
27.1 Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed with the Securities and Exchange
Commission during the quarter ended September 29, 2000.
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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.
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(Registrant)
Date: November 10, 2000 /s/ Richard L. Schlenker
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Richard L. Schlenker, Chief Financial Officer
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Index to Exhibits
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Exhibit
Number Description
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27.1 Financial Data Schedule
16
