EXPONENT INC (Form: 10-Q, Received: 05/09/2006 15:12:49)

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 March 31, 2006

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

For the transition period from to

Commission File Number 0-18655

EXPONENT, INC.

(Exact name of registrant as specified in its charter)


DELAWARE		77-0218904
(State or other jurisdiction of incorporation)		(I.R.S. Employer Identification Number)

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

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

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes x No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer (as defined in Rule 12b-2 of the Act).


Large accelerated filer ¨		Accelerated filer x		Non-accelerated filer ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ¨ No x

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.


Class		Outstanding at May 5, 2006
Common Stock $.001 par value		8,015,312 shares

EXPONENT, INC.

FORM 10-Q

TABLE OF CONTENTS


		Page
PART I – FINANCIAL INFORMATION		3

Item 1.	Condensed Consolidated Financial Statements:	3

	Condensed Consolidated Balance Sheets March 31, 2006 and December 30, 2005	3

	Condensed Consolidated Statements of Income Quarters Ended March 31, 2006 and April 1, 2005	4

	Condensed Consolidated Statements of Comprehensive Income Quarters Ended March 31, 2006 and April 1, 2005	5

	Condensed Consolidated Statements of Cash Flows Quarters Ended March 31, 2006 and April 1, 2005	6

	Notes to Condensed Consolidated Financial Statements	7

Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	17

Item 3.	Quantitative and Qualitative Disclosure About Market Risk	24

Item 4.	Controls and Procedures	24

PART II – OTHER INFORMATION		25

Item 1A.	Risk Factors	25

Item 5.	Other Information	26

Item 6.	Exhibits	26

Signatures		27

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PART I – FINANCIAL INFORMATION

Item 1. Condensed Consolidated Financial Statements

EXPONENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

March 31, 2006 and December 30, 2005

(in thousands, except share data)

(unaudited)


	March 31, 2006			December 30, 2005
Assets
Current assets:
Cash and cash equivalents	$	10,196		$	13,216
Short-term investments		60,467			55,682
Accounts receivable, net of allowance for doubtful accounts of $1,433 and $1,222 at March 31, 2006 and December 30, 2005, respectively		48,037			46,211
Prepaid expenses and other assets		2,632			2,900
Deferred income taxes		2,471			2,156

Total current assets		123,803			120,165

Property, equipment and leasehold improvements, net		29,826			29,839
Goodwill		8,607			8,607
Other assets		6,436			5,630

	$	168,672		$	164,241

Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	4,799		$	4,136
Accrued payroll and employee benefits		15,753			19,910
Deferred revenues		2,425			2,364

Total current liabilities		22,977			26,410

Other liabilities		3,774			3,487
Deferred rent		1,137			1,144

Total liabilities		27,888			31,041

Stockholders’ equity:
Common stock, $0.001 par value; 20,000,000 shares authorized; 8,194,721 and 8,095,913 shares issued at March 31, 2006 and December 30, 2005, respectively		8			8
Additional paid-in capital		48,718			44,963
Accumulated other comprehensive loss		(86	)		(93	)
Retained earnings		92,144			88,322

Total stockholders’ equity		140,784			133,200

	$	168,672		$	164,241

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

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EXPONENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF INCOME

For the Quarters Ended March 31, 2006 and April 1, 2005

(in thousands, except per share data)

(unaudited)


	Quarters Ended
	March 31, 2006		April 1, 2005
Revenues:
Revenues before reimbursements	$	39,619	$	36,929
Reimbursements		2,408		2,267

Revenues		42,027		39,196

Operating expenses:
Compensation and related expenses (including stock-based compensation expense of $1,250 and $508, respectively)		26,746		23,881
Other operating expenses		4,765		4,664
Reimbursable expenses		2,408		2,267
General and administrative expenses (including stock-based compensation expense of $21 and $13, respectively)		2,718		2,329

		36,637		33,141

Operating income		5,390		6,055
Other income:
Interest income, net		498		234
Miscellaneous income, net		378		114

		876		348

Income before income taxes		6,266		6,403
Income taxes		2,444		2,536

Net income	$	3,822	$	3,867

Net income per share:
Basic	$	0.46	$	0.48
Diluted	$	0.43	$	0.45

Shares used in per share computations:
Basic		8,248		8,023
Diluted		8,894		8,673

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

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EXPONENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME

For the Quarters Ended March 31, 2006 and April 1, 2005

(in thousands)

(unaudited)


	Quarters Ended
	March 31, 2006			April 1, 2005
Net income	$	3,822		$	3,867
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		14			(41	)
Unrealized loss on short-term investments, net of tax		(7	)		(37	)

Comprehensive income, net of taxes	$	3,829		$	3,789

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

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EXPONENT, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Quarters Ended March 31, 2006 and April 1, 2005

(in thousands)

(unaudited)


	Quarters Ended
	March 31, 2006			April 1, 2005
Cash flows from operating activities:
Net income	$	3,822		$	3,867
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization of property, equipment and leasehold improvements		882			818
Amortization of premiums and accretion of discounts of short-term investments		173			308
Deferred rent expense		(7	)		28
Provision for doubtful accounts		354			640
Stock-based compensation		1,271			521
Deferred income tax provision		(854	)		(1,087	)
Tax benefit for stock option plans		(424	)		266
Changes in operating assets and liabilities:
Accounts receivable		(2,180	)		(6,124	)
Prepaid expenses and other assets		268			(11	)
Accounts payable and accrued liabilities		1,087			2,380
Accrued payroll and employee benefits		(3,141	)		(2,764	)
Deferred revenues		61			(384	)

Net cash provided by (used in) operating activities		1,312			(1,542	)

Cash flows from investing activities:
Capital expenditures		(860	)		(1,096	)
Other assets		45			8
Purchase of short-term investments		(48,814	)		(19,398	)
Sale/maturity of short-term investments		43,841			22,382

Net cash (used in) provided by investing activities		(5,788	)		1,896

Cash flows from financing activities:
Repayments of borrowings and long-term obligations		(11	)		(21	)
Tax benefit for stock option plans		424			—
Repurchase of common stock		—			(3,064	)
Issuance of common stock		1,044			1,058

Net cash provided by (used in) financing activities		1,457			(2,027	)

Effect of foreign currency exchange rates on cash and cash equivalents		(1	)		(17	)

Net decrease in cash and cash equivalents		(3,020	)		(1,690	)
Cash and cash equivalents at beginning of period		13,216			4,680

Cash and cash equivalents at end of period	$	10,196		$	2,990

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

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EXPONENT, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

For the Fiscal Quarters Ended March 31, 2006 and April 1, 2005

Note 1: Basis of Presentation

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

The accompanying condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America. All significant intercompany transactions and balances have been eliminated in consolidation. In the opinion of management, all adjustments which are necessary for the fair presentation of the condensed consolidated financial statements have been included and all such adjustments are of a normal and recurring nature. The operating results for the quarter ended March 31, 2006 are not necessarily representative of the results of future quarterly or annual periods.

Stock-Based Compensation. During the first quarter of fiscal 2006, the Company adopted Statement of Financial Accounting Standards No. 123 (revised 2004), “Share-Based Payments” (“SFAS 123(R)”), which requires the measurement and recognition of compensation expense for all share-based payment awards made to employees and directors including employee stock options and restricted stock unit grants based on estimated fair values. SFAS 123(R) supersedes the Company’s previous accounting under Accounting Principles Board Option No. 25, “Accounting for Stock Issued to Employees” and amends Statement of Financial Accounting Standards No. 95, “Statement of Cash Flows”. In March 2005, the Securities and Exchange Commission issued Staff Accounting Bulletin No. 107 (“SAB 107”) relating to SFAS 123(R). The Company has applied the provisions of SAB 107 in its adoption of SFAS 123(R).

Stock-based compensation is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period. The Company elected the modified-prospective method, under which prior periods are not revised for comparative purposes. Under this transition method, stock-based compensation expense for the first quarter of fiscal 2006 includes compensation expense for all stock-based compensation awards granted prior to, but not yet vested as of December 30, 2005, based on the grant-date fair value estimated in accordance with the original provision of SFAS 123. Stock-based compensation expense for all stock-based compensation awards granted after December 30, 2005 is based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R).

SFAS 123(R) requires that the benefits of tax deductions in excess of recognized compensation cost be reported as a financing cash flow, rather than as an operating cash flow. As a result, the adoption of SFAS 123(R) will reduce net operating cash flows and increase net financing cash flows in the periods after the effective date. Total cash flow will remain unchanged from what would have been reported. SFAS 123(R) also requires that the Company estimate the number of awards that are expected to vest and to revise the estimate as actual forfeitures differ from that estimate. Previously, the Company accounted for forfeitures under the provisions of SFAS 123, wherein the Company recognized forfeitures as they occurred. The Company estimated the forfeiture rate for the first quarter of fiscal 2006 based on its historical experience.

As a result of adopting SFAS 123(R), the Company’s income before income taxes and net income for the quarter ended March 31, 2006, were $642,000 and $433,000 lower, respectively, than if the Company had continued to account for stock-based compensation under APB 25. Income taxes were $209,000 lower due to the adoption of SFAS 123(R). The impact on both basic and diluted earnings per share for the quarter ended March 31, 2006 was a decrease of $0.05 per share. See Note 4 for further information regarding the Company’s stock-based compensation assumptions and expenses, including pro-forma disclosures for prior periods as if the Company had recorded stock-based compensation expense.

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Reclassifications. Certain prior period balances have been reclassified to conform to the current period presentation. In connection with the adoption of SFAS 123(R) the prior period balances for deferred stock-based compensation and stock-based compensation expense were reclassified.

Note 2: Revenue Recognition

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

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

•

its clients are directly involved in the subcontractor selection process;

•

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

•

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

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

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

•

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

•

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

•

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

•

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

•

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

•

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

•

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

•

its contracts are typically progress billed on a monthly basis.

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Gross revenues and reimbursements for the quarters ended March 31, 2006 and April 1, 2005 are as follows:


	Quarters Ended
(In thousands)	March 31, 2006		April 1, 2005
Gross revenues	$	42,954	$	41,670
Less: Subcontractor fees		927		2,474

Revenues		42,027		39,196

Reimbursements:
Out-of-pocket travel reimbursements		992		815
Other outside direct expenses		1,416		1,452

		2,408		2,267

Revenues before reimbursements	$	39,619	$	36,929

Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. These judgments and estimates include an assessment of collectibility and, for fixed-price engagements, an estimate as to the total effort required to complete the project. If the Company made different judgments or utilized different estimates, the amount and timing of its revenue for any period could be materially different.

All consulting contracts are subject to review by management, which requires a positive assessment of the collectibility of contract amounts. If, during the course of the contract, the Company determines that collection of revenue is not reasonably assured, it does not recognize the revenue until its collection becomes reasonably assured, which is generally upon receipt of cash. The Company assesses collectibility based on a number of factors, including past transaction history with the client and project manager, as well as the creditworthiness of the client. Losses on fixed-price contracts are recognized during the period in which the loss first becomes evident. Contract losses are determined to be the amount by which the estimated total costs of the contract exceeds the total fixed price of the contract.

Note 3: Net Income Per Share

Basic per share amounts are computed using the weighted-average number of common shares outstanding during the period. Diluted per share amounts are calculated using the weighted-average number of common shares outstanding during the period and, when dilutive, the weighted-average number of potential common shares from the issuance of common stock to satisfy outstanding restricted stock units and the exercise of outstanding options to purchase common stock using the treasury stock method.

The following schedule reconciles the shares used to calculate basic and diluted net income per share:


	Quarters Ended
(In thousands)	March 31, 2006	April 1, 2005
Shares used in basic per share computation	8,248	8,023
Effect of dilutive common stock options outstanding	580	631
Effect of dilutive restricted stock units outstanding	66	19

Shares used in diluted per share computation	8,894	8,673

Common stock options to purchase 21,016 and 22,500 shares were excluded from the diluted per share calculation for the fiscal quarters ended March 31, 2006 and April 1, 2005, respectively, due to their antidilutive effect. Weighted average exercise prices for the antidilutive shares were $31.29 and $25.13 for the fiscal quarters ended March 31, 2006 and April 1, 2005, respectively.

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Note 4: Stock-Based Compensation

Restricted Stock Units

The Company grants restricted stock units to employees and outside directors under the 1999 Restricted Stock Plan. These restricted stock unit grants are designed to attract and retain employees, and to better align employee interests with those of the Company’s stockholders. For a select group of employees, up to 30% of their annual bonus is settled with fully vested restricted stock unit awards. Under these fully vested restricted stock unit awards, the holder of each award has the right to receive one share of the Company’s common stock for each fully vested restricted stock unit four years from the date of grant. Each individual who received a fully vested restricted stock unit award is also granted a matching number of unvested restricted stock unit awards. These unvested restricted stock unit awards cliff vest four years from the date of grant, at which time the holder of each award will have the right to receive one share of the Company’s common stock for each restricted stock unit award provided the holder of each award has met certain employment conditions.

The value of these restricted stock unit awards is determined based on the market price of the Company’s common stock on the date of grant. The value of fully vested restricted stock unit awards issued is recorded as a reduction to accrued bonuses. The portion of bonus expense that the Company expects to settle with fully vested restricted stock unit awards is recorded as stock-based compensation during the period the bonus is earned. The Company recorded stock-based compensation expense associated with accrued bonus awards of $434,000 and $425,000 during the quarters ended March 31, 2006 and April 1, 2005, respectively. The value of the unvested restricted stock unit awards issued is recognized over the requisite service period on a straight-line basis. The Company recorded stock-based compensation expense associated with the unvested restricted stock unit awards of $557,000 and $96,000 during the quarters ended March 31, 2006 and April 1, 2005, respectively.

Stock Options

The Company currently grants stock options under the 1999 Stock Option Plan and the 1998 Stock Option Plan. Options are granted for terms of ten years and generally vest ratably over a four-year period from the grant date. The Company grants options at exercise prices equal to the fair value of the Company’s common stock on the date of grant. During the quarter ended March 31, 2006 the Company recorded stock-based compensation expense of $261,000 associated with stock options granted prior to, but not yet vested as of December 30, 2005. The Company recorded stock-based compensation expense of $19,000 associated with stock options granted during the quarter ended March 31, 2006. There was no stock-based compensation expense associated with stock options during the quarter ended April 1, 2005.

Stock Compensation

Beginning with the first quarter of fiscal 2006, the Company adopted SFAS 123(R). See Note 1 for a description of the adoption of SFAS 123(R). The Company uses the Black-Scholes option-pricing model to determine the fair value of options granted. The determination of the fair value of stock-based payment awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables. These variables include expected stock price volatility over the term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate and expected dividends.

The Company used historical exercise and post-vesting forfeiture and expiration data to estimate the expected term of options granted. The historical volatility of the Company’s common stock over a period of time equal to the expected term of the options granted was used to estimate expected volatility. The risk-free interest rate used in the option-pricing model was based on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. The Company does not anticipate paying any cash dividends in the foreseeable future and therefore used an expected dividend yield of zero in the option-pricing model. The Company is required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. Historical data was used to estimate pre-vesting option forfeitures and stock-based compensation expense was recorded only for those awards that are expected to vest. All share based payment awards are recognized on a straight-line basis over the requisite service periods of the awards.

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The assumptions used to value option grants for the quarters ended March 31, 2006 and April 1, 2005 are as follows:


	Stock Option Plan
	2006		2005
Expected life (in years)	6.6		4.9
Risk-free interest rate	4.6	%	4.2	%
Volatility	39	%	45	%
Dividend yield	0	%	0	%

The weighted-average fair value of options granted during the quarters ended March 31, 2006 and April 1, 2005, were $14.93 and $10.89, respectively.

The following table sets forth the pro-forma amounts of net income and net income per share, for the quarter ended April 1, 2005, that would have resulted if the Company had accounted for its stock option plans under the fair value recognition provisions of SFAS 123(R):


(In thousands, except per share data)	Quarter Ended April 1, 2005
Reported net income:	$	3,867

Add back: Intrinsic value stock-based compensation expense, net of tax		58
Deduct: Fair value stock-based compensation expense, net of tax		(454	)

Adjusted net income:	$	3,471

Net income per share:
As reported:
Basic	$	0.48
Diluted	$	0.45
Adjusted:
Basic	$	0.43
Diluted	$	0.40
Shares used in per share calculations:
As reported:
Basic		8,023
Diluted		8,673
Adjusted:
Basic		8,023
Diluted		8,589

As of March 31, 2006, there was $2.1 million of unrecognized compensation cost, expected to be recognized over a period of 3.1 years, related to unvested restricted stock unit awards and $1.8 million of unrecognized compensation cost, expected to be recognized over a period of 2.6 years, related to unvested stock options. Total unrecognized compensation cost will be adjusted for future changes in estimated forfeitures.

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Activity under the restricted stock plan is as follows:


	Awards available for grant		Number of awards outstanding		Weighted- average fair value
Balance of unvested restricted stock units as of December 30, 2005	733,865		112,419		$	23.85
Awards granted	(93,434	)	93,434			31.03
Awards vested	—		(46,717	)		31.03
Awards cancelled	33		(33	)		31.03

Balance of unvested restricted stock units as of March 31, 2006	640,464		159,103		$	25.96

Activity under the stock option plans is as follows:


	Options available for grant		Number of options outstanding		Weighted- average exercise price		Weighted- average remaining contractual term	Aggregate Intrinsic Value (in thousands)
Outstanding as of December 30, 2005	731,409		1,306,806		$	11.30
Options granted	(37,500	)	37,500			31.29
Options exercised	—		(97,408	)		10.15
Options cancelled	1,500		(1,500	)		9.94

Outstanding as of March 31, 2006	695,409		1,245,398		$	11.99	4.92	$	24,483

Vested and expected to vest at March 31, 2006			1,240,700		$	11.96	4.91	$	24,428

Exercisable at March 31, 2006			1,034,273		$	10.13	4.28	$	22,253

The total intrinsic value of options exercised during the quarter ended March 31, 2006 was $2,081,000. The aggregate intrinsic value in the table above represents the total pre-tax intrinsic value (the difference between the Company’s closing stock price on the last trading day of the quarter ended March 31, 2006, and the exercise price, multiplied by the number of in-the-money options) that would have been received by the option holders had all option holders exercised their options on March 31, 2006. This amount changes based on the fair-value of the Company’s stock.

A summary of the Company’s unvested stock options is as follows:


	Unvested options outstanding		Weighted- average fair value
Balance of unvested stock options as of December 30, 2005	304,519		$	9.16
Options granted	37,500			14.93
Options vested	(130,144	)		8.29
Options forfeited	(750	)		7.66

Balance of unvested stock options as of March 31, 2006	211,125		$	10.73

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Note 5: Repurchase of Common Stock

The Company did not repurchase any shares of its common stock during the quarter ended March 31, 2006. The Company repurchased 130,415 shares of its common stock for $3.1 million during quarter ended April 1, 2005. As of March 31, 2006, the Company had remaining authorization under its stock repurchase plans of $414,000 to repurchase shares of common stock. On April 4, 2006, the Company’s Board of Directors authorized an additional $35 million for stock repurchases.

Note 6: Deferred Compensation Plan

The Company maintains a nonqualified deferred compensation plan for the benefit of a select group of highly compensated employees. The purpose of the plan is to offer those employees an opportunity to elect to defer the receipt of compensation in order to provide for termination of employment and related benefits. Under this plan participants may elect to defer up to 100% of their compensation. Employee deferrals were $251,000 and $1.1 million during the quarters ended March 31, 2006 and April 1, 2005, respectively.

Company assets that are earmarked to pay benefits under the plan are held in a rabbi trust and are subject to the claims of the Company’s creditors. As of March 31, 2006 and April 1, 2005, the invested amounts under the plan totaled $3.7 million and $2.4 million, respectively, and were recorded as a long-term asset on the Company’s condensed consolidated balance sheet. These assets are classified as trading securities and are recorded at fair market value with changes recorded as adjustments to other income and expense. As of March 31, 2006 and April 1, 2005, amounts due under the plan totaled $3.7 million and $2.4 million, respectively, and were recorded as a long-term other liability on the Company’s condensed consolidated balance sheet. Changes in the liability were recorded as adjustments to compensation expense. During the quarter ended March 31, 2006, the Company recognized compensation expense of $195,000, as a result of an increase in the market value of the trust assets, with the same amount being recorded as other income. During the quarter ended April 1, 2005, the Company recognized a compensation benefit of $37,000 as a result of a decrease in the market value of the trust assets, with the same amount being recorded as other expense.

Note 7: Supplemental Cash Flow Information

The following is supplemental disclosure of cash flow information:


	Quarters Ended
(In thousands)	March 31, 2006		April 1, 2005
Cash paid during period:
Interest	$	1	$	2
Income taxes	$	1,237	$	399
Non-cash investing and financing activities:
Capital lease for equipment	$	—	$	11
Unrealized loss on short-term investments	$	7	$	37
Vested stock unit awards issued to settle accrued bonuses	$	1,450	$	1,341

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Note 8: Accounts Receivable, Net

At March 31, 2006 and December 30, 2005, accounts receivable, net was comprised of the following:


(In thousands)	March 31, 2006			December 30, 2005
Billed accounts receivable	$	30,376		$	32,482
Unbilled accounts receivable		19,094			14,951
Allowance for doubtful accounts		(1,433	)		(1,222	)

Total accounts receivable, net	$	48,037		$	46,211

Note 9: Segment Reporting

The Company has two operating segments based on two primary areas of service. One operating segment is a broad service group providing technical consulting in different practices primarily in the areas of impending litigation and technology development. The Company’s other 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.

Segment information for the quarters ended March 31, 2006 and April 1, 2005 follows:

Revenues


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005
Engineering and other scientific	$	32,222		$	29,874
Environmental and health		9,805			9,322

Total revenues	$	42,027		$	39,196


Operating income

	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005
Engineering and other scientific	$	8,633		$	7,975
Environmental and health		2,169			2,353

Total segment operating income		10,802			10,328

Corporate operating expense		(5,412	)		(4,273	)

Total operating income	$	5,390		$	6,055

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Capital Expenditures
	Quarters Ended
(In thousands)	March 31, 2006		April 1, 2005
Engineering and other scientific	$	663	$	655
Environmental and health		94		43

Total segment capital expenditures		757		698

Corporate capital expenditures		103		398

Total capital expenditures	$	860	$	1,096

Depreciation and Amortization

	Quarters Ended
(In thousands)	March 31, 2006		April 1, 2005
Engineering and other scientific	$	603	$	552
Environmental and health		30		43

Total segment depreciation and amortization		633		595

Corporate depreciation and amortization		249		223

Total depreciation and amortization	$	882	$	818

No single customer comprised more than 10% of the Company’s revenues for the quarters ended March 31, 2006 and April 1, 2005.

Note 10: Related Party Transactions

The Company has a software licensing contract with an organization owned by the husband of one of Exponent’s Practice Directors. The Company recorded software licensing expenses related to this contract for the quarters ended March 31, 2006 and April 1, 2006 of $25,000 and $33,750, respectively.

In January 2006, the Company entered into a services agreement with Exponent Engineering, P.C., a California professional corporation that is qualified to do business in the state of New York, in order to facilitate the provision of professional engineering services in the state of New York. Pursuant to the agreement, the Company provides all professional and administrative services required by Exponent Engineering. In exchange for these services, Exponent Engineering will deliver to the Company all amounts or other consideration received by Exponent Engineering resulting from the provision of these professional services. The shareholders of Exponent Engineering are executive officers of Exponent. However, none of these executive officers receive any compensation for their participation in Exponent Engineering and have no financial interest in the securities of Exponent Engineering. The Company recorded revenues of $17,000 related to this services agreement for the quarter ended March 31, 2006.

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Note 11: Goodwill and Other Intangible Assets

At March 31, 2006 and December 30, 2005, goodwill and other intangible assets were comprised of the following:


(In thousands)	March 31, 2006			December 30, 2005
Intangible assets subject to amortization:
Non-competition agreements	$	136		$	136
Less accumulated amortization		(132	)		(123	)

		4			13
Goodwill		8,607			8,607

Total goodwill and intangible assets	$	8,611		$	8,620

Intangible assets subject to amortization are included in other assets in the accompanying condensed consolidated balance sheets.

Amortization expense for intangible assets for the quarters ended March 31, 2006 and April 1, 2005 was $9,000.

Below is a breakdown of goodwill reported by segment as of March 31, 2006:


(In thousands)	Environmental and health		Other scientific and engineering		Total
Goodwill	$	8,099	$	508	$	8,607

There were no changes in the carrying amount of goodwill for the quarter ended March 31, 2006.

Note 12: Mortgage Note

The Company has a revolving reducing mortgage note (the “Mortgage Note”) secured by its Silicon Valley headquarters building. The Mortgage Note had an initial borrowing amount up to $30.0 million and is subject to automatic annual reductions in the amount available to be borrowed of between $1.3 million to $2.1 million approximately per year until January 31, 2008. As of March 31, 2006, the Company had $0 outstanding and available borrowings of $19.4 million. The Mortgage Note is subject to two interest rate options of either prime less 1.5% or the fixed LIBOR plus 1.25% with a term of one month, two months, three months, nine months, or twelve months.

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

The following discussion should be read in conjunction with the unaudited condensed consolidated financial statements and notes thereto included herein and with our audited consolidated financial statements and notes thereto for the fiscal year ended December 30, 2005, which are contained in our fiscal 2005 Annual Report on Form 10-K.

Forward-Looking Statements

This Quarterly Report on Form 10-Q 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 thereto) 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. When used in this document and in the documents incorporated herein by reference, the words “anticipate,” “believe,” “estimate,” “expect” and similar expressions, as they relate to the Company or its management, 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 the possibility that the demand for our services may decline as a result of changes in general and industry specific economic conditions, the timing of engagements for our services, the effects of competitive services and pricing, the absence of backlog related to our business, our ability to attract and retain key employees, the effect of tort reform and government regulation on our business and liabilities resulting from claims made against us. Additional risks and uncertainties are discussed in our Annual Report on Form 10-K under the heading “Factors That May Affect Future Operating Results and Market Price of Stock” and elsewhere in the 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.

Business Overview

Exponent, Inc. is an engineering and scientific consulting firm that provides solutions to complex problems. Our multidisciplinary team of scientists, physicians, engineers and business consultants brings together more than 70 different technical disciplines to solve complicated issues facing industry and business today. Our services include analysis of product development, 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 ESTIMATES

In preparing our condensed consolidated financial statements, we make assumptions, judgments and estimates that can have a significant impact on our revenue, operating income and net income, as well as on the value of certain assets and liabilities on our consolidated balance sheet. We base our assumptions, judgments and estimates on historical experience and various other factors that we believe to be reasonable under the circumstances. Actual results could differ materially from these estimates under different assumptions or conditions. On a regular basis we evaluate our assumptions, judgments and estimates and make changes accordingly. We believe that the assumptions, judgments and estimates involved in the accounting for revenue recognition, estimating the allowance for doubtful accounts, accounting for income taxes, valuing goodwill and accounting for stock-based compensation have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies. We discuss below the critical accounting estimates associated with these policies. Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results. For further information on the critical accounting policies, see Note 1 of our Notes to Consolidated Financial Statements contained in our fiscal 2005 Annual Report on Form 10-K.

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Revenue recognition. We derive our revenues primarily from professional fees earned on consulting engagements and fees earned for the use of our equipment and facilities, as well as reimbursements for outside direct expenses associated with the services that are billed to our clients.

Substantially all of our engagements are performed under time and material or fixed-price billing arrangements. On time and material and fixed-price projects, revenue is generally recognized as the services are performed. For substantially all of our fixed-price engagements, we recognize revenue based on the relationship of incurred labor hours at standard rates to our estimate of the total labor hours at standard rates we expect to incur over the term of the contract. We believe this methodology achieves a reliable measure of the revenue from the consulting services we provide to our customers under fixed-price contracts.

Significant management judgments and estimates must be made and used in connection with the revenue recognized in any accounting period. These judgments and estimates include an assessment of collectibility and, for fixed-price engagements, an estimate as to the total effort required to complete the project. If we made different judgments or utilized different estimates, the amount and timing of our revenue for any period could be materially different.

All consulting contracts are subject to review by management, which requires a positive assessment of the collectibility of contract amounts. If, during the course of the contract, we determine that collection of revenue is not reasonably assured, we do not recognize the revenue until its collection becomes reasonably assured, which is generally upon receipt of cash. We assess collectibility based on a number of factors, including past transaction history with the client and project manager, as well as the creditworthiness of the client. Losses on fixed-price contracts are recognized during the period in which the loss first becomes evident. Contract losses are determined to be the amount by which the estimated total costs of the contract exceeds the total fixed price of the contract.

Estimating the allowance for doubtful accounts. We must make estimates of our ability to collect accounts receivable and our unbilled work-in-process. In circumstances where we are aware of a specific customer’s inability to meet its financial obligations to us, we record a specific allowance to reduce the net recognized receivable to the amount we reasonably believe will be collected. For all other customers we recognize allowances for doubtful accounts based upon historical bad debts, customer concentration, customer credit worthiness, current economic conditions and changes in customer payment terms.

The allowance for doubtful accounts is recorded as a reduction in revenue to the extent the provision relates to fee adjustments. To the extent the provision relates to a client’s inability to make required payments, the provision is recorded in operating expenses.

Accounting for income taxes. In preparing our condensed 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 condensed 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.

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, our interpretation of current tax laws and possible outcomes of current and future audits conducted by foreign and domestic tax authorities. In the event that actual results differ from these estimates or that the estimates are adjusted in future periods, we may need to establish a valuation allowance, which could materially impact our financial position and results of operations. Based on our current financial projections and operating plan for fiscal 2006, we believe that we will be able to utilize our deferred tax assets.

Valuing goodwill. We assess goodwill for impairment annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired. Our annual goodwill impairment review is completed at the end of the 47 ^th week of each fiscal year. Factors that we consider when evaluating for possible impairment include the following:

•

significant under performance relative to expected historical or projected future operating results;

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•

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 evaluating our goodwill for impairment, based upon the existence of one or more of the above factors, we determine the existence of an impairment by assessing the fair value of the applicable reporting unit, including goodwill, using expected future cash flows to be generated by the reporting unit. If the carrying amount of a reporting unit exceeds its fair value, then an impairment loss is recognized. There were no events or changes in circumstances during the quarters ended March 31, 2006 and April 1, 2005, indicating that the carrying amount of our goodwill may be impaired.

Stock-based compensation. We adopted the provisions of, and accounted for stock-based compensation in accordance with, SFAS 123(R) during the first quarter of fiscal 2006. We elected the modified-prospective method, under which prior periods are not revised for comparative purposes. Under the fair value recognition provisions of this statement, stock-based compensation cost is measured at the grant date based on the fair value of the award and is recognized as expense on a straight-line basis over the requisite service period.

We currently use the Black-Scholes option-pricing model to determine the fair value of stock options. The determination of the fair value of stock options on the date of grant using an option-pricing model is affected by our stock price as well as assumptions regarding a number of complex and subjective variables. These variables include the expected term of the options, our expected stock price volatility over the term of the options, risk-free interest rate and expected dividends.

We use historical exercise and post-vesting forfeiture and expiration data to estimate the expected term of options granted. The historical volatility of our common stock over a period of time equal to the expected term of the options granted is used to estimate expected volatility. We base the risk-free interest rate that we use in the option-pricing model on U.S. Treasury zero-coupon issues with remaining terms similar to the expected term on the options. We do not anticipate paying any cash dividends in the foreseeable future and therefore use an expected dividend yield of zero in the option-pricing model. We are required to estimate forfeitures at the time of grant and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record stock-based compensation expense only for those awards that are expected to vest. All share based payment awards are amortized on a straight-line basis over the requisite service periods of the awards.

If factors change and we employ different assumptions for estimating stock-based compensation expense in future periods or if we decide to use a different valuation model, the future periods may differ significantly from what we have recorded in the current period and could materially affect our operating income, net income and net income per share.

RESULTS OF CONSOLIDATED OPERATIONS

Overview of the Quarter Ended March 31, 2006

During the first quarter of fiscal 2006 we had a 7.2% increase in revenues as compared to the same period last year. This growth was driven primarily by our civil engineering, construction consulting, biomechanics and mechanics and materials practices. This growth was offset by lower revenues in our technology development practice due to a decrease in the number of large projects with the United States Department of Defense.

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Our consolidated revenue growth was driven by higher billing rates, higher billable hours and an increase in technical full-time equivalents. Billable hours increased 6.0% to 193,400 as compared to 182,500 during the same period last year. Technical full-time equivalents increased 8.1% to 549 during the first quarter of fiscal 2006 as compared to 508 during the same period last year. Utilization decreased to 68% for the first quarter of fiscal 2006 as compared to 69% during the same period last year.

Net income for the first quarter of fiscal 2006 decreased by $45,000 as compared to the first quarter of fiscal 2005. As a result of adopting FAS 123(R) our net income for the first quarter of fiscal 2006 was $433,000 lower than if we had continued to account for stock-based compensation under APB 25.

Fiscal Quarter Ended March 31, 2006 compared to Fiscal Quarter Ended April 1, 2005

Revenues


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
Engineering and other scientific	$	32,222		$	29,874		7.9	%
Percentage of total revenues		76.7	%		76.2	%
Environmental and health		9,805			9,322		5.2	%
Percentage of total revenues		23.3	%		23.8	%

Total revenues	$	42,027		$	39,196		7.2	%

The increase in revenues for our engineering and other scientific segment was the result of higher billing rates and an increase in billable hours. During the first quarter of fiscal 2006 billable hours for this segment increased by 7.6% to 146,000 as compared to 135,700 during the same period last year. Technical full-time equivalents increased 8.1% to 402 from 372 for the same period last year. Utilization was 70% for the first quarter of both fiscal 2006 and 2005.

The increase in revenues for our environmental and health segment was primarily the result of higher billing rates and an increase in billable hours. During the first quarter of fiscal 2006 billable hours for this segment increased by 1.3% to 47,400 as compared to 46,800 during the same period last year. Technical full-time equivalents increased 8.1% to 147 from 136 during same period last year. Utilization decreased to 62% for the first quarter of fiscal 2006 as compared to 66% during the same period last year due to the increase in technical full-time equivalents.

Compensation and Related Expenses


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
Compensation and related expenses	$	26,746		$	23,881		12.0	%
Percentage of total revenues		63.6	%		60.9	%

The increase in compensation and related expenses was primarily due to the effects of our annual salary increase, an increase in technical full-time equivalent employees and an increase in stock-based compensation costs due to the adoption of SFAS 123(R) during the first quarter of fiscal 2006. Our annual salary increase, which was approximately 5%, took effect at the beginning of April 2005. Technical full-time equivalent employees increased 8.1% during the first quarter of fiscal 2006 as compared to the same period last year. We expect compensation and related expenses to increase due to the anticipated hiring of additional staff and the impact of future annual salary increases.

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Other Operating Expenses


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
Other operating expenses	$	4,765		$	4,664		2.2	%
Percentage of total revenues		11.3	%		11.9	%

Other operating expenses primarily include facilities related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The increase in other operating expenses was primarily due to increases in depreciation and computer-related expenses. Depreciation increased $64,000 due to increases in capital expenditures during the past twelve months. Computer-related expenses increased $37,000. The increases in capital expenditures and computer related expenses were due to a corresponding increase in technical full-time equivalent employees.

Reimbursable Expenses


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
Reimbursable expenses	$	2,408		$	2,267		6.2	%
Percentage of total revenues		5.7	%		5.8	%

The increase in reimbursable expenses was primarily due to higher vehicle procurement expenses and job chargeable travel. These increases were partially offset by a decrease in purchases of project-related materials in our technology development practice. The amount of reimbursable expenses will vary from quarter to quarter depending on the nature of our projects.

General and Administrative Expenses


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
General and administrative expenses	$	2,718		$	2,329		16.7	%
Percentage of total revenues		6.5	%		5.9	%

The increase in general and administrative expenses was primarily due to an increase in outside consulting services of $244,000 and an increase in travel and meals of $161,000, partially offset by a decrease in bad debt of $85,000. The increase in outside consulting services was due to $216,000 in sub-contractor fees related to a potential project with the United States government that was not executed by the end of fiscal 2004. This project was executed during the first quarter of fiscal 2005 and the sub-contractor fees previously expensed were re-classified as billable charges. The re-classification of these expenses during the first quarter of fiscal 2005 contributed to the period-to-period increase in outside consulting services. The increase in travel and meals was due to a corresponding increase in technical full-time equivalent employees. The decrease in bad debt expense was due to strong collection efforts and a decrease in write-offs.

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Other Income, Net


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
Other income, net	$	876		$	348		151.7	%
Percentage of total revenues		2.1	%		0.9	%

Other income, net, consists primarily of investment income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing excess space in our Silicon Valley facility. The increase in other income, net, was primarily due to an increase in interest income of $264,000, an increase in the fair value of deferred compensation plan assets of $232,000 and an increase in rental income of $32,000. The increase in interest income was due to higher average balances of cash, cash equivalents and short-term investments and an increase in short-term interest rates. Rental income increased due to the addition of a new tenant in our Silicon Valley facility.

Income Taxes


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005			Percent Change
Income taxes	$	2,444		$	2,536		(3.6	)%
Percentage of total revenues		5.8	%		6.5	%
Effective tax rate		39.0	%		39.6	%

The decrease in our effective tax rate was due to an increase in tax-exempt interest income, which was the result of higher average balances of short-term investments and cash equivalents and an increase in short-term interest rates.

LIQUIDITY AND CAPITAL RESOURCES

As of March 31, 2006, our cash, cash equivalents and short-term investments were $70.7 million compared to $68.9 million at December 30, 2005. We financed our business for the current period principally through operating cash.


	Quarters Ended
(In thousands)	March 31, 2006			April 1, 2005
Net cash provided by (used in) operating activities	$	1,312		$	(1,542	)
Net cash (used in) provided by investing activities		(5,788	)		1,896
Net cash provided by (used in) financing activities		1,457			(2,027	)

The increase in net cash provided by operating activities during the quarter ended March 31, 2006 as compared to the same period last year was primarily due to a smaller increase in accounts receivable and an increase in stock-based compensation partially offset by a smaller increase in accounts payable and accrued liabilities. Accounts receivable increased $2.2 million during the quarter ended March 31, 2006 as compared to an increase of $6.1 million during the same period last year. The smaller increase in accounts receivable during the quarter ended March 31, 2006 was due to strong collections. Days sales outstanding decreased to 97 days as compared to 101 days during the same period last year. Stock-based compensation increased by $0.8 million due to the adoption of SFAS 123(R). Accounts payable and accrued liabilities increased $0.7 million during the quarter ended March 31, 2006, as compared to an increase of $2.4 million during the same period last year. The smaller increase in accounts payable was due to the timing of payments to vendors and an increase in the use of sub-contractors.

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The increase in net cash used in investing activities was primarily due to an increase in net purchases of short-term investments of $8 million partially offset by a decrease in capital expenditures of $236,000. The increase in net purchases of short-term investments during the quarter ended March 31, 2006 as compared to the same period last year was due to a larger portion of our excess cash being invested in short-term investments. The decrease in capital expenditures was primarily due to the purchase of information technology equipment during the quarter ended April 1, 2005.

The increase in net cash provided by financing activities was primarily due to $3.1 million in repurchases of our common stock under our stock repurchase programs during the quarter ended April 1, 2005. We did not repurchase any of our common stock during the quarter ended March 31, 2006.

We expect to continue our investing activities, including purchases of short-term investments and capital expenditures. Furthermore, cash reserves may be used to repurchase common stock under our stock repurchase programs or strategically acquire professional services firms that are complementary to our business.

During the quarter ended March 31, 2006 we did not repurchase any shares of our common stock. On April 4, 2006 our Board of Directors authorized an additional $35 million for stock repurchases. The following table represents the remaining authorization under our stock repurchase plans as of April 4, 2006 (in thousands):


Board Approval Date	Authorized Repurchases		Repurchases To Date		Remaining Authorization
August 2003	$	3,000	$	2,586	$	414
April 2006	$	35,000	$	—	$	35,000

The following schedule summarizes our principal contractual commitments as of March 31, 2006 (in thousands):


Fiscal year	Operating lease commitments		Capital leases		Purchase obligations		Total
2006	$	3,917	$	42	$	617	$	4,576
2007		4,028		49		—		4,077
2008		3,253		8		—		3,261
2009		3,017		2		—		3,019
2010		2,044		—		—		2,044
Thereafter		2,904		—		—		2,904

	$	19,163	$	101	$	617	$	19,881

We have a revolving reducing mortgage note with a total available borrowing amount of $19.4 million and an outstanding balance of $0 as of March 31, 2006. We believe that our existing revolving note, together with funds generated from operations, will provide adequate cash to fund our anticipated operating cash needs through at least the next twelve-month period.

In addition, we believe that the funds available under the revolving reducing mortgage note, together with funds generated from operations, will provide adequate cash to fund our anticipated long-term cash needs beyond the next twelve-month period; however, we intend to grow our business by pursuing potential acquisitions, which could increase the need for additional sources of funds over the long term.

As permitted under Delaware law, we have agreements whereby we indemnify our officers and directors for certain events or occurrences while the officer or director is, or was, serving at our request in such capacity. The indemnification period covers all pertinent events and occurrences during the officer’s or director’s lifetime. The maximum potential amount of future payments we could be required to make under these indemnification agreements is unlimited; however, we have director and officer insurance coverage that reduces our exposure and enables us to recover a portion of any future amounts paid.

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Item 3. Quantitative and Qualitative Disclosure About Market Risk

Exponent is exposed to interest rate risk associated with our balances of cash, cash equivalents and short-term investments. We manage our interest rate risk by maintaining an investment portfolio primarily consisting of debt instruments with high credit quality and relatively short average effective maturities in accordance with the Company’s investment policy. The maximum effective maturity of any issue in our portfolio of cash equivalents and short-term investments is 3 years and the maximum average effective maturity of the portfolio cannot exceed 12 months. Our exposure to market rate risk for changes in interest rates relates primarily to our short-term investments. We do not use derivative financial instruments in our short-term investment portfolio. Notwithstanding our efforts to manage interest rate risk, there can be no assurances that we will be adequately protected against the risks associated with interest rate fluctuations.

We are exposed to some foreign currency exchange rate risk associated with our foreign operations. Given the limited nature of these operations, we believe that any exposure would be minimal. Currently, we do not employ a foreign currency hedging program to mitigate our foreign currency exchange risk as we believe the risks to date have not been significant.

Exponent has a revolving reducing mortgage note (the “Mortgage Note”) secured by our Silicon Valley headquarters building. The Mortgage Note had an initial borrowing amount up to $30.0 million and is subject to automatic annual reductions in the amount available to be borrowed of between $1.3 million to $2.1 million approximately per year until January 31, 2008. As of March 31, 2006 we had $0 outstanding and available borrowings of $19.4 million. The Mortgage Note is subject to two interest rate options of either prime less 1.5% or the fixed LIBOR plus 1.25% with a term of one month, two months, three months, nine months, or twelve months.

Any borrowings under the Mortgage Note would expose us to some interest rate risk. Our general policy for selecting among interest rate options and related terms will be to minimize interest expense. However, given the risk of interest rate fluctuations, we cannot be certain that the lowest rate option will always be obtained, thereby consistently minimizing our interest expense. No sensitivity analysis was performed on our exposure to interest rate fluctuations; however, given the historical low volatility of both the prime and LIBOR interest rates, we believe that any exposure would be minimal.

Item 4. Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

An evaluation was performed under the supervision and with the participation of the Company’s management, including the President and Chief Executive Officer, and the Chief Financial Officer, of the effectiveness of the design and operation of the Company’s disclosure controls and procedures as of the end of the period covered by this quarterly report. Based on that evaluation, the Company’s management, including the President and Chief Executive Officer, and the Chief Financial Officer, concluded that the Company’s disclosure controls and procedures were effective.

We intend to review and evaluate the design and effectiveness of our disclosure controls and procedures on an ongoing basis, to improve our controls and procedures over time, and to correct any deficiencies that we may discover in the future. Our goal is to ensure that our senior management has timely access to all material financial and non-financial information concerning our business. While we believe the present design of our disclosure controls and procedures is effective to achieve our goal, future events affecting our business may cause us to significantly modify our disclosure controls and procedures.

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(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the quarterly period ended March 31, 2006, that materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A. Risk Factors

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 our control. These uncertainties include, but are not limited to, those mentioned elsewhere in this report and those set forth below. There are no material changes to the risk factors set forth below relative to those included in our Annual Report on Form 10-K for the fiscal year ended December 30, 2005.

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

Exponent’s business involves the delivery of professional services and is labor intensive. Our success depends in large part upon our ability to attract, retain and motivate highly qualified technical and managerial personnel. Qualified personnel are in great demand and are likely to remain a limited resource for the foreseeable future. We cannot provide any assurance that we can continue to attract sufficient numbers of highly qualified technical and managerial personnel and to retain existing employees. The loss of a significant number of our employees could have a material adverse impact on our business, including our ability to secure and complete engagements.

Competition

The markets for our services are highly competitive. In addition, there are relatively low barriers to entry into our markets and we have faced, and expect to continue to face, additional competition from new entrants into our markets. Competitive pressure could reduce the market acceptance of our services and result in price reductions that could have a material adverse effect on our business, financial condition or results of operations.

Customer Concentration

We currently derive, and believe that we will continue to derive, a significant portion of our revenues from clients, organizations and insurers related to the transportation industry and the government sector. The loss of any large client, organization or insurer could have a material adverse effect on our business, financial condition or results of operations.

Economic Uncertainty

The markets that we serve are cyclical and subject to general economic conditions, particularly in light of the labor-intensive nature of our business and our relatively high compensation expenses. If the economy in which we operate, which is predominantly in the U.S., were to experience a prolonged slowdown, demand for our services could be reduced considerably.

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Regulation

Public concern over health, safety and preservation of the environment has resulted in the enactment of a broad range of environmental and/or other laws and regulations by local, state and federal lawmakers and agencies. These laws and 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 our services may be significantly reduced.

Tort Reform

Several of our practices have a significant concentration in litigation support consulting services. To the extent tort reform reduces the exposure of manufacturers, owners, service providers and others to liability, the demand for our litigation support consulting services may be significantly reduced.

Variability of Quarterly Financial Results

Variations in our 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 timing of engagements; the number of working days in a quarter; employee hiring and utilization rates; and integration of companies acquired. Because a high percentage of our expenses, particularly personnel and facilities related, are relatively fixed in advance of any particular quarter, a variation in the timing of the initiation or the completion of our client assignments can cause significant variations in operating results from quarter to quarter.

Item 5. Other Information

Indemnification Agreements

Between February and April of 2006, we entered into indemnification agreements with our directors and executive officers for the indemnification of and advancement of expenses to these persons to the fullest extent permitted by law. We also intend to enter into these agreements with our future directors and executive officers.

Exponent Engineering

In January 2006, we entered into a services agreement with Exponent Engineering, P.C., a California professional corporation that is qualified to do business in the state of New York, in order to facilitate the provision of professional engineering services in the state of New York. Pursuant to the agreement, we provide all professional and administrative services required by Exponent Engineering. In exchange for these services, Exponent Engineering will deliver to us all amounts or other consideration received by Exponent Engineering resulting from the provision of these professional services. The shareholders of Exponent Engineering are executive officers of Exponent. However, none of these executive officers receive any compensation for their participation in Exponent Engineering and have no financial interest in the securities of Exponent Engineering.

Item 6. Exhibits

(a)

Exhibits


Exhibit 10.19		Form of Indemnification Agreement entered into or proposed to be entered into between the Company and its officers and directors.

Exhibit 10.20		Services agreement between Exponent, Inc. and Exponent Engineering P.C.

Exhibit 31.1		Certification of Chief Executive Officer pursuant to Rule 13a – 14(a) under the Securities Exchange Act of 1934.

Exhibit 31.2		Certification of Chief Financial Officer pursuant to Rule 13a – 14(a) under the Securities Exchange Act of 1934.

Exhibit 32.1		Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350.

Exhibit 32.2		Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350.

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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: May 9, 2006
		/s/ Michael R. Gaulke
		Michael R. Gaulke, President and Chief Executive Officer

		/s/ Richard L. Schlenker
		Richard L. Schlenker, Chief Financial Officer

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Exhibit 10.19

INDEMNIFICATION AGREEMENT

This Agreement is made as of , , between Exponent, Inc., a Delaware corporation (the “Company”), and (the “Indemnitee”).

RECITALS

Both the Company and Indemnitee recognize that highly competent persons have become more reluctant to serve publicly-held corporations as directors or in other capacities unless they are provided with adequate protection through insurance or adequate indemnification against inordinate risks of claims and actions against them arising out of their service to and activities on behalf of the corporation.

In recognition of Indemnitee’s need for substantial protection against personal liability in order to enhance Indemnitee’s continued service to the Company in an effective manner and Indemnitee’s reliance on the provisions of the Company’s Certificate of Incorporation (“Certificate of Incorporation”) and the Company’s Bylaws (the “Bylaws”) requiring indemnification of the Indemnitee to the fullest extent permitted by law, and in part to provide Indemnitee with specific contractual assurance that the protection promised by such Certificate of Incorporation and Bylaws will be available to Indemnitee (regardless of, among other things, any amendment to or revocation of such Certificate of Incorporation or Bylaws or any change in the composition of the Company’s Board of Directors or acquisition transaction relating to the Company), the Company wishes to provide in this Agreement for the indemnification of and the advancing of expenses to Indemnitee to the fullest extent (whether partial or complete) permitted by law and as set forth in this Agreement.

The Certificate of Incorporation, the Bylaws and the General Corporation Law of the State of Delaware (“DGCL”) expressly provide that the indemnification provisions set forth therein are not exclusive and thereby contemplate that contracts may be entered into between the Company and members of the board of directors, officers and other persons with respect to indemnification.

It is reasonable, prudent and necessary for the Company contractually to obligate itself to indemnify, and to advance expenses on behalf of, such persons to the fullest extent permitted by applicable law so that they will serve or continue to serve the Company free from undue concern that they will not be so indemnified.

This Agreement is a supplement to and in furtherance of the Certificate of Incorporation and Bylaws and any resolutions adopted pursuant thereto and shall not be deemed a substitute therefor, nor to diminish or abrogate any rights of Indemnitee thereunder.

AGREEMENT

In consideration of the premises and of Indemnitee agreeing to serve or continuing to serve the Company directly or, at its request, with another enterprise, and intending to be legally bound hereby, the parties hereto agree as follows:

Basic Indemnification Agreement .

(a) In the event Indemnitee was, is or becomes a party to or witness or other participant in, or is threatened to be made a party to or witness or other participant in, a Claim (as defined in Section 9(b)) by reason of (or arising in part out of) an Indemnifiable Event (as defined in Section 9(d)), the Company shall indemnify Indemnitee to the fullest extent permitted by law as soon as practicable but in any event no later than 30 days after written demand is presented to the Company, against any and all Expenses (as defined in Section 9(c)), judgments, fines, penalties and amounts paid in settlement (including all interest, assessments and other charges paid or payable in connection therewith) of such Claim actually and reasonably incurred by or on behalf of Indemnitee in connection with such Claim and any federal, state, local or foreign taxes imposed on Indemnitee as a result of the actual or deemed receipt of any payments under this Agreement. If requested by Indemnitee in writing, the Company shall advance (within ten business days of such written request) any and all Expenses to Indemnitee (an “Expense Advance”). Notwithstanding anything in this Agreement to the contrary, prior to a Change of Control (as defined in Section 9(a)) and except as set forth in Sections 1(b), 3 and 7, Indemnitee shall not be entitled to indemnification pursuant to this Agreement in connection with any Claim (i) initiated by Indemnitee against the Company or any director or officer of the Company unless the Company has joined in or consented to the initiation of such Claim; (ii) made on account of Indemnitee’s conduct which constitutes a breach of Indemnitee’s duty of loyalty to the Company or its stockholders or is an act or omission not in good faith or which involves intentional misconduct or a knowing violation of the law; or (iii) arising from the purchase and sale by Indemnitee of securities in violation of Section 16(b) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”).

(b) Notwithstanding the foregoing, (i) the indemnification obligations of the Company under Section 1(a) shall not be applicable if the Reviewing Party (as defined in Section 9(f)) has determined (in a written opinion, in any case in which the special independent counsel referred to in Section 2 is involved) that Indemnitee would not be permitted to be indemnified under applicable law, and (ii) the obligation of the Company to make an Expense Advance pursuant to Section 1(a) shall be subject to the condition that the Company receives an undertaking that, if, when and to the extent that the Reviewing Party determines that Indemnitee would not be permitted to be so indemnified under applicable law, the Company shall be entitled to be reimbursed by Indemnitee (who hereby agrees to reimburse the Company) for all such amounts theretofore paid; provided, however, that if Indemnitee has commenced legal proceedings in the Court of Chancery of the State of Delaware (the “Delaware Court”) to secure a determination that Indemnitee should be indemnified under applicable law, any determination made by the Reviewing Party that Indemnitee would not be permitted to be indemnified under applicable law shall not be binding and Indemnitee shall not be required to reimburse the Company for any Expense Advance until a final judicial determination is made with respect

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thereto (as to which all rights of appeal therefrom have been exhausted or lapsed). Indemnitee’s obligation to reimburse the Company for Expense Advances shall be unsecured and no interest shall be charged thereon. If there has not been a Change in Control, the Reviewing Party shall be selected by the Board of Directors, and if there has been such a Change in Control, the Reviewing Party shall be the special independent counsel referred to in Section 2. If there has been no determination by the Reviewing Party or if the Reviewing Party determines that Indemnitee substantively would not be permitted to be indemnified in whole or in part under applicable law, Indemnitee shall have the right to commence litigation in the Delaware Court seeking an initial determination by the court or challenging any such determination by the Reviewing Party or any aspect thereof and the Company hereby consents to service of process and to appear in any such proceeding. Any determination by the Reviewing Party otherwise shall be conclusive and binding on the Company and Indemnitee. The Company shall indemnify Indemnitee for Expenses incurred by Indemnitee in connection with the successful establishment or enforcement, in whole or in part, by Indemnitee of Indemnitee’s right to indemnification or advances.

2. Change in Control . The Company agrees that if there is a Change in Control of the Company (other than a Change in Control which has been approved by two- thirds or more of the Company’s Board of Directors who were directors immediately prior to such Change in Control) then with respect to all matters thereafter arising concerning the rights of Indemnitee to indemnity payments and Expense Advances under this Agreement or any other agreement, the Bylaws or Certificate of Incorporation now or hereafter in effect relating to Claims for Indemnifiable Events, the Company shall seek legal advice only from special independent counsel selected by Indemnitee and approved by the Company (which approval shall not be unreasonably withheld or delayed) and who has not otherwise performed services for the Company within the last five years (other than in connection with such matters) or for Indemnitee. In the event that Indemnitee and the Company are unable to agree on the selection of the special independent counsel, such special independent counsel shall be selected by lot from among at least five law firms with offices in the State of Delaware having more than fifty attorneys, having a rating of “av” or better in the then current Martindale Hubbell Law Directory and having attorneys which specialize in corporate law. Such selection shall be made in the presence of Indemnitee (and his legal counsel or either of them, as Indemnitee may elect). Such counsel, among other things, shall, within 90 days of its retention, render its written opinion to the Company and Indemnitee as to whether and to what extent Indemnitee would be permitted to be indemnified under applicable law. The Company agrees to pay the reasonable fees of the special independent counsel referred to above and to fully indemnify such counsel against any and all expenses (including attorneys’ fees), claims, liabilities, and damages arising out of or relating to this Agreement or its engagement pursuant hereto.

3. Indemnification for Additional Expenses . The Company shall indemnify Indemnitee against any and all expenses (including attorneys’ fees) and, if requested by Indemnitee in writing, shall (within ten business days of such written request) advance such expenses to Indemnitee, which are incurred by Indemnitee in connection with any Claim asserted against or action brought by Indemnitee for (i) indemnification or advance payment of Expenses by the Company under this Agreement or any other agreement, the Bylaws or Certificate of Incorporation now or hereafter in effect relating to Claims for Indemnifiable Events and/or (ii)

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recovery under any directors’ and officers’ liability insurance policies maintained by the Company, regardless of whether the Company believes that Indemnitee is entitled to such indemnification, advance expense payment or insurance recovery, as the case may be. The Indemnitee shall qualify for advances solely upon the execution and delivery to the Company of an undertaking providing that the Indemnitee undertakes to repay the advance to the extent that it is ultimately determined that the Indemnitee is not entitled to be indemnified by the Company.

4. Partial Indemnity . If Indemnitee is entitled under any provisions of this Agreement to indemnification by the Company of some but not all of the Expenses, liabilities, judgments, fines, penalties and amounts paid in settlement of a Claim, the Company shall nevertheless indemnify Indemnitee for the portion thereof to which Indemnitee is entitled. Moreover, notwithstanding any other provision of this Agreement, to the extent that Indemnitee has been successful on the merits or otherwise in defense of any or all Claims relating in whole or in part to an Indemnifiable Event or in defense of any issue or matter therein, including dismissal without prejudice, Indemnitee shall be indemnified against all Expenses incurred in connection therewith. In connection with any determination by the Reviewing Party or otherwise as to whether Indemnitee is entitled to be indemnified hereunder the burden of proof shall be on the Company to establish that Indemnitee is not so entitled.

5. No Presumption . For purposes of this Agreement, the termination of any action, suit or proceeding by judgment, order, settlement (whether with or without court approval) or conviction, or upon a plea of nolo contendere, or its equivalent, shall not create a presumption that Indemnitee did not meet any particular standard of conduct or have any particular belief.

6. Notification and Defense of Claim . Within 30 days after receipt by Indemnitee of notice of the commencement of a Claim which may involve an Indemnifiable Event, Indemnitee will, if a claim in respect thereof is to be made against the Company under this Agreement, submit to the Company a written notice identifying the proceeding, but the omission so to notify the Company will not relieve it from any liability which it may have to Indemnitee under this Agreement unless the Company is materially prejudiced by such lack of notice. With respect to any such Claim as to which Indemnitee notifies the Company of the commencement thereof:

(a) the Company will be entitled to participate therein at its own expense;

(b) except as otherwise provided below, to the extent that it may wish, the Company jointly with any other indemnifying party similarly notified will be entitled to assume the defense thereof, with counsel selected by the Board of Directors and satisfactory to Indemnitee. After notice from the Company to Indemnitee of its election to assume the defense thereof, the Company will not be liable to Indemnitee under this Agreement for any legal or other expenses subsequently incurred by Indemnitee in connection with the defense thereof other than reasonable costs of investigation or as otherwise provided below. Indemnitee shall have the right to employ its own counsel in such action, suit or proceeding, but the fees and expenses of such counsel incurred after notice from the Company of its assumption of the defense thereof shall be at the expense of Indemnitee unless (i) the employment of counsel by Indemnitee has been authorized by the Company, (ii) Indemnitee shall have reasonably concluded that there may be a

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conflict of interest between the Company and the Indemnitee in the conduct of the defense of such action, or (iii) the Company shall not in fact have employed counsel to assume the defense of such action, in each of which cases the fees and expenses of counsel shall be at the expense of the Company. The Company shall not be entitled to assume the defense of any claim brought by or on behalf of the Company or as to which Indemnitee shall have made the conclusion provided for in clause (ii) above; and

(c) the Company shall not be liable to indemnify Indemnitee under this Agreement for any amounts paid in settlement of any action or claim effected without its written consent. The Company shall not settle any action or claim in any manner which would impose any penalty or limitation on Indemnitee without Indemnitee’s written consent. Neither the Company nor Indemnitee will unreasonably withhold or delay their consent to any proposed settlement.

7. Non-exclusivity . The rights of Indemnitee hereunder shall be in addition to any other rights Indemnitee may have under the Certificate of Incorporation, the Bylaws, the DGCL, any agreement, a vote of the stockholders, a resolution of directors or otherwise. No amendment, alteration or repeal of this Agreement or of any provision hereof shall limit or restrict any right of Indemnitee under this Agreement in respect of any action taken or omitted by such Indemnitee acting on behalf of the Company and at the request of the Company prior to such amendment, alteration or repeal. To the extent that a change in the DGCL (whether by statute or judicial decision), the Certificate of Incorporation or the Bylaws permits greater indemnification by agreement than would be afforded currently under the Certificate of Incorporation, the Bylaws and this Agreement, it is the intent of the parties hereto that Indemnitee shall enjoy by this Agreement the greater benefits so afforded by such change. No right or remedy herein conferred is intended to be exclusive of any other right or remedy, and every other right and remedy shall be cumulative and in addition to every other right and remedy given hereunder or now or hereafter existing at law or in equity or otherwise. The assertion or employment of any right or remedy hereunder, or otherwise, shall not prevent the concurrent assertion or employment of any other right or remedy.

8. Liability Insurance . To the extent the Company maintains an insurance policy or policies providing directors’ and officers’ liability insurance, Indemnitee shall be covered by such policy or policies in accordance with its or their terms to the maximum extent of the coverage available for any Company director or officer. If, at the time the Company receives notice from any source of a Claim as to which Indemnitee is a party or a participant (as a witness or otherwise), the Company has director and officer liability insurance in effect, the Company shall give prompt notice of such Proceeding to the insurers in accordance with the procedures set forth in the respective policies. The Company shall thereafter take all necessary or desirable action to cause such insurers to pay, on behalf of the Indemnitee, all amounts payable as a result of such Claim in accordance with the terms of such policies. In the event of a Potential Change in Control (as defined in Section 9), the Company shall maintain in force any and all insurance policies then maintained by the Company providing directors’ and officers’ liability insurance, in respect of Indemnitee, for a period of six years thereafter. The Company shall indemnify Indemnitee for Expenses incurred by Indemnitee in connection with any successful action brought by Indemnitee for recovery under any insurance policy referred to in this Section 8 and shall advance to Indemnitee the Expenses of such action in the manner provided in Section 3 above.

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Certain Definitions .

(a) A “Change in Control” shall be deemed to have occurred if:

(1) any person, as that term is used in Section 13(d) and Section 14(d)(2) of the Exchange Act, becomes, is discovered to be, or files a report on Schedule 13D or 14D-1 (or any successor schedule, form or report) disclosing that such person is a beneficial owner (as defined in Rule 13d-3 under the Exchange Act or any successor rule or regulation), directly or indirectly, of securities of the Company representing [20]% or more of the total voting power of the Company’s then outstanding Voting Securities (unless such person becomes such a beneficial owner in connection with the initial public offering of the Company);

(2) during any period of two consecutive years, individuals who at the beginning of such period constitute the Board of Directors of the Company and any new director whose election by the Board of Directors or nomination for election by the Company’s stockholders was approved by a vote of at least two-thirds of the directors then still in office who either were directors at the beginning of the period or whose election or nomination for election was previously so approved, cease for any reason to constitute a majority thereof;

(3) the Company, or any material subsidiary of the Company, is merged, consolidated or reorganized into or with another corporation or other legal person (an “Acquiring Person”) or securities of the Company are exchanged for securities of an Acquiring Person, and immediately after such merger, consolidation, reorganization or exchange less than a majority of the combined voting power of the then outstanding securities of the Acquiring Person immediately after such transaction are held, directly or indirectly, in the aggregate by the holders of Voting Securities immediately prior to such transaction;

(4) the Company, or any material subsidiary of the Company, in any transaction or series of related transactions, sells or otherwise transfers all or substantially all of its assets to an Acquiring Person, and less than a majority of the combined voting power of the then outstanding securities of the Acquiring Person immediately after such sale or transfer is held, directly or indirectly, in the aggregate by the holders of Voting Securities immediately prior to such sale or transfer;

(5) the Company and its subsidiaries, in any transaction or series of related transactions, sells or otherwise transfers business operations that generated two thirds or more of the consolidated revenues (determined on the basis of the Company’s four most recently completed fiscal quarters) of the Company and its subsidiaries immediately prior thereto;

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(6) the Company files a report or proxy statement with the Securities and Exchange Commission pursuant to the Exchange Act disclosing that a change in control of the Company has or may have occurred or will or may occur in the future pursuant to any then existing contract or transaction; or

(7) any other transaction or series of related transactions occur that have substantially the effect of the transactions specified in any of the preceding clauses in this paragraph (ii).

Notwithstanding the provisions of Section 9(a)(1) or 9(a)(4), unless otherwise determined in a specific case by majority vote of the Board of Directors of the Company, a Change of Control shall not be deemed to have occurred for purposes of this Agreement solely because (i) the Company, (ii) an entity in which the Company directly or indirectly beneficially owns 50% or more of the voting securities or (iii) any Company sponsored employee stock ownership plan, or any other employee benefit plan of the Company, either files or becomes obligated to file a report or a proxy statement under or in response to Schedule 13D, Schedule 14D-1, Form 8-K or Schedule 14A (or any successor schedule, form or report or item therein) under the Exchange Act, disclosing beneficial ownership by it of shares of stock of the Company, or because the Company reports that a Change in Control of the Company has or may have occurred or will or may occur in the future by reason of such beneficial ownership.

(b) A “Claim” is any threatened, pending or completed action, suit, proceeding or alternative dispute resolution mechanism, or any inquiry, hearing or investigation whether conducted by the Company or any other party, whether civil, criminal, administrative, investigative or other.

(c) “Expenses” include attorneys’ fees and all other costs, fees, expenses and obligations of any nature whatsoever paid or incurred in connection with investigating, defending, being a witness in or participating in (including appeal), or preparing to defend, be a witness in or participate in any Claim relating to any Indemnifiable Event.

(d) An “Indemnifiable Event” is any event or occurrence (whether before or after the date hereof) related to the fact that Indemnitee is or was a director, officer, employee, consultant, agent or fiduciary of or to the Company, or any subsidiary of the Company, or is or was serving at the request of the Company as a director, officer, employee, trustee, agent or fiduciary of another corporation, partnership, joint venture, employee benefit plan, trust or other enterprise, or by reason of anything done or not done by Indemnitee in any such capacity.

(e) A “Potential Change in Control” shall be deemed to have occurred if (i) the Company enters into an agreement, the consummation of which would result in the occurrence of a Change in Control; (ii) any person (including the Company) publicly announces an intention to take or to consider taking actions which, if consummated, would constitute a Change in Control; (iii) any person, other than a trustee or other fiduciary holding securities under an employee benefit plan of the Company or a corporation owned, directly or indirectly, by the stockholders of the Company in substantially the same proportions as their ownership of stock of the Company, who is or becomes the beneficial owner, directly or indirectly, of

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securities of the Company representing 9.5% or more of the combined voting power of the Company’s then outstanding Voting Securities, increases such person’s beneficial ownership of such securities by five percentage points or more over the initial percentage of such securities; or (iv) the Board of Directors of the Company adopts a resolution to the effect that, for purposes of this Agreement, a Potential Change in Control has occurred.

(f) A “Reviewing Party” is (i) the Company’s Board of Directors (provided that a majority of directors are not parties to the particular Claim for which Indemnitee is seeking indemnification) or (ii) any other person or body appointed by the Company’s Board of Directors, who is not a party to the particular Claim for which Indemnitee is seeking indemnification, or (iii) if there has been a Change in Control, the special independent counsel referred to in Section 2 hereof.

(g) “Voting Securities” means any securities of the Company which vote generally in the election of directors.

10. Amendments, Termination and Waiver . No supplement, modification, amendment or termination of this Agreement shall be binding unless executed in writing by both of the parties hereto. No waiver of any of the provisions of this Agreement shall be deemed or shall constitute a waiver of any other provisions hereof (whether or not similar) nor shall such waiver constitute a continuing waiver.

11. Contribution . If the indemnification provided in Sections 1 and 3 is unavailable, then, in respect of any Claim in which the Company is jointly liable with Indemnitee (or would be if joined in the Claim), the Company shall contribute to the amount of Expenses, judgments, fines, penalties and amounts paid in settlement as appropriate to reflect: (i) the relative benefits received by the Company, on the one hand, and Indemnitee, on the other hand, from the transaction from which the Claim arose, and (ii) the relative fault of the Company, on the one hand, and of Indemnitee, on the other, in connection with the events which resulted in such Expenses, judgments, fines, penalties and amounts paid in settlement, as well as any other relevant equitable considerations. The relative fault of the Company, on the one hand, and of Indemnitee, on the other, shall be determined by reference to, among other things, the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent the circumstances resulting in such Expenses and Liabilities. The Company agrees that it would not be just and equitable if contribution pursuant to this Section 11 were determined by pro rata allocation or any other method of allocation which does not take account of the equitable considerations described in this Section 11.

12. Subrogation . In the event of payment under this Agreement, the Company shall be subrogated to the extent of such payment to all of the rights of recovery of Indemnitee, who shall execute all papers required and shall do everything that may be necessary to secure such rights, including the execution of such documents necessary to enable the Company effectively to bring suit to enforce such rights.

13. No Duplication of Payments . The Company shall not be liable under this Agreement to make any payment in connection with any Claim made against Indemnitee to the extent Indemnitee has otherwise actually received payment (under insurance policy, Certificate of Incorporation or otherwise) of the amounts otherwise indemnifiable hereunder.

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14. Binding Effect . This Agreement shall be binding upon and inure to the benefit of and be enforceable by the parties hereto and their respective successors, assigns, including any direct or indirect successor by purchase, merger, consolidation or otherwise to all or substantially all of the business and/or assets of the Company, spouse, heirs, and personal and legal representatives. This Agreement shall continue in effect regardless of whether Indemnitee continues to serve as a director or officer (or in one of the capacities enumerated in Section 9(d) hereof) of the Company or of any other enterprise at the Board of Director’s request.

15. Severability . The provisions of this Agreement shall be severable in the event that any of the provisions hereof (including any provision within a single section, paragraph or sentence) are held by a court of competent jurisdiction to be invalid, void or otherwise unenforceable, and the remaining provisions shall remain enforceable to the fullest extent permitted by law.

16. Applicable Law and Consent to Jurisdiction . This Agreement and the legal relations among the parties shall be governed by, and construed and enforced in accordance with, the laws of the State of Delaware, without regard to its conflict of laws rules. The Company and Indemnitee hereby irrevocably and unconditionally (i) agree that any action or proceeding arising out of or in connection with this Agreement shall be brought only in the Delaware Court and not in any other state or federal court in the United States of America or any court in any other country, (ii) consent to submit to the exclusive jurisdiction of the Delaware Court for purposes of any action or proceeding arising out of or in connection with this Agreement, (iii) appoint, irrevocably, to the extent such party is not a resident of the State of Delaware, as its agent in the State of Delaware as such party’s agent for acceptance of legal process in connection with any such action or proceeding against such party with the same legal force and validity as if served upon such party personally within the State of Delaware, (iv) waive any objection to the laying of venue of any such action or proceeding in the Delaware Court, and (v) waive, and agree not to plead or to make, any claim that any such action or proceeding brought in the Delaware Court has been brought in an improper or inconvenient forum.

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17. Identical Counterparts . This Agreement may be executed in one or more counterparts, each of which shall for all purposes be deemed to be an original but all of which together shall constitute one and the same Agreement. Only one such counterpart signed by the party against whom enforceability is sought needs to be produced to evidence the existence of this Agreement.

Executed this th day of , .


Exponent, Inc.

By:
Name:		Richard L. Schlenker
Title:		Chief Financial Officer and Corporate Secretary

Indemnitee

[signature]

[print name]

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Exhibit 10.20

SERVICES AGREEMENT

This Services Agreement (this “Agreement”) is entered into as of January 6, 2006 by and between Exponent, Inc, a Delaware corporation (“Exponent”), and Exponent Engineering, P.C., a California professional corporation (“Exponent Engineering”).

BACKGROUND

A. Exponent Engineering is a California professional corporation engaged in professional engineering, is qualified to do business in the State of New York, and has available to it the services of professional engineers licensed to provide professional engineering services in the State of New York.

B. Exponent desires to obtain from Exponent Engineering, on the terms and conditions set forth herein, certain professional engineering services, and Exponent Engineering is willing to provide to Exponent, on the terms and conditions set forth herein, such services.

AGREEMENT

NOW, THEREFORE, in consideration of the foregoing and the mutual covenants and agreements set forth herein, Exponent Engineering and Exponent hereby agree as follows:

1.	ARTICLE I. SERVICES

1.1. Professional Engineering Services . Exponent Engineering shall undertake to provide professional engineering services from time to time to clients of Exponent, or clients introduced to Exponent Engineering by Exponent, when and as reasonably requested by Exponent (collectively, the “Services”). All such Services shall be performed in accordance with applicable professional standards and any related laws, rules or regulations, and any applicable policies and procedures of Exponent.

1.2. Provision of Exponent Employees and Resources . Exponent shall make available to Exponent Engineering such employees (the “Employees”) and any and all other resources, including without limitation financial and administrative resources, of Exponent as may be necessary to perform the engagements described in Section 1.1 and to provide any professional engineering services so secured, in addition to any other services incident to the operation of the business of Exponent Engineering conducted in accordance with this Agreement (collectively, the “Support”). The Employees providing the Support may be designated Exponent Engineering titles consistent with the Support provided by such Employees.

1.3. Consideration . In consideration for the provision of the Support as set forth in Section 1.2 above, any and all amounts or other consideration received by Exponent Engineering in connection with the Services or the operation of its business shall belong to Exponent, and shall be delivered by Exponent Engineering to Exponent promptly upon receipt.

1.4. Operation of Business of Exponent Engineering . All activity undertaken by Exponent Engineering in connection with the operation of its business shall be consistent with this Agreement.

2.	ARTICLE II. INTELLECTUAL PROPERTY RIGHTS

2.1. Assignment of Ownership Of Work Product.

(a) Work Product. “Work Product” means all deliverables, inventions, innovations, improvements, or other works of authorship Exponent Engineering, whether through the Employees or otherwise, may conceive or develop in the course of the operation of its business, whether or not they are eligible for patent, copyright, trademark, trade secret, or other legal protection.

(b) Assignment . Exponent Engineering acknowledges that all Work Product is the sole and exclusive property of Exponent. Exponent Engineering hereby assigns, transfers and conveys to Exponent all right, title and interest in and to the Work Product, including without limitation, all related worldwide patents, patent applications, copyrights, trademarks, trade secrets, rights of reproduction, and any and all other rights of whatever kind or nature. Any assignment, transfer or conveyance pursuant to the immediately prior sentence with respect to any project undertaken by Exponent Engineering hereunder shall be effective upon the completion or termination of such project. Exponent Engineering agrees to execute such further documents and to perform such further acts, at Exponent’s expense, as may be necessary to perfect the foregoing assignment and to protect Exponent’s rights in the Work Product. In the event Exponent Engineering fails or refuses to execute such documents, Exponent Engineering hereby appoints Exponent as Exponent Engineering’s attorney-in-fact (this appointment to be irrevocable and a power coupled with an interest) to act on Exponent Engineering’s behalf and to execute such documents.

3.	ARTICLE III. INDEMNIFICATION

Exponent shall indemnify Exponent Engineering and hold Exponent Engineering and its officers, directors and shareholders harmless from any and all claims, demands, causes of action, losses, damages, liabilities, costs and expenses, including attorneys’ fees arising from or relating to the provision of the Services or the operation of the business of Exponent Engineering in accordance with this Agreement. All rights to indemnification and advancement of expenses of any such officer, director or shareholder of Exponent Engineering pursuant to the certificate of incorporation or bylaws of Exponent, or any indemnification agreement between any such officer, director or shareholder and Exponent, shall be applicable to the Services and the operation of the business of Exponent Engineering. The officers, directors and stockholders of Exponent Engineering shall be third party beneficiaries of this Article III.

4.	ARTICLE IV. TERM AND TERMINATION

4.1. Term. This Agreement shall remain in full force and effect until such time as it may be terminated by Exponent pursuant to Section 4.2 below.

4.2. Termination . This Agreement may be terminated immediately by Exponent upon written notice to Exponent Engineering.

4.3. Survival . The provisions of Articles II, III and IV of this Agreement shall survive any termination of this Agreement.

5.	ARTICLE V. MISCELLANEOUS

5.1. Assignment . This Agreement shall be binding upon and inure to the benefit of the successors and assigns of the parties. Exponent may assign, in whole or in part and to one or more third parties, any of its rights or obligations under this Agreement. Exponent Engineering shall not assign any of its rights or obligations under this Agreement without the prior written consent of Exponent.

5.2. Notices . Any notice or other communication required or permitted hereunder shall be in writing and shall be deemed to have been duly given on the date of service if served personally, by recognized expedited delivery service, or by facsimile (with confirmation copies of any facsimile notice to be provided by at least one other method of delivery permitted hereunder), or five (5) days after the date of mailing if mailed, by first class mail, registered or certified, postage prepaid. Notices shall be addressed as follows:

To Exponent or Exponent Engineering at:

Exponent, Inc.

149 Commonwealth Drive

Menlo Park, CA 94025

Attn: Chief Financial Officer

or to such other address as a party has designated by notice in writing to the other party in the manner provided by this Section.

5.3. Entire Agreement and Modification . This Agreement constitutes and contains the entire agreement of the parties and supersedes any and all prior negotiations, correspondence, understandings and agreements between the parties respecting the subject matter hereof. This Agreement may only be amended by written instrument signed by the parties. Article III shall not be amended or modified without the prior written consent of each officer, director and shareholder of Exponent Engineering.

5.4. Governing Law . This Agreement shall be governed by and construed in accordance with the laws of the State of California applicable to contracts entered into and wholly to be performed in the State of California by California residents. The parties hereby waive trial by jury in connection with any action or suit under this Agreement or otherwise arising from the relationship between the parties hereto.

5.5. Severability . If any provision of this Agreement is held to be invalid, illegal or incapable of being enforced by any law or public policy, all other terms and provisions of this Agreement shall nevertheless remain in full force and effect so long as the economic or legal substance of the transactions contemplated hereby is not affected in any manner materially adverse to any party. Upon such determination that any term or other provision is invalid, illegal or incapable of being enforced, the parties hereto shall negotiate in good faith to modify this Agreement so as to effect the original intent of the parties as closely as possible in an acceptable manner in order that the transactions contemplated hereby are consummated as originally contemplated to the greatest extent possible.

5.6. Headings . The headings appearing at the beginning of several sections contained herein have been inserted for the convenience of the parties and shall not be used to determine the construction or interpretation of this Agreement.

IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed as of the date first above set forth.


Exponent, Inc.

By:		/s/ Richard L. Schlenker
Name:		Richard L. Schlenker
Title:		Chief Financial Officer

Exponent Engineering, P.C.

By:		/s/ John Osteraas
Name:		John Osteraas
Title:		Vice President & Secretary

Exhibit 31.1

CERTIFICATION

I, Michael R. Gaulke, President and Chief Executive Officer of the registrant certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Exponent, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:

(a)

designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

(b)

designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;

(c)

evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

(d)

disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)

all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2006

/s/ Michael R. Gaulke

Michael R. Gaulke

President and Chief Executive Officer

Exhibit 31.2

CERTIFICATION

I, Richard L. Schlenker, Chief Financial Officer of the registrant certify that:

1.	I have reviewed this quarterly report on Form 10-Q of Exponent, Inc.;

2.	Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

3.	Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

(a)

(b)

(c)

(d)

5.	The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent function):

(a)

(b)

any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

Date: May 9, 2006

/s/ Richard L. Schlenker

Richard L. Schlenker

Chief Financial Officer

Exhibit 32.1

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Exponent, Inc. (the “Company”) on Form 10-Q for the fiscal period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Michael R. Gaulke, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 9, 2006

/s/ Michael R. Gaulke

Michael R. Gaulke

President and Chief Executive Officer

Exhibit 32.2

CERTIFICATION PURSUANT TO

18 U.S.C. SECTION 1350,

AS ADOPTED PURSUANT TO

SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002

In connection with the Quarterly Report of Exponent, Inc. (the “Company”) on Form 10-Q for the fiscal period ending March 31, 2006 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I, Richard L. Schlenker, Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:

(1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and

(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

May 9, 2006

/s/ Richard L. Schlenker

Richard L. Schlenker

Chief Financial Officer

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