Exponent (EXPO) 10-Q 2011 Q2 Quarterly report

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C.  20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended July 1, 2011

OR

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

For the transition period from _________________________ to _________________________

Commission File Number 0-18655

EXPONENT, INC.

(Exact name of registrant as specified in its charter)

DELAWARE	77-0218904
(State or other jurisdiction of	(I.R.S. Employer Identification No.)
incorporation or organization)

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 has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    

Yes x                    No ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company.   See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer ¨	Accelerated filer x	Non-accelerated filer ¨	Smaller reporting company ¨
		(Do not check if a smaller
		reporting company)

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

As of July 29, 2011, the latest practicable date, the registrant had 13,650,297 shares of Common Stock, $0.001 par value per share, outstanding.

EXPONENT, INC.

FORM 10-Q

TABLE OF CONTENTS

		Page
PART I – FINANCIAL INFORMATION
Item 1.	Financial Statements (unaudited):
	Condensed Consolidated Balance Sheets July 1, 2011 and December 31, 2010	3
	Condensed Consolidated Statements of Income Three and Six Months Ended July 1, 2011 and July 2, 2010	4
	Condensed Consolidated Statements of Comprehensive Income Three and Six Months Ended July 1, 2011 and July 2, 2010	5
	Condensed Consolidated Statements of Cash Flows Three and Six Months Ended July 1, 2011 and July 2, 2010	6
	Notes to Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	24
Item 4.	Controls and Procedures	25
PART II – OTHER INFORMATION
Item 1A.	Risk Factors	25
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	25
Item 6.	Exhibits	26
Signatures		27

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PART I – FINANCIAL INFORMATION

Item 1.  Financial Statements

EXPONENT, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

July 1, 2011 and December 31, 2010

(in thousands, except par value)

(unaudited)

	July 1,			December 31,
	2011			2010
Assets
Current assets:
Cash and cash equivalents	$	69,453		$	106,549
Short-term investments		25,569			-
Accounts receivable, net of allowance for doubtful accounts of $2,136 and $2,126 at July 1, 2011 and December 31, 2010, respectively		76,737			72,034
Prepaid expenses and other assets		7,860			10,585
Deferred income taxes		7,195			5,426
Total current assets		186,814			194,594
Property, equipment and leasehold improvements, net		27,731			27,267
Goodwill		8,607			8,607
Deferred income taxes		13,626			12,940
Deferred compensation plan assets		19,604			15,068
Other assets		443			416
Total assets	$	256,825		$	258,892
Liabilities and Stockholders’ Equity
Current liabilities:
Accounts payable and accrued liabilities	$	8,847		$	9,715
Accrued payroll and employee benefits		36,235			41,888
Deferred revenues		4,831			6,131
Total current liabilities		49,913			57,734
Other liabilities		803			413
Deferred compensation		19,425			15,068
Deferred rent		2,016			1,877
Total liabilities		72,157			75,092
Stockholders’ equity:
Common stock, $0.001 par value; 100,000 shares authorized; 16,427 shares issued at July 1, 2011 and December 31, 2010		16			16
Additional paid-in capital		106,090			96,089
Accumulated other comprehensive loss		(131	)		(451	)
Retained earnings		163,717			156,086
Treasury stock, at cost; 2,762 and 2,431 shares held at July 1, 2011 and December 31, 2010, respectively		(85,024	)		(67,940	)
Total stockholders’ equity		184,668			183,800
Total liabilities and stockholders’ equity	$	256,825		$	258,892

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 Three and Six Months Ended July 1, 2011 and July 2, 2010

(in thousands, except per share data)

(unaudited)

	Three Months Ended					Six Months Ended
	July 1,  2011		July 2,  2010			July 1,  2011		July 2,  2010
Revenues:
Revenues before reimbursements	$	60,573	$	55,128		$	124,756	$	110,329
Reimbursements		4,533		5,311			13,823		9,516
Revenues		65,106		60,439			138,579		119,845
Operating expenses:
Compensation and related expenses		38,508		34,060			81,208		71,840
Other operating expenses		5,704		5,388			11,486		10,607
Reimbursable expenses		4,533		5,311			13,823		9,516
General and administrative expenses		2,984		2,905			6,319		5,600
Total operating expenses		51,729		47,664			112,836		97,563
Operating income		13,377		12,775			25,743		22,282
Other income (expense), net:
Interest income, net		41		66			62		129
Miscellaneous income (expense), net		542		(560	)		1,534		400
Total other income (expense), net		583		(494	)		1,596		529
Income before income taxes		13,960		12,281			27,339		22,811
Income taxes		5,743		5,001			11,119		9,292
Net income	$	8,217	$	7,280		$	16,220	$	13,519
Net income per share:
Basic	$	0.57	$	0.51		$	1.12	$	0.95
Diluted	$	0.55	$	0.48		$	1.08	$	0.90
Shares used in per share computations:
Basic		14,402		14,377			14,467		14,295
Diluted		14,971		15,054			15,062		15,009

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 Three and Six Months Ended July 1, 2011 and July 2, 2010

 (in thousands)

(unaudited)

	Three Months Ended					Six Months Ended
	July 1, 2011		July 2, 2010			July 1, 2011		July 2, 2010
Net income	$	8,217	$	7,280		$	16,220	$	13,519
Other comprehensive income (loss):
Foreign currency translation adjustments, net of tax		53		(190	)		293		(351	)
Unrealized gain (loss) on investments, net of tax		26		(11	)		27		(28	)
Comprehensive income	$	8,296	$	7,079		$	16,540	$	13,140

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 Six Months Ended July 1, 2011 and July 2, 2010

(in thousands)

(unaudited)

	Six Months Ended
	July 1,  2011			July 2,  2010
Cash flows from operating activities:
Net income	$	16,220		$	13,519
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization of property, equipment and leasehold improvements		2,132			2,151
Amortization of premiums and accretion of discounts on short-term investments		57			31
Deferred rent		(240	)		717
Provision for doubtful accounts		746			956
Stock-based compensation		5,934			5,093
Deferred income tax provision		(2,517	)		(1,795	)
Tax benefit for stock plans		(2,227	)		(2,287	)
Changes in operating assets and liabilities:
Accounts receivable		(5,449	)		(9,912	)
Prepaid expenses and other assets		3,363			(7,536	)
Accounts payable and accrued liabilities		1,183			4,500
Accrued payroll and employee benefits		(4,609	)		47
Deferred revenues		(1,300	)		1,078
Net cash provided by operating activities		13,293			6,562
Cash flows from investing activities:
Capital expenditures		(1,667	)		(1,335	)
Purchase of short-term investments		(25,581	)		-
Maturity of short-term investments		-			5,080
Net cash (used in) provided by investing activities		(27,248	)		3,745
Cash flows from financing activities:
Tax benefit for stock plans		2,227			2,287
Payroll taxes for restricted stock units		(3,473	)		(1,896	)
Repurchase of common stock		(23,080	)		(6,356	)
Exercise of share-based payment awards		894			2,051
Net cash used in financing activities		(23,432	)		(3,914	)
Effect of foreign currency exchange rates on cash and cash equivalents		291			(217	)
Net (decrease) increase in cash and cash equivalents		(37,096	)		6,176
Cash and cash equivalents at beginning of period		106,549			67,895
Cash and cash equivalents at end of period	$	69,453		$	74,071

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 Three and Six Months Ended July 1, 2011 and July 2, 2010

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 unaudited condensed consolidated financial statements are prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information, the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities and Exchange Commission.  Accordingly, they do not contain all the information and notes required by accounting principles generally accepted in the United States of America for complete financial statements.  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 three and six months ended July 1, 2011 are not necessarily representative of the results of future quarterly or annual periods.  The following information should be read in conjunction with the audited consolidated financial statements and accompanying notes thereto included in the Company’s Annual Report on Form 10-K for the fiscal year ended December 31, 2010.

The unaudited condensed consolidated financial statements include the accounts of Exponent, Inc. and its subsidiaries, which are wholly owned.  All intercompany accounts and transactions have been eliminated in consolidation.

Authorized Capital Stock.  In a letter dated May 23, 2006, the Company committed to stockholders to limit its use of authorized capital stock to 40 million common shares, and 2 million preferred shares, unless the approval of the Company’s stockholders is subsequently obtained, such as through a further amendment to the Company’s authorized capital stock.

Use of Estimates.  The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period.  Actual results could differ from those estimates.

Recently Adopted Accounting Pronouncements.  In October 2009, the Financial Accounting Standards Board (“FASB”) issued a new revenue recognition standard for arrangements with multiple deliverables. The new standard permits entities to initially use management’s best estimate of selling price to value individual deliverables when those deliverables do not have vendor specific objective evidence of fair value or when third-party evidence is not available.  Additionally, the new standard modifies the manner in which the transaction consideration is allocated across the separately identified deliverables by no longer permitting the residual method of allocating arrangement consideration.  Also in October 2009, the FASB amended the accounting standards for revenue recognition to exclude software contained within certain qualifying tangible products from the scope of the software revenue recognition guidance if the software is essential to the tangible product's functionality.  Effective January 1, 2011, the Company adopted these standards.  The adoption of these standards did not have a material impact on the Company’s consolidated financial position, results of operations or cash flows.

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Note 2:  Fair Value Measurements

The Company measures certain financial assets and liabilities at fair value on a recurring basis, including available-for-sale fixed income securities, trading fixed income and equity securities held in its deferred compensation plan and the liability associated with its deferred compensation plan.  The fair value of these certain financial assets and liabilities was determined using the following inputs at July 1, 2011 (in thousands):

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Fixed income available-for-sale securities (1)	$	79,804	$	54,235	$	25,569		-
Fixed income trading securities held in deferred compensation plan (2)		6,905		6,905		-		-
Equity trading securities held in deferred compensation plan (2)		13,792		13,792		-		-
Total	$	100,501	$	74,932	$	25,569	$	-
Liabilities
Deferred compensation plan (3)		20,518		20,518		-		-
Total	$	20,518	$	20,518	$	-	$	-

(1) Included in cash and cash equivalents and short-term investments on the Company’s consolidated balance sheet.

(2) Included in other current assets and deferred compensation plan assets on the Company’s consolidated balance sheet.

(3) Included in accrued liabilities and deferred compensation on the Company’s consolidated balance sheet.

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The fair value of these certain financial assets and liabilities was determined using the following inputs at December 31, 2010 (in thousands):

	Fair Value Measurements at Reporting Date Using
	Total		Quoted Prices in Active Markets for Identical Assets (Level 1)		Significant Other Observable Inputs (Level 2)		Significant Unobservable Inputs (Level 3)
Assets
Money market securities (1)	$	64,767	$	64,767	$	-	$	-
Fixed income trading securities held in deferred compensation plan (2)		4,956		4,956		-		-
Equity trading securities held in deferred compensation plan (2)		10,423		10,423		-		-
Total	$	80,146	$	80,146	$	-	$	-
Liabilities
Deferred compensation plan (3)		15,379		15,379		-		-
Total	$	15,379	$	15,379	$	-	$	-

(1) Included in cash and cash equivalents and short-term investments on the Company’s consolidated balance sheet.

(2) Included in other current assets and deferred compensation plan assets on the Company’s consolidated balance sheet.

(3) Included in accrued liabilities and deferred compensation on the Company’s consolidated balance sheet.

Fixed income available-for-sale securities at July 1, 2011 primarily represent obligations of state and local government agencies.  Included in fixed income available-for-sale securities are $54,235,000 of money market securities classified as cash equivalents.  Fixed income and equity trading securities represent mutual funds held in the Company’s deferred compensation plan.  See Note 6 for additional information about the Company’s deferred compensation plan.

As of July 1, 2011, the Company held state and municipal bonds with a fair value of $25,569,000 and an amortized cost of $25,524,000.  The unrealized gain recorded in accumulated other comprehensive income for the three months and six months ended July 1, 2011 was $56,000 and $57,000, respectively.  The unrealized loss recorded in accumulated other comprehensive income for the three months and six months ended July 1, 2011 was $11,000 and $12,000, respectively.  There were no securities in a continuous unrealized loss position for more than twelve months.  Contractual maturities for these bonds range from 0.9 to 2.25 years.  There were no available-for-sale investments as of December 31, 2010.

At July 1, 2011 and December 31, 2010, the Company did not have any assets valued using significant unobservable inputs.

The carrying amount of the Company’s accounts receivable, other assets and accounts payable approximates their fair values.  There were no other-than-temporary impairments or credit losses related to available-for-sale securities during the first six months of 2011 and 2010.

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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:

	Three Months Ended				Six Months Ended
(In thousands)	July 1,  2011		July 2,  2010		July 1,  2011		July 2,  2010
Shares used in basic per share computation		14,402		14,377		14,467		14,295
Effect of dilutive common stock options outstanding		197		280		202		310
Effect of dilutive restricted stock units outstanding		372		397		393		404
Shares used in diluted per share computation		14,971		15,054		15,062		15,009

There were no options excluded from the diluted per share calculation for the three and six months ended July 1, 2011.  Common stock options to purchase 60,000 shares were excluded from the diluted per share calculation for the three and six months ended July 2, 2010, due to their antidilutive effect.  The weighted-average exercise price for the antidilutive shares was $31.01 for the three and six months ended July 2, 2010.

Note 4: Stock-Based Compensation

Restricted Stock Units

Restricted stock unit grants are designed to attract and retain employees, and to better align employee interests with those of the Company’s stockholders.  For a select group of employees, up to 40% of their annual bonus is settled with fully vested restricted stock unit awards.  Under these fully vested restricted stock unit awards, the holder of each award has the right to receive one share of the Company’s common stock for each fully vested restricted stock unit four years from the date of grant.  Each individual who receives a fully vested restricted stock unit award is also granted a matching number of unvested restricted stock unit awards.  Unvested restricted stock unit awards are also granted for select new hires and promotions.  These unvested restricted stock unit awards generally cliff vest four years from the date of grant, at which time the holder of each award will have the right to receive one share of the Company’s common stock for each restricted stock unit award provided the holder of each award has met certain employment conditions.  In the case of retirement at 59½ years or older, all unvested restricted stock unit awards will continue to vest, provided that the holder of each award does all consulting work through the Company and does not become an employee for a past or present client, beneficial party or competitor of the Company.

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 $1,295,000 and $1,155,000 during the three months ended July 1, 2011 and July 2, 2010, respectively.  For the six months ended July 1, 2011 and July 2, 2010, the Company recorded stock-based compensation expense associated with accrued bonus awards of $2,714,000 and $2,236,000, respectively.  The value of the unvested restricted stock unit awards granted is recognized on a straight-line basis over the shorter of the four-year vesting period or the period between the grant date and the date the award recipient turns 59½.  If the award recipient is 59½ years or older on the date of grant, the value of the entire award is expensed upon grant.  The Company recorded stock-based compensation expense associated with the unvested restricted stock unit awards of $680,000 and $689,000 during the three months ended July 1, 2011 and July 2, 2010, respectively.  The Company recorded stock-based compensation expense associated with the unvested restricted stock unit awards of $2,923,000 and $2,538,000 during the six months ended July 1, 2011 and July 2, 2010, respectively.

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Stock Options

Stock options are granted for terms of ten years and generally vest 25% per year 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.  The Company recorded stock-based compensation expense of $144,000 and $157,000 during the three months ended July 1, 2011 and July 2, 2010, respectively, associated with stock option grants.  The Company recorded stock-based compensation expense of $297,000 and $319,000 during the six months ended July 1, 2011 and July 2, 2010, respectively, associated with stock option grants.

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 awards on the date of grant using an option-pricing model is affected by the Company’s stock price as well as assumptions regarding a number of complex and subjective variables.  These variables include expected stock price volatility over the term of the award, actual and projected employee stock option exercise behaviors, the risk-free interest rate and expected dividends.

The Company used historical exercise and post-vesting forfeiture and expiration data to estimate the expected term of options granted.  The historical volatility of the Company’s common stock over a period of time equal to the expected term of the options granted was used to estimate expected volatility.  The risk-free interest rate used in the option-pricing model was based on United States Treasury zero-coupon issues with remaining terms similar to the expected term on the options.  The 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.

Note 5:   Treasury Stock

On May 22, 2007, the Company’s Board of Directors approved up to $35 million for repurchases of the Company’s common stock.  On May 29, 2008, the Company’s Board of Directors authorized an additional $35 million for repurchases of the Company’s common stock.  On February 19, 2009, the Company’s Board of Directors authorized an additional $25.1 million for the repurchase of the Company’s common stock.  On May 25, 2011, the Company’s Board of Directors authorized an additional $35 million for the repurchase of the Company’s common stock.

The Company repurchased 566,727 shares of its common stock for $23,080,000 during the six months ended July 1, 2011.  The Company repurchased 219,578 shares of its common stock for $6,110,000 during the six months ended July 2, 2010.  As of July 1, 2011, the Company had remaining authorization under its stock repurchase plans of $26,898,000 to repurchase shares of common stock.

The Company reissued 236,382 shares of its treasury stock with a cost of approximately $5,997,000 to settle restricted stock unit awards, stock options and purchases under the Employee Stock Purchase Plan during the six months ended July 1, 2011.  The Company reissued 348,966 shares of its treasury stock with a cost of $7,812,000 to settle restricted stock unit awards, stock options and purchases under the Employee Stock Purchase Plan during the six months ended July 2, 2010.

Note 6: Deferred Compensation Plan

The Company maintains a nonqualified deferred compensation plan for the benefit of a select group of highly compensated employees.  Under this plan participants may elect to defer up to 100% of their compensation.  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 July 1, 2011 and December 31, 2010, the invested amounts under the plan totaled $20,697,000 and $15,379,000, respectively.  These assets are classified as trading securities and are recorded at fair market value with changes recorded as adjustments to other income and expense.

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As of July 1, 2011 and December 31, 2010, vested amounts due under the plan totaled $20,518,000 million and $15,379,000, respectively. Changes in the liability are recorded as adjustments to compensation expense.  During the three and six months ended July 1, 2011 the Company recognized an increase to compensation expense of $221,000 and $872,000, respectively, as a result of changes in the market value of the trust assets, with the same amount being recorded as other income, net. During the three and six months ended July 2, 2010 the Company recognized a decrease to compensation expense of $881,000 and $313,000, respectively, as a result of changes in the market value of the trust assets, with the same amount being recorded as other expense, net.

Note 7: Supplemental Cash Flow Information

The following is supplemental disclosure of cash flow information:

	Six Months Ended
(In thousands)	July 1, 2011		July 2, 2010
Cash paid during period:
Income taxes	$	9,242	$	9,278
Non-cash investing and financing activities:
Unrealized gain (loss) on short-term investments	$	27	$	(28	)
Vested stock unit awards issued to settle accrued bonuses	$	4,538	$	3,566

Note 8: Accounts Receivable, Net

At July 1, 2011 and December 31, 2010, accounts receivable, net, was comprised of the following:

	July 1,			December 31,
(In thousands)	2011			2010
Billed accounts receivable	$	50,452		$	47,198
Unbilled accounts receivable		28,421			26,962
Allowance for doubtful accounts		(2,136	)		(2,126	)
Total accounts receivable, net	$	76,737		$	72,034

Note 9: Inventory

At July 1, 2011, the Company had $142,000 of raw materials inventory included in prepaid expenses and other current assets on its condensed consolidated balance sheet.  At December 31, 2010, the Company had $1,630,000 and $1,225,000 of finished goods and raw materials inventory, respectively, included in prepaid expenses and other current assets on its condensed consolidated balance sheet.

Note 10: 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 engineering 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.

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Segment information for the three and six months ended July 1, 2011 and July 2, 2010 follows:

Revenues
	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2011		July 2, 2010		July 1, 2011		July 2, 2010
Engineering and other scientific	$	47,787	$	43,981	$	103,448	$	88,708
Environmental and health		17,319		16,458		35,131		31,137
Total revenues	$	65,106	$	60,439	$	138,579	$	119,845

Operating Income
	Three Months Ended						Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Engineering and other scientific	$	14,274		$	12,143		$	30,504		$	25,146
Environmental and health		4,828			5,372			10,103			9,647
Total segment operating income		19,102			17,515			40,607			34,793
Corporate operating expense		(5,725	)		(4,740	)		(14,864	)		(12,511	)
Total operating income	$	13,377		$	12,775		$	25,743		$	22,282

Capital Expenditures
	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2011		July 2, 2010		July 1, 2011		July 2, 2010
Engineering and other scientific	$	626	$	447	$	961	$	1,048
Environmental and health		121		40		201		82
Total segment capital expenditures		747		487		1,162		1,130
Corporate capital expenditures		119		120		505		205
Total capital expenditures	$	866	$	607	$	1,667	$	1,335

Depreciation and Amortization
	Three Months Ended				Six Months Ended
(In thousands)	July 1, 2011		July 2, 2010		July 1, 2011		July 2, 2010
Engineering and other scientific	$	642	$	715	$	1,300	$	1,395
Environmental and health		53		47		104		94
Total segment depreciation and amortization		695		762		1,404		1,489
Corporate depreciation and amortization		373		316		728		662
Total depreciation and amortization	$	1,068	$	1,078	$	2,132	$	2,151

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No single customer comprised more than 10% of the Company’s revenues during the three and six months ended July 1, 2011 and July 2, 2010, respectively.  No single customer comprised more than 10% of the Company’s accounts receivable at July 1, 2011 or at December 31, 2010.

Note 11: Goodwill

Below is a breakdown of goodwill reported by segment as of July 1, 2011:

	Environmental		Engineeringand
(In thousands)	andhealth		otherscientific		Total
Goodwill	$	8,099	$	508	$	8,607

There were no changes in the carrying amount of goodwill for the three and six months ended July 1, 2011.  There were no goodwill impairments or gains or losses on disposals for any portion of the Company’s reporting units during the three and six months ended July 1, 2011.

Note 12: Contingencies

In July of 2008, the Company was served with a writ by a former client.  The writ did not articulate a claim.  The Company met with the former client in November of 2008 and again in January of 2009 and learned in those discussions of potential claims against the Company arising out of the testimony delivered by one of the Company’s employees.  The former client claims that this testimony contributed to an adverse verdict against them.  Given the uncertainty as to whether the claimant will choose to pursue one or more claims against the Company, and the nature of the potential claims against the Company, an estimated loss cannot be determined at this time.  The Company believes it has a strong defense against all such potential claims and intends to vigorously defend itself.  Further, the Company believes that some of the potential claims would be covered by insurance.  Although the Company’s ultimate liability in this matter (if any) cannot be determined, based upon information currently available, the Company believes, after consultation with legal counsel, the ultimate resolution of these potential claims will not have a material adverse effect on its financial condition, results of operations or liquidity.

In March of 2010, a lawsuit was filed against the Company which alleges, among other things, that the Company failed to provide rest and meal periods, failed to furnish accurate itemized wage statements, failed to keep accurate payroll records, incurred waiting time penalties, conducted unfair business practices and failed to comply with certain other California Labor Code requirements. In March of 2011, the Company entered into a preliminary agreement to settle these claims.  The financial impact of the preliminary settlement did not have a material effect on the Company’s financial condition, results of operations or liquidity.

In addition to the above matters, the Company is a party to various other legal actions from time to time and may be contingently liable in connection with claims and contracts arising in the normal course of business, the outcome of which the Company believes, after consultation with legal counsel, will not have a material adverse effect, individually or in the aggregate, on its financial condition, results of operations or liquidity.  All legal costs associated with litigation are expensed as incurred.

- 14 -

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 31, 2010, which are contained in our fiscal 2010 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 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 fiscal 2010 Annual Report on Form 10-K under the heading “Risk Factors” 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.  Due to such uncertainties and risks, you are warned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof.  The Company does not intend 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 90 different technical disciplines to solve complicated issues facing industry and business today.  Our services include analysis of product development, product recall, regulatory compliance, and 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 and estimating the allowance for doubtful accounts have the greatest potential impact on our consolidated financial statements, so we consider these to be our critical accounting policies.  Historically, our assumptions, judgments and estimates relative to our critical accounting policies have not differed materially from actual results.  Policies covering revenue recognition and estimating the allowance for doubtful accounts are described in our fiscal 2010 Annual Report on Form 10-K under “Critical Accounting Estimates”.

- 15 -

RESULTS OF CONSOLIDATED OPERATIONS

Executive Summary

Revenues for the second quarter of 2011 increased 8% and revenues before reimbursements increased 10% as compared to the same period in the prior year.  This growth was due to solid overall demand and particularly strong performances in our mechanics and materials, electrical, thermal sciences, and human factors practices.  We made progress during the quarter in several of our strategic growth areas.  In energy consulting we have been engaged by several utilities and oil and gas clients to assist them with understanding why certain pipeline failures have occurred as well as the evaluation of their pipeline risk management programs.  In design consulting, we experienced increased demand from medical device companies, who requested assistance evaluating new designs, assessing the performance of devices in the field and with the regulatory approval process.  In health science consulting, we added 12 new consultants in atmospheric sciences.  This enhanced capability is needed by many of our existing industrial clients facing air-quality issues and it will also help our international client base.

During the quarter we continued to see elevated levels of activity on a number of major assignments and are assisting clients with several high-profile investigations that engage consultants across many of our practices.  As a result utilization was 71% for the second quarter of 2011.  Net income increased 13% from the same period last year and diluted earnings per share increased to $0.55 per share as compared to $0.48 per share in the same period last year.  This increase in profitability was due to increased leverage of our cost structure.

For the remainder of 2011, we remain focused on selectively adding top talent and developing the skills necessary to expand upon our market position, providing clients with in-depth scientific research and analysis to determine what happened and how to prevent failures or exposures in the future, capitalizing on opportunities in our defense technology development practice and emerging growth areas, managing other operating expenses, generating cash from operations, maintaining a strong balance sheet and undertaking activities such as share repurchases to enhance shareholder value.  We expect activity levels to decrease as some of our major assignments step down from their elevated levels of activity this quarter.

Overview of the Three Months Ended July 1, 2011

During the second quarter of 2011, we had an 8% increase in revenues as compared to the same period last year.  The increase in revenues was due to an increase in billable hours and an increase in realized billing rates, partially offset by a decrease in product sales in our defense technology development practice.  Billable hours for the second quarter of 2011 increased 7% to 242,000 as compared to 226,000 during the same period last year.  The increase in billable hours was due to strong demand and an increase in technical full-time equivalent employees.  Technical full-time equivalent employees increased 7% to 653 during the second quarter of 2011 as compared to 611 during the same period last year due to our continuing recruiting and retention efforts.  Product sales in our defense technology development practice decreased 88% to $229,000 during the second quarter of 2011 from $1,910,000 during the same period last year due to a decrease in sales of surveillance systems to the United States Army. Utilization was 71% for the second quarter in 2011 and 2010.

- 16 -

Three Months Ended July 1, 2011 compared to Three Months Ended July 2, 2010

Revenues
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Engineering and other scientific	$	47,787		$	43,981			8.7	%
Percentage of total revenues		73.4	%		72.8	%
Environmental and health		17,319			16,458			5.2	%
Percentage of total revenues		26.6	%		27.2	%
Total revenues	$	65,106		$	60,439			7.7	%

The increase in revenues for our engineering and other scientific segment was due to an increase in billable hours and higher billing rates partially offset by a decrease in product sales in our defense technology development practice.  During the second quarter of 2011, billable hours for this segment increased by 7% to 173,000 as compared to 161,000 during the same period last year.  The increase in billable hours was due to strong demand for our services in the mechanics and materials, electrical, thermal sciences, and human factors practices.  Product sales in our defense technology development practice decreased 88% to $229,000 during the second quarter of 2011 from $1,910,000 during the same period last year due to the decrease in sales of surveillance systems to the United States Army.  Technical full-time equivalent employees increased 4% to 453 during the second quarter of 2011 as compared to 436 for the same period last year due in part to the addition of several experienced consultants in our biomechanics practice during the first quarter of 2011 and our continuing recruiting and retention efforts.  Utilization increased to 73% for the second quarter of 2011 as compared to 71% for the same period last year due in part to elevated levels of activity on a number of major assignments that engaged consultants across many of our practices.

The increase in revenues for our environmental and health segment was due to an increase in billable hours and higher billing rates, partially offset by a decrease in reimbursable project related costs.  During the second quarter of 2011, billable hours for this segment increased by 6% to 69,000 as compared to 65,000 during the same period last year.  The increase in billable hours was due to an increase in activity in the areas of our business that are related to litigation, insurance matters and regulatory compliance pertaining to the registration of chemicals.  Utilization decreased to 66% for the second quarter of 2011 as compared to 72% for the same period last year.  The decrease in utilization and operating income for our environmental and health segment was due in part to our investment in hiring experienced consultants including the addition of 12 new consultants in atmospheric sciences.  Technical full-time equivalent employees increased by 14% to 200 during the second quarter of 2011 as compared to 175 for the same period last year.

Compensation and Related Expenses
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Compensation and related expenses	$	38,508		$	34,060			13.1	%
Percentage of total revenues		59.1	%		56.4	%

The increase in compensation and related expenses during the second quarter of 2011 was due to an increase in payroll, fringe benefits, bonus expense, and the change in value of assets associated with our deferred compensation plan.  Payroll increased by $2,354,000 and fringe benefits increased by $344,000 due to the increase in technical full-time equivalent employees and the impact of our annual salary increase on April 2, 2011.  Bonuses increased by $780,000 due to a corresponding increase in profitability.  During the second quarter of 2011, deferred compensation expense increased $1,077,000, with a corresponding increase to other income, net, as compared to the second quarter of 2010 due to a change in the value of assets associated with our deferred compensation plan.  This increase consisted of an increase in the value of plan assets of $196,000 during the second quarter of 2011 and a decrease in the value of plan assets of $881,000 during the second quarter of 2010.  We expect our compensation expenses to increase as we selectively add new talent.

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Other Operating Expenses
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Other operating expenses	$	5,704		$	5,388			5.9	%
Percentage of total revenues		8.8	%		8.9	%

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements.  The increase in other operating expenses was primarily due to an increase in occupancy expense of $171,000 and an increase in computer expenses of $88,000.  The increase in occupancy expense was due to some planned maintenance activities for our owned facilities and costs associated with the increase in technical full-time equivalent employees.  The increase in computer expenses was associated with the increase in technical full time equivalent employees and investments in our corporate infrastructure.

Reimbursable Expenses
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Reimbursable expenses	$	4,533		$	5,311			(14.6	)%
Percentage of total revenues		7.0	%		8.8	%

The decrease in reimbursable expenses was primarily due to the decrease in product sales in our defense 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
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
General and administrative expenses	$	2,984		$	2,905			2.7	%
Percentage of total revenues		4.6	%		4.8	%

The increase in general and administrative expenses during the second quarter of 2011 was due to an increase in outside consulting of $77,000, an increase in professional development of $70,000, an increase in travel and meals of $54,000, and an increase in recruiting of $50,000, partially offset by a decrease in bad debt of $227,000.  The increases in outside consulting, professional development, travel and meals, and recruiting were due to our continuing recruiting and retention efforts and business development activities.  The decrease in bad debt expense was due to improved collections and a decrease in write-offs.

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Other Income, Net
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Other income (expense), net	$	583		$	(494	)		218.0	%
Percentage of total revenues		0.9	%		(0.8	)%

Other income, net, consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing space in our Silicon Valley facility.  During the second quarter of 2011, other income, net, increased $1,077,000, with a corresponding increase to deferred compensation expense as compared to the second quarter of 2010 due to a change in the value of assets associated with our deferred compensation plan.  This increase consisted of an increase in the value of plan assets of $196,000 during the second quarter of 2011 and a decrease in the value of plan assets of $881,000 during the second quarter of 2010.

Income Taxes
	Three Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Income taxes	$	5,743		$	5,001			14.8	%
Percentage of total revenues		8.8	%		8.3	%
Effective tax rate		41.1	%		40.7	%

The increase in income tax expense was due to a corresponding increase in pre-tax income and an increase in our effective tax rate.  The increase in our effective tax rate was due to an increase in state income taxes.

Six Months Ended July 1, 2011 compared to Six Months Ended July 2, 2010

Revenues
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Engineering and other scientific	$	103,448		$	88,708			16.6	%
Percentage of total revenues		74.6	%		74.0	%
Environmental and health		35,131			31,137			12.8	%
Percentage of total revenues		25.4	%		26.0	%
Total revenues	$	138,579		$	119,845			15.6	%

The increase in revenues for our engineering and other scientific segment was due to increases in billable hours, an increase in reimbursable project related costs for consulting projects in our defense technology development practice, an increase in product sales and higher billing rates.  During the first six months of 2011, billable hours for this segment increased by 6% to 350,000 as compared to 329,000 during the same period last year.  The increase in billable hours was due to strong demand for our services.  Reimbursable project related costs for consulting projects in our defense technology development practice increased 168% to $4,659,000 during the second quarter of 2011 as compared to $1,738,000 during the same period last year due to an increase in our work on improvised explosive device detection technology projects.  Product sales of rapidly deployed surveillance systems in our defense technology development practice increased 163% to $6,372,000 in the first six months of 2011 as compared to $2,419,000 during the same period last year.  Technical full-time equivalent employees increased 3% to 455 during the first six months of 2011 as compared to 442 for the same period last year due in part to the addition of several experienced consultants in our biomechanics practice and our continuing recruiting and retention efforts.  Utilization increased to 74% for the first six months of 2011 as compared to 72% for the same period last year due in part to elevated levels of activity on a number of major assignments that engaged consultants across many practices.

- 19 -

The increase in revenues for our environmental and health segment was due to an increase in billable hours and higher billing rates.  During the first six months of 2011, billable hours for this segment increased by 10% to 138,000 as compared to 125,000 during the same period last year.  The increase in billable hours was due to an increase in activity in the areas of our business that are related to litigation, insurance matters and regulatory compliance pertaining to the registration of chemicals.  Utilization decreased to 67% for the first six months of 2011 as compared to 69% for the same period last year.  The decrease in utilization was due in part to our investment in hiring experienced consultants including the addition of 12 new consultants in atmospheric sciences.  Technical full-time equivalent employees increased by 13% to 197 during the first six months of 2011 as compared to 174 for the same period last year.

Compensation and Related Expenses
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Compensation and related expenses	$	81,208		$	71,840			13.0	%
Percentage of total revenues		58.6	%		59.9	%

The increase in compensation and related expenses during the first six months of 2011 was due to an increase in payroll, fringe benefits, bonus expense and the change in value of assets associated with our deferred compensation plan.  Payroll increased by $4,034,000 and fringe benefits increased by $1,047,000 due to the increase in technical full-time equivalent employees and the impact of our annual salary increase.  Bonuses increased by $2,816,000 due to a corresponding increase in profitability.  During the first six months of 2011, deferred compensation expense increased $1,168,000, with a corresponding increase to other income, net, as compared to the first six months of 2010 due to a change in the value of assets associated with our deferred compensation plan.  This increase consisted of an increase in the value of plan assets of $855,000 during the first six months of 2011 and a decrease in the value of plan assets of $313,000 during the first six months of 2010.

Other Operating Expenses
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Other operating expenses	$	11,486		$	10,607			8.3	%
Percentage of total revenues		8.3	%		8.9	%

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements.  The increase in other operating expenses was primarily due to an increase in occupancy expense of $424,000 and an increase in technical materials of $172,000.  The increase in occupancy expense was due to some planned maintenance activities for our owned facilities and costs associated with the increase in technical full-time equivalent employees.  The increase in technical materials was due to an increase in development activities in our defense technology development practice.

Reimbursable Expenses
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Reimbursable expenses	$	13,823		$	9,516			45.3	%
Percentage of total revenues		10.0	%		7.9	%

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The increase in reimbursable expenses was primarily due to an increase in project-related costs in our defense 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
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
General and administrative expenses	$	6,319		$	5,600			12.8	%
Percentage of total revenues		4.6	%		4.7	%

The increase in general and administrative expenses during the first six months of 2011 was due to an increase in charitable contributions of $216,000, an increase in travel and meals of $164,000, and an increase in legal expenses of $137,000.  The increase in travel and meals was due to an increase in business development activities and the increase in technical full-time employees.  The increase in legal fees was primarily due to the costs associated with legal claims.

Other Income, Net
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Other income, net	$	1,596		$	529			201.7	%
Percentage of total revenues		1.2	%		0.4	%

Other income, net, consists primarily of interest income earned on available cash, cash equivalents and short-term investments, changes in the value of assets associated with our deferred compensation plan and rental income from leasing space in our Silicon Valley facility.  During the first six months of 2011, other income, net, increased $1,168,000, with a corresponding increase to deferred compensation expense as compared to the first six months of 2010 due to a change in the value of assets associated with our deferred compensation plan.  This increase consisted of an increase in the value of plan assets of $855,000 during the first six months of 2011 and a decrease in the value of plan assets of $313,000 during the first six months of 2010.

Income Taxes
	Six Months Ended
(In thousands)	July 1, 2011			July 2, 2010			Percent Change
Income taxes	$	11,119		$	9,292			19.7	%
Percentage of total revenues		8.0	%		7.8	%
Effective tax rate		40.7	%		40.7	%

The increase in income tax expense was due to a corresponding increase in pre-tax income.

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LIQUIDITY AND CAPITAL RESOURCES

As of July 1, 2011, our cash, cash equivalents and short-term investments were $95.0 million compared to $106.5 million at December 31, 2010.  The following table summarizes our cash flows (in thousands):

	Six Months Ended
	July 1,  2011			July 2,  2010
Net cash provided by operating activities	$	13,293		$	6,562
Net cash (used in) provided by investing activities		(27,248	)		3,745
Net cash used in financing activities		(23,432	)		(3,914	)

The increase in net cash provided by operating activities during the first six months of 2011 as compared to the same period last year was due to an increase in net income, a decrease in prepaid expenses and other assets, and a smaller increase in accounts receivable, partially offset by a larger decrease in accrued payroll and employee benefits, a smaller increase in accounts payable and accrued liabilities and a decrease in deferred revenues.  Prepaid expenses and other assets decreased by $3.4 million during the first six months of 2011 as compared to an increase of $7.5 million during the same period last year.  The decrease in prepaid expenses and other assets during the first six months of 2011 was primarily due to a decrease in inventory.  Accounts receivable increased $5.4 million during the first six months of 2011 as compared to an increase of $9.9 million during the same period last year. The smaller increase during the first six months of 2011 was due to improved collections.  Days sales outstanding decreased to 94 during the first six months of 2011 as compared to 95 days during the same period last year.  Accrued payroll and employee benefits decreased $4.6 million during the first six months of 2011 as compared to an increase of $47,000 during the same period last year.  The larger decrease in accrued payroll and employee benefits was due to an increase in the amount of accrued bonus paid during the first quarter of 2011 as compared to the same period last year.  Accounts payable and accrued liabilities increased by $1.2 million during the first six months of 2011 as compared to an increase of $4.5 million during the same period last year.  The smaller increase in accounts payable and accrued liabilities was due to the timing of payments to vendors.  Deferred revenues decreased by $1.3 million during the first six months of 2011 as compared to an increase of $1.1 million during the same period last year.  The decrease during the first six months of 2011 was due to fewer pre-billed projects.

The change in net cash (used in) provided by investing activities was due to an increase in purchases of short-term investments of $25.6 million during the first six months of 2011 as compared to the same period last year and a decrease in maturities of short-term investments of $5.1 million during the first six months of 2011 as compared to the same period last year.

The increase in net cash used in financing activities during the first six months of 2011 as compared to the same period last year was primarily due to an increase in treasury repurchases of $16.7 million.

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 program or strategically acquire professional services firms that are complementary to our business.

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The following schedule summarizes our principal contractual commitments as of July 1, 2011 (in thousands):

	Operating
Fiscal	lease		Capital		Purchase
year	commitments		leases		obligations		Total
2011 (remaining portion)	$	3,101	$	2	$	2,635	$	5,738
2012		6,208		4		-		6,212
2013		3,944		2		-		3,946
2014		3,433		-		-		3,433
2015		2,344		-		-		2,344
Thereafter		3,085		-		-		3,085
	$	22,115	$	8	$	2,635	$	24,758

We maintain a nonqualified deferred compensation plan for the benefit of a select group of highly compensated employees.  Vested amounts due under the plan of $19,425,000 were recorded as a long-term liability on our condensed consolidated balance sheet at July 1, 2011.  Company assets that are earmarked to pay benefits under the plan are held in a rabbi trust and are subject to the claims of our creditors.  As of July 1, 2011 invested amounts under the plan of $19,604,000 were recorded as a long-term asset on our condensed consolidated balance sheet.

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

We believe that our existing cash, cash equivalents, short-term investments and our anticipated cash flows from operations will be sufficient to meet our anticipated operating requirements for at least the next twelve months.

Non-GAAP Financial Measures

Regulation G, conditions for use of Non-Generally Accepted Accounting Principles ("Non-GAAP") financial measures, and other SEC regulations define and prescribe the conditions for use of certain Non-GAAP financial information.  Generally, a Non-GAAP financial measure is a numerical measure of a company's performance, financial position or cash flow that either excludes or includes amounts that are not normally excluded or included in the most directly comparable measure calculated and presented in accordance with GAAP.  We closely monitor two financial measures, EBITDA and EBITDAS, which meet the definition of Non-GAAP financial measures. We define EBITDA as net income before income taxes, interest income, depreciation and amortization.  We define EBITDAS as EBITDA before stock-based compensation.  The Company regards EBITDA and EBITDAS as useful measures of operating performance and cash flow to complement operating income, net income and other GAAP financial performance measures.  Additionally, management believes that EBITDA and EBITDAS provide meaningful comparisons of past, present and future operating results.  These measures are used to evaluate our financial results, develop budgets and determine employee compensation.  These measures, however, should be considered in addition to, and not as a substitute or superior to, operating income, cash flows, or other measures of financial performance prepared in accordance with GAAP.  A reconciliation of the Non-GAAP measures to the nearest comparable GAAP measure is set forth below.

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The following table shows EBITDA as a percentage of revenues before reimbursements for the three and six months ended July 1, 2011 and July 2, 2010:

	Three Months Ended						Six Months Ended
(in thousands, except percentages)	July 1, 2011			July 2, 2010			July 1, 2011			July 2, 2010
Revenues before reimbursements	$	60,573		$	55,128		$	124,756		$	110,329
EBITDA	$	14,987		$	13,293		$	29,409		$	24,833
EBITDA as a % of revenues before reimbursements		24.7	%		24.1	%		23.6	%		22.5	%

The increase in EBITDA as a percentage of revenues before reimbursements was primarily due to improved operating leverage.

The following table is a reconciliation of EBITDA and EBITDAS to the most comparable GAAP measure, net income, for the three and six months ended July 1, 2011 and July 2, 2010:

	Three Months Ended						Six Months Ended
(in thousands)	July 1,  2011			July 2,  2010			July 1,  2011			July 2,  2010
Net income	$	8,217		$	7,280		$	16,220		$	13,519
Add back (subtract):
Income taxes		5,743			5,001			11,119			9,292
Interest income, net		(41	)		(66	)		(62	)		(129	)
Depreciation and amortization		1,068			1,078			2,132			2,151
EBITDA		14,987			13,293			29,409			24,833
Stock-based compensation		2,119			2,001			5,934			5,093
EBITDAS	$	17,106		$	15,294		$	35,343		$	29,926

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are 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 is 3 years and the maximum average effective maturity of the portfolio cannot exceed 12 months.  If interest rates were to instantaneously increase or decrease by 100 basis points, the change in the fair market value of our portfolio of cash equivalents and short-term investments would not have a material impact on our financial statements.  We do not use derivative financial instruments in our portfolio.  There have not been any material changes during the period covered by this Quarterly Report on Form 10-Q to our interest rate risk exposures, or how these exposures are managed.  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 is 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.

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Item 4.  Controls and Procedures

(a) Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15(b) of the Securities Exchange Act of 1934, as amended, an evaluation was performed under the supervision and with the participation of the Company’s management, including the 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 defined in Rules 13a-15(e) or 15d-15(e) of the Exchange Act of 1934, as amended) as of the end of the period covered by this quarterly report.  Based on that evaluation, the Company’s management, including the 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.

(b) Changes in Internal Control over Financial Reporting

There were no changes in our internal control over financial reporting during the six month period ended July 1, 2011 that have materially affected, or are reasonably likely to materially affect, our internal control over financial reporting.

PART II - OTHER INFORMATION

Item 1A.  Risk Factors

There have been no material changes from risk factors as previously discussed under the heading “Risk Factors” in the Company’s Annual Report on Form 10-K for the year ended December 31, 2010.

Item 2.  Unregistered Sales of Equity Securities and Use of Proceeds

The following table provides information on the Company’s repurchases of the Company’s common stock for the three months ended July 1, 2011:

(In thousands, except price per share)	Total Number of Shares Purchased		Average Price Paid Per Share		Total Number of Shares Purchased as Part of Publicly Announced Programs		Approximate Dollar Value of Shares That May Yet Be Purchased Under the Programs (1)
April 2 to April 29		20	$	41.66		20	$	7,027
Additional funds authorized for share repurchases							$	35,000
April 30 to May 27		174		40.97		174	$	34,898
May 28 to July 1		191		41.82		191	$	26,898
Total		385	$	41.43		385	$	26,898

(1) On May 22, 2007, the Company’s Board of Directors approved up to $35 million for repurchases of the Company’s common stock.  On May 29, 2008, the Company’s Board of Directors authorized an additional $35 million for repurchases of the Company’s common stock.  On February 19, 2009, the Company’s Board of Directors authorized an additional $25.1 million for repurchases of the Company’s common stock.  On May 25, 2011, the Board of Directors authorized an additional $35.0 million for the repurchase of the Company’s common stock.  These plans have no expiration date.

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Item 6.   Exhibits

(a) Exhibit Index

10.39 First Amendment to the Exponent, Inc. 401(k) Savings Plan (as amended and restated January 1, 2010).

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

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

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

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

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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: August 5, 2011
	/s/ Paul R. Johnston
	Paul R. Johnston, Ph.D., Chief Executive Officer
	/s/ Richard L. Schlenker
	Richard L. Schlenker, Chief Financial Officer

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