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 January 2, 2009, which are contained in our fiscal 2008 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 2008 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 2008 Annual Report on Form 10-K under "Critical Accounting Estimates" and Note 1 (Summary of Significant Accounting Policies) of the Notes to Consolidated Financial Statements.

RESULTS OF CONSOLIDATED OPERATIONS

Overview of the Three Months Ended April 3, 2009

During the first quarter of 2009 we had a 6.3% increase in revenues and a 5.6% increase in revenues before reimbursements as compared to the same period last year. Our consolidated revenue growth was primarily driven by an increase in billable hours and higher billing rates. The growth in billable hours was driven by our technology development, mechanics and materials, health sciences and electrical and semiconductors practices and our center for chemical registration and food safety. Billable hours for the first quarter of 2009 increased 6.3% to 234,022 as compared to 220,069 during the same period last year. Technical full-time equivalents increased 5.4% to 642 during the first quarter of 2009 as compared to 609 during the same period last year. This increase in technical full-time equivalents was due to our continuing recruiting and retention efforts. Utilization increased to 70% for the first quarter of 2009 as compared to 69% during the same period last year. The increase in utilization was due in part to one less holiday during the first quarter of 2009 as compared to the first quarter of 2008. Product sales in our technology development practice decreased 73% to $890,000 for the first quarter of 2009 as compared to $3,250,000 during the same period last year. This decrease in product sales was primarily due to a decrease in sales of surveillance systems to the United States Army. Operating income decreased 9.1% and net income decreased 9.3% due to the increase in compensation and related expense and the decrease in product sales.

Three Months Ended April 3, 2009 compared to Three Months Ended March 28, 2008

Revenues

                                               Three Months Ended
                                            April 3,       March 28,      Percent
        (In thousands)                        2009           2008         Change
        Engineering and other scientific   $   45,255     $    43,595         3.8 %
        Percentage of total revenues             75.7 %          77.5 %
        Environmental and health               14,541          12,665        14.8 %
        Percentage of total revenues             24.3 %          22.5 %

        Total revenues                     $   59,796     $    56,260         6.3 %

The increase in revenues for our engineering and other scientific segment was driven by an increase in billable hours and higher billing rates partially offset by a decrease in product sales in our technology development practice. The increase in billable hours was primarily due to an increase in consulting activity in our technology development, mechanics and materials, and electrical and semiconductors practices. During the first quarter of 2009, billable hours for this segment increased by 4.2% to 174,432 as compared to 167,380 during the same period last year. Technical full-time equivalents increased 4.2% to 471 from 452 for the same period last year due to our continuing recruiting and retention efforts. Utilization was 71% for the first quarter of 2009 and 2008. Product sales in our technology development practice decreased 73% to $890,000 for the first quarter of 2009 as compared to $3,250,000 during the same period last year.

The increase in revenues for our environmental and health segment was driven by an increase in billable hours and higher billing rates. The increase in billable hours was due to an increase in activity in our health sciences practice and center for chemical registration and food safety. During the first quarter of 2009, billable hours for this segment increased by 13.1% to 59,591 as compared to 52,689 during the same period last year. Technical full-time equivalents increased by 8.9% to 171 from 157 for the same period last year due to our continuing recruiting and retention efforts. Utilization increased to 67% for the first quarter of 2009 as compared to 65% during the same period last year.

Compensation and Related Expenses



                                               Three Months Ended
                                            April 3,       March 28,      Percent
       (In thousands)                         2009           2008         Change
       Compensation and related expenses   $   37,846     $    33,510        12.9 %
       Percentage of total revenues              63.3 %          59.6 %

The increase in compensation and related expenses during the first quarter of 2009 was due to an increase in payroll, fringe benefits and the change in value of assets associated with our deferred compensation plan. Payroll increased by $2,803,000 and fringe benefits increased by $425,000 due to an increase in technical full-time equivalent employees and the impact of our annual salary increase on April 1, 2008. During the first quarter of 2009, we recorded a decrease to compensation expense of $109,000 as compared to a decrease of $423,000 during the same period last year due to a decline in the value of assets associated with our deferred compensation plan. The increase in compensation and related expenses contributed to the decrease in operating income. We expect a slight decrease in payroll expense during the second quarter of 2009 as compared to the first quarter of 2009 due to a projected sequential decrease in technical full-time equivalent employees and an increase in vacation taken partially offset by our annual salary increase on March 30, 2009.

Other Operating Expenses



                                            Three Months Ended
                                         April 3,        March 28,      Percent
         (In thousands)                    2009            2008         Change
         Other operating expenses       $    5,277      $     5,428        (2.8 )%
         Percentage of total revenues          8.8 %            9.6 %

Other operating expenses include facilities-related costs, technical materials, computer-related expenses and depreciation and amortization of property, equipment and leasehold improvements. The decrease in other operating expenses was primarily due to a decrease in technical materials of $92,000 and a decrease in office expenses of $66,000 as part of our continuing efforts to manage our cost structure.

Reimbursable Expenses



                                            Three Months Ended
                                         April 3,        March 28,      Percent
         (In thousands)                    2009            2008         Change
         Reimbursable expenses          $    4,865      $     4,238        14.8 %
         Percentage of total revenues          8.1 %            7.5 %

The increase in reimbursable expenses was primarily due to an increase in project related costs 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



                                               Three Months Ended
                                            April 3,        March 28,      Percent
     (In thousands)                           2009            2008         Change
     General and administrative expenses   $    2,632      $     2,989       (11.9 )%
     Percentage of total revenues                 4.4 %            5.3 %

The decrease in general and administrative expenses during the first quarter of 2009 was due to decreases in travel and meals of $193,000, recruiting and relocation of $118,000 and professional development of $106,000. These decreases were due to our continuing efforts to manage our cost structure.

Other Income, Net



                                            Three Months Ended
                                        April 3,        March 28,      Percent
         (In thousands)                   2009             2008        Change
         Other income, net              $     392       $      437       (10.3 )%
         Percentage of total revenues         0.7 %            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. The decrease in other income, net, was due to a decrease in interest income of $268,000 and an increase in the loss on foreign exchange of $171,000, partially offset by the change in value of assets associated with our deferred compensation plan. The decrease in interest income was due to a decrease in average balances of our cash equivalents and short-term investments and lower interest rates. During the first quarter of 2009 and 2008, we recorded a decrease to other income, net, of $109,000 and $423,000, respectively, associated with a decrease in the value of assets associated with our deferred compensation plan.

Income Taxes



                                            Three Months Ended
                                         April 3,        March 28,      Percent
         (In thousands)                    2009            2008         Change
         Income taxes                   $    3,810      $     4,185        (9.0 )%
         Percentage of total revenues          6.4 %            7.4 %
         Effective tax rate                   39.8 %           39.7 %

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

RECENT ACCOUNTING PRONOUNCEMENTS

In April 2009, the Financial Accounting Standards Board ("FASB") issued three Final Staff Positions ("FSPs") that are intended to provide additional application guidance and enhance disclosures about fair value measurements and impairments of securities. FSP FAS 157-4 clarifies the objective and method of fair value measurement even when there has been a significant decrease in market activity for the asset being measured. FSP FAS 115-2 and FAS 124-2 establishes a new model for measuring other-than-temporary impairments for debt securities, including establishing criteria for when to recognize a write-down through earnings versus other comprehensive income. FSP FAS 107-1 and APB 28-1 expands the fair value disclosures required for all financial instruments within the scope of Statement of Financial Accounting Standards No. 107, Disclosures about Fair Value of Financial Instruments, to interim periods. All of these FSPs are effective for us beginning April 4, 2009. We are assessing the potential impact that the adoption of FSP FAS 157-4 and FSP FAS 115-2 and FAS 124-2 may have on our financial statements.

LIQUIDITY AND CAPITAL RESOURCES

As of April 3, 2009, our cash, cash equivalents and short-term investments were
$44.7 million compared to $57.4 million at January 2, 2009.



                                                       Three Months Ended
                                                    April 3,        March 28,
       (In thousands)                                 2009            2008
       Net cash used in operating activities       $    (6,406 )   $      (361 )
       Net cash provided by investing activities         2,071           2,106
       Net cash used in financing activities            (5,838 )          (577 )

The increase in net cash used in operating activities during the first three months of 2009 was due to a larger decrease in accrued payroll and employee benefits, and a larger increase in accounts receivable, partially offset by the increase in deferred revenue. The larger decrease in accrued payroll and employee benefits was due to an increase in the amount of accrued bonus paid during the first three months of 2009 as compared to the same period in 2008. The larger increase in accounts receivable was due to slower collections during the first three months of 2009 as compared to the same period in 2008. The increase in deferred revenue was due to an increase in pre-billed projects. Days sales outstanding increased to 99 days during the first three months of 2009 compared to 96 days during the first three months of 2008.

The decrease in net cash provided by investing activities was due to a decrease of $764,000 in net sales and maturities of short-term investments partially offset by a decrease in capital expenditures of $729,000.

The increase in net cash used in financing activities was primarily due to a decrease in the tax benefit for stock award plans of $2,978,000, and a decrease in the issuance of treasury stock of $1,736,000.

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.

The following schedule summarizes our principal contractual commitments as of April 3, 2009 (in thousands):

                            Operating
             Fiscal           lease        Capital      Purchase
             year          commitments     leases      obligations     Total
             2009         $       4,298   $      13   $         935   $  5,246
             2010                 4,331           6              -       4,337
             2011                 3,572           6              -       3,578
             2012                 3,347           3              -       3,350
             2013                 1,564           2              -       1,566
             Thereafter           3,924          -               -       3,924

                          $      21,036   $      30   $         935   $ 22,001

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 $6.4 million were recorded as a long-term liability on our condensed consolidated balance sheet at April 3, 2009. 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 April 3, 2009 invested amounts under the plan of $6.4 million 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.