EXPONENT INC

Note 1: Summary of Significant Accounting Policies

Basis of Presentation

Exponent, Inc. together with its subsidiaries (collectively referred to as the “Company”) is a science and engineering consulting firm that provides solutions to complex problems. The accompanying consolidated financial statements include the accounts of the Company and its wholly owned subsidiaries. All intercompany transactions and balances have been eliminated in consolidation.

The Company operates on a 52-53 week fiscal year with each year ending on the Friday closest to December 31 st. Fiscal period 2024 included 53 weeks of activity and ended on January 3, 2025. Fiscal period 2023 included 52 weeks of activity and ended on December 29, 2023. Fiscal period 2022 included 52 weeks of activity and ended on December 30, 2022. Fiscal period 2025 is 52 weeks and will end on January 2, 2026.

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. Estimates are used for, but not limited to, revenue recognition, allowance for contract losses and doubtful accounts, stock-based compensation, income taxes, goodwill, the useful life of property, equipment and leasehold improvements, and operating lease liabilities. Actual results could differ from those estimates.

Foreign Currency Translation

The Company translates the assets and liabilities of foreign subsidiaries, whose functional currency is the local currency, at exchange rates in effect at the balance sheet date. Revenues and expenses are translated at the average rates of exchange prevailing during the year. The adjustment resulting from translating the financial statements of such foreign subsidiaries is included in accumulated other comprehensive income/(loss), which is reflected as a separate component of stockholders’ equity.

Cash Equivalents

Cash equivalents consist of highly liquid investments such as money market mutual funds, commercial paper and debt securities with original remaining maturities of three months or less from the date of purchase.

Allowances for Contract Losses and Doubtful Accounts

The Company maintains allowances for estimated losses resulting from the inability of customers to meet their financial obligations or for disputes that affect the Company’s ability to fully collect amounts due. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations or is aware of a dispute with a specific customer, a specific allowance is recorded to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers the Company recognizes allowances for doubtful accounts based upon historical write-offs, customer concentration, customer creditworthiness, current and forecasts of future economic conditions, aging of amounts due and changes in customer payment terms.

Property, Equipment and Leasehold Improvements

Property, equipment and leasehold improvements are stated at cost less accumulated depreciation and amortization. Depreciation and amortization are recognized using the straight-line method. Buildings are depreciated over their estimated useful lives ranging from 30 to 40 years. Equipment is depreciated over its estimated useful life, which generally ranges from 3 to 7 years. Leasehold improvements are amortized over the shorter of their estimated useful lives, generally 7 years, or the term of the related lease.

Impairment of Long-Lived Assets

The Company evaluates long-lived assets for impairment whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of the assets to future undiscounted cash flows to be generated by the asset. If such assets are considered to be impaired, the impairment to be recognized is measured as the amount by which the carrying amount of the assets exceeds the fair value of the assets. The Company has not recognized impairment losses on any long-lived assets in 2024, 2023 or 2022.

Goodwill

The Company assesses the impairment of goodwill annually and whenever events or changes in circumstances indicate that the carrying amount may be impaired. The Company’s annual goodwill impairment review is completed during the fourth quarter of each year. The Company evaluates goodwill for each reporting unit for impairment by assessing qualitative factors to determine whether it is necessary to perform a quantitative goodwill impairment test. The Company considers events and circumstances, including but not limited to, macroeconomic conditions, industry and market considerations, cost factors, overall financial performance, changes in management or key personnel, changes in strategy, changes in customers, a change in the composition or carrying amount of a reporting unit’s net assets and changes in the price of its common stock. If, after assessing the totality of events or circumstances, the Company determines that it is more likely than not that the fair value of a reporting unit is greater than its carrying amount, then the quantitative goodwill impairment test is not performed.

The Company completed its annual assessment for all reporting units with goodwill for 2024 and determined, after assessing the totality of the qualitative factors, that it is more likely than not that the fair value of each reporting unit is greater than its respective carrying amount. Accordingly, there was no indication of impairment of goodwill for any of the Company’s reporting units and the quantitative goodwill impairment test was not performed. The Company did not recognize any goodwill impairment losses in 2024, 2023 or 2022.

Deferred Revenues

Deferred revenues represent amounts billed to clients in advance of services provided.

Income Taxes

Income taxes are accounted for under the asset and liability method. Deferred tax assets and liabilities are recognized for the expected tax consequences of temporary differences between the tax basis and the financial reporting basis of assets and liabilities. Deferred tax assets and liabilities are measured using the enacted tax rates and laws in effect when the differences are expected to reverse. The effect on deferred tax assets and liabilities from changes in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is recorded for deferred tax assets if it is more likely than not that some portion or all of the deferred tax assets will not be realized. An uncertain tax position is recognized if it is determined that it is more likely than not to be sustained upon examination. The tax position is measured as the largest amount of benefit that is greater than 50% likely of being realized upon ultimate settlement. The Company’s policy is to recognize interest and penalties related to unrecognized tax benefits as income tax expense. Accrued interest and penalties are insignificant at January 3, 2025 and December 29, 2023.

Fair Value of Financial Instruments

Financial instruments consist of cash and cash equivalents, short-term investments, accounts receivable, other assets and accounts payable. Cash, cash equivalents and short-term investments are recorded at fair value. The carrying amount of the Company’s accounts receivable, other assets and accounts payable approximates their fair values due to their short maturities.

Stock-Based Compensation

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 of the entire award. The Company accounts for forfeitures of stock-based awards when they occur.

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 computed using the weighted-average number of common shares outstanding and potentially dilutive securities, using the treasury stock method if their effect would be dilutive.

The following schedule reconciles the denominators of the Company’s calculation for basic and diluted net income per share:

Common stock options to purchase 30,000 shares were excluded from the diluted per share calculation for 2024 due to their anti-dilutive effect. Common stock options to purchase 59,459 shares were excluded from the diluted per share calculation for 2023 due to their anti-dilutive effect. There wereno equity awards excluded from the diluted per share calculation for 2022.

Recently Adopted Accounting Pronouncements

On November 27, 2023, the Financial Accounting Standards Board (the "FASB") issued Accounting Standards Update ("ASU") 2023-07, Segment Reporting (Topic 280): Improvements to Reportable Segment Disclosures. This standard improves reportable segment disclosures by adding and enhancing interim disclosure requirements, clarifying circumstances in which entities can disclose multiple segment measures of profit or loss, providing new segment disclosure requirements for entities with asingle reportable segment, and adding the disclosure of significant segment expenses that are regularly provided to the chief operating decision maker within each reported measure of segment profit and loss. This standard is effective for all entities that are subject to Topic 280, Segment Reporting for annual periods beginning after December 15, 2023, and interim periods within fiscal years beginning after December 15, 2024. The Company has included all required disclosures within its Form 10-K for the year ended December 31, 2024. See Note 17 for further information on segment disclosures.

Recent Accounting Pronouncements Not Yet Adopted

In November 2024, the FASB issued ASU 2024-03, Income Statement - Reporting Comprehensive Income - Expense Disaggregation Disclosures (subtopic 220-40), which requires disclosure of disaggregation of certain relevant expenses included in the statements of operations on an annual and interim basis. ASU 2024-03 will be effective for our annual periods beginning January 1, 2027 and interim periods beginning January 1, 2028. The amendments must be applied retrospectively, and early adoption is permitted. The Company is currently evaluating the effects of adoption on our consolidated financial statements.

Note 2: Revenue Recognition

Substantially all of the Company’s engagements are performed under time and materials or fixed-price arrangements. For time and materials contracts, the Company utilizes the practical expedient under Accounting Standards Codification 606 –Revenue from Contracts with Customers, which states, if an entity has a right to consideration from a customer in an amount that corresponds directly with the value of the entity’s performance completed to date (for example, a service contract in which an entity bills a fixed amount for each hour of service provided), the entity may recognize revenue in the amount to which the entity has a right to invoice.

The following table discloses the percent of the Company’s revenue generated from time and materials contracts:

For fixed-price contracts, the Company recognizes revenue over time because of the continuous transfer of control to the customer. The customer typically controls the work in process as evidenced either by contractual termination clauses or by the Company’s rights to payment for work performed to date to deliver services that do not have an alternative use to the Company. Revenue for fixed-price contracts is recognized based on the relationship of incurred labor hours at standard rates to the Company’s 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.

The following table discloses the percent of the Company’s revenue generated from fixed price contracts:

Deferred revenues represent amounts billed to clients in advance of services provided. During 2024, $14,173,000 of revenues were recognized that were included in the deferred revenue balance at December 29, 2023. During 2023, $14,463,000 of revenues were recognized that were included in the deferred revenue balance at December 30, 2022. During 2022, $15,384,000 of revenues were recognized that were included in the deferred revenue balance at December 31, 2021.

Reimbursements, including those related to travel and other out-of-pocket expenses, and other similar third-party costs such as the cost of materials and certain subcontracts, are included in revenues, and an equivalent amount of reimbursable expenses are included in operating expenses. Any service fee associated with reimbursable expenses is included in revenues before reimbursements. The Company reports revenues net of subcontractor fees for certain subcontracts where the Company has determined that it is acting as an agent because its performance obligation is to arrange for and not control the provision of goods or services by another party. The total amount of subcontractor fees not included in revenues because the Company was acting as an agent were $10,970,000, $12,268,000 and $28,754,000 during 2024, 2023 and 2022, respectively.

Note 3: Cash and cash equivalents

Cash and cash equivalents consisted of the following as of January 3, 2025:

Cash and cash equivalents consisted of the following as of December 29, 2023:

Note 4: 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. There have been no transfers between fair value measurement levels during 2024, 2023 and 2022. Any transfers between fair value measurement levels would be recorded on the actual date of the event or change in circumstances that caused the transfer. The fair value of these certain financial assets and liabilities was determined using the following inputs at January 3, 2025 (in thousands):

(1)

Included in cash and cash equivalents on the Company’s consolidated balance sheet.

(2)

Included in prepaid expenses and other current assets and deferred compensation plan assets on the Company’s consolidated balance sheet.

(3)

Included in accounts payable and accrued liabilities and deferred compensation plan liabilities on the Company’s consolidated balance sheet.

The fair value of these certain financial assets and liabilities was determined using the following inputs at December 29, 2023 (in thousands):

(1)

Included in cash and cash equivalents on the Company’s consolidated balance sheet.

(2)

Included in prepaid expenses and other current assets and deferred compensation plan assets on the Company’s consolidated balance sheet.

(3)

Included in accounts payable and accrued liabilities and deferred compensation plan liabilities on the Company’s consolidated balance sheet.

Fixed income and equity trading securities as of January 3, 2025 and December 29, 2023 represent mutual funds held in the Company’s deferred compensation plan. See Note 11 for additional information about the Company’s deferred compensation plan.

The following financial instruments are not measured at fair value on the Company's consolidated balance sheet at January 3, 2025, but require disclosure of their fair values: accounts receivable, other assets and accounts payable. The estimated fair value of such instruments at January 3, 2025 approximates their carrying value as reported on the consolidated balance sheet.

There were no other-than-temporary impairments or credit losses related to available-for-sale securities during 2024, 2023 and 2022.

Note 5: Property, Equipment and Leasehold Improvements

Depreciation and amortization for 2024, 2023 and 2022 was $9,689,000, $8,916,000 and $7,079,000, respectively.

Note 6: Other Significant Balance Sheet Components

Account receivable, net

Accounts payable and accrued liabilities

Accrued payroll and employee benefits

Other accrued payroll and employee benefits consist primarily of accrued wages, payroll taxes and disability insurance programs. A portion of accrued bonuses payable will be settled by issuing fully vested restricted stock units. See Note 9 and Note 16 for additional information.

Note 7: Income Taxes

Income before income taxes includes income from foreign operations of $13,135,000, $10,353,000 and $10,646,000 for 2024, 2023 and 2022, respectively.

Total income tax expense for 2024, 2023 and 2022 consisted of the following:

The Company’s effective tax rate differs from the statutory federal tax rate of 21% as shown in the following schedule:

The tax effects of temporary differences that give rise to significant portions of the deferred tax assets and deferred tax liabilities at January 3, 2025 and December 29, 2023 are presented in the following schedule:

Management believes it is more likely than not that the results of future operations will generate sufficient taxable income to realize the net deferred tax assets.

The Company is entitled to a deduction for federal and state tax purposes with respect to employees’ stock award activity. The net reduction in taxes otherwise payable arising from that deduction has been recorded as an income tax benefit. For 2024, 2023 and 2022, the net reduction in tax payable arising from employees’ stock award activity was $2,793,000, $3,620,000 and $5,829,000, respectively.

The Company and its subsidiaries file income tax returns in the United States federal jurisdiction, California and various other state and foreign jurisdictions. The Company is no longer subject to United States federal income tax examination for years prior to 2021. The Company is no longer subject to California franchise tax examinations for years prior to 2020. With few exceptions, the Company is no longer subject to state and local or non-United States income tax examination by tax authorities for years prior to 2020.

A reconciliation of the beginning and ending amount of unrecognized tax benefits is as follows (in thousands):

Unrecognized tax benefits are included in other liabilities in the accompanying consolidated balance sheets. To the extent these unrecognized tax benefits are ultimately recognized, they will impact the effective tax rate by $1,918,000 in a future period. There areno uncertain tax positions whose resolution in the next 12 months is expected to materially affect operating results.

Note 8: Stockholders’ Equity

Preferred Stock

The Company has authorized 2,000,000 shares of undesignated preferred stock with a par value of $0.001 per share. None of the preferred shares were issued and outstanding at January 3, 2025 and December 29, 2023.

Dividends

The Company declared and paid cash dividends per share of common stock during the periods presented as follows:

Treasury Stock

Net losses related to the re-issuance of treasury stock to settle restricted stock unit and stock option awards of $720,000, $1,009,000 and $1,392,000 were recorded as a reduction to retained earnings during 2024, 2023 and 2022, respectively.

Repurchase of Common Stock

The Company repurchased 74,000 shares of its common stock for $5,710,000 during 2024. The Company repurchased 288,000 shares of its common stock for $24,208,000 during 2023. The Company repurchased 1,756,000 shares of its common stock for $155,856,000 during 2022. On February 1, 2024, the Board of Directors authorized $61,600,000 for the repurchase of the Company’s common stock. On February 22, 2022, the Board of Directors authorized $150,000,000 for the repurchase of the Company’s common stock. These repurchase programs have no expiration dates. As of January 3, 2025, the Company had remaining authorization under its stock repurchase plan of $94,290,000 to repurchase shares of common stock.

Note 9: Stock-Based Compensation

On May 29, 2008, the Company’s stockholders approved the 2008 Equity Incentive Plan and the 2008 Employee Stock Purchase Plan (“ESPP”). The 2008 Equity Incentive Plan and ESPP were previously adopted by the Company’s Board of Directors on April 8, 2008, subject to stockholder approval.

The 2008 Equity Incentive Plan allows for the award of stock options, stock awards (including stock units, stock grants and stock appreciation rights or other similar equity awards) and cash awards to officers, employees, consultants and non-employee members of the Board of Directors. The total number of shares reserved for issuance under the 2008 Equity Incentive Plan was 13,336,300 shares of common stock, subject to adjustment resulting from a stock split or the payment of a stock dividend or any other increase or decrease in the number of issued shares of the Company’s stock effected without receipt of consideration by the Company. As of January 3, 2025,2,313,565 shares were available for grant under the 2008 Equity Incentive Plan.

The ESPP allows for officers and employees to purchase common stock through payroll deductions of up to 15% of a participant’s eligible compensation. Shares of common stock are purchased under the ESPP at 95% of the fair market value of the Company’s common stock on each purchase date. Subject to adjustment resulting from a stock split or the payment of a stock dividend or any other increase or decrease in the number of issued shares of the Company’s stock effected without receipt of consideration by the Company, the total number of shares reserved for issuance under the ESPP was 1,200,000 shares of common stock. As of January 3, 2025,275,324 shares were available for grant. Weighted average purchase prices for shares sold under the ESPP plan in 2024, 2023 and 2022 were $88.70, $87.12 and $91.17, respectively.

Restricted Stock Units

The Company grants restricted stock units to employees and outside directors. 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 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 received a fully vested restricted stock unit award is 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. In the case of retirement at 59 ½ years or older, all unvested restricted stock unit awards will continue to vest provided the holder of each award performs 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.

All restricted stock units granted have dividend equivalent rights (“DER”), which entitle holders of restricted stock units to the same dividend value per share as holders of common stock. DER are subject to the same vesting and other terms and conditions as the corresponding unvested restricted stock units. DER are accumulated and paid when the underlying shares vest and are forfeited if the underlying shares are forfeited.

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. For 2024, 2023 and 2022, the Company recorded stock-based compensation expense associated with accrued bonus awards of $12,182,000, $10,445,000 and $10,365,000, respectively.

The Company recorded stock-based compensation expense associated with the unvested restricted stock unit awards of $9,634,000, $8,831,000 and $9,164,000 during 2024, 2023 and 2022, respectively. The total fair value of restricted stock unit awards vested during 2024, 2023 and 2022 was $21,286,000, $25,277,000 and $29,875,000, respectively. The weighted-average grant date fair values of restricted stock unit awards granted during 2024, 2023 and 2022 were $79.59, $99.47 and $94.24, respectively.

The number of unvested restricted stock unit awards outstanding as of January 3, 2025 is as follows(1):

(1)

Does not include employee stock purchase plans or stock option plans.

(2)

The intrinsic value is calculated as the market value as of the end of the fiscal period. As reported by the NASDAQ Global Select Market, the market value as of January 3, 2025 was $88.91.

Stock Options

The Company currently grants stock options under the 2008 Equity Incentive Plan. Options are granted for terms of 10 years and generally vest ratably over afour-year period from the grant date. In the case of retirement at 59 ½ years or older, all unvested stock options will continue to vest provided the holder of each option 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 Company grants options at exercise prices equal to the fair value of the Company’s common stock on the date of grant. All stock options have DER, which entitle holders of stock options to the same dividend value per share as holders of common stock. DER are subject to the same vesting terms as the corresponding stock options. DER are accumulated and paid in cash when the underlying stock options vest and are forfeited if the underlying stock options do not vest. During 2024, 2023 and 2022, the Company recorded stock-based compensation expense of $1,423,000, $1,081,000 and $835,000, respectively, associated with stock options.

Option activity is as follows(1):

(1)

Does not include restricted stock or employee stock purchase plans.

The total intrinsic value of options exercised during 2024, 2023 and 2022 was $8,410,000, $742,000 and $0, respectively. 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 fiscal year ended January 3, 2025, 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 January 3, 2025. This amount changes based on the fair-value of the Company’s stock.

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 United States Treasury zero coupon issues with remaining terms similar to the expected term on the options. The dividend yield assumption considers the expectation of continued declaration of dividends, offset by option holders’ DER. All stock-based payment awards are recognized on a straight-line basis over the requisite service periods of the awards.

The assumptions used to value option grants for 2024, 2023 and 2022 are as follows:

The weighted-average grant date fair value of options granted during 2024, 2023 and 2022 were $28.36, $38.29 and $26.64, respectively.

The amount of stock-based compensation expense and the related income tax benefit recognized in the Company’s consolidated statements of income for 2024, 2023 and 2022 is as follows:

As of January 3, 2025, there was $12,984,000 of unrecognized compensation cost, expected to be recognized over a weighted average period of 2.5 years, related to unvested restricted stock unit awards and $1,253,000 of unrecognized compensation cost, expected to be recognized over a weighted average period of 2.1 years, related to unvested stock options.

Note 10: Retirement Plans

The Company provides a defined contribution retirement plan for its employees whereby the Company contributes to each eligible employee’s account 7% of the employee’s eligible salary. The employee does not need to make a contribution to the plan to be eligible for the Company’s 7% contribution. To be eligible under the plan, an employee must be at least 21 years of age and be either a full-time or part-time salaried employee. The 7% Company contribution will vest 20% per year for the first five years of employment and then immediately thereafter. These contributions are made to the 401(k) plan up to the statutory maximum. Any portion of the 7% contribution in excess of the statutory maximum is made to the Company’s nonqualified deferred compensation plan. The Company’s expenses related to this plan were $11,704,000, $11,867,000 and $10,166,000 in 2024, 2023 and 2022, respectively.

Note 11: Deferred Compensation Plans

The Company maintains nonqualified deferred compensation plans for the benefit of a select group of highly compensated employees. Under these plans, participants may elect to defer up to 100% of their compensation. Company assets that are earmarked to pay benefits under the plans are held in a rabbi trust and are subject to the claims of the Company’s creditors. As of January 3, 2025 and December 29, 2023, invested amounts under the plans totaled $127,837,000 and $115,187,000, respectively. These assets are classified as trading securities and are recorded at fair market value with changes recorded as adjustments to miscellaneous income, net.

As of January 3, 2025 and December 29, 2023, vested amounts due under the plans totaled $127,622,000 and $116,564,000, respectively. Changes in the liability are recorded as adjustments to compensation and related expense. During 2024, 2023 and 2022, the Company recognized compensation expense of $14,928,000, $14,315,000 and ($14,187,000), respectively, as a result of changes in the market value of the trust assets with the same amount being recorded as other income, net.

Note 12: Leases

The Company determines if an arrangement is a lease at the inception of the arrangement. Operating leases are included in operating lease right-of-use (“ROU”) assets, current operating lease liabilities, and long-term operating lease liabilities in the Company’s consolidated balance sheet. The Company does not have any finance leases as of January 3, 2025.

ROU assets represent the Company’s right to use an underlying asset for the lease term and lease liabilities represent the Company’s obligation to make lease payments arising from the lease. Operating lease ROU assets and liabilities are recognized at commencement date based on the present value of lease payments over the lease term. As the Company’s leases do not provide an implicit rate, the Company uses its incremental borrowing rate, based on the information available at commencement date, in determining the present value of lease payments. The operating lease ROU asset also includes any lease payments made and excludes lease incentives. The Company’s lease terms include options to extend or terminate the lease when it is reasonably certain that the Company will exercise that option. Lease expense for lease payments is recognized on a straight-line basis over the lease term. The amortization of operating lease ROU assets and the change in operating lease liabilities is disclosed as a single line item in the consolidated statements of cash flows.

The Company leases office, laboratory, and storage space in 13 states and the District of Columbia, as well as in China, Hong Kong, Singapore, Switzerland and the United Kingdom. Leases for these office, laboratory, and storage facilities have terms generally ranging betweenone and 10 years. Some of these leases include options to extend or terminate the lease, none of which are currently included in the lease term as the Company has determined that exercise of these options is not reasonably certain.

The Company has a Test and Engineering Center on 147 acres of land in Phoenix, Arizona. The Company leases this land from the state of Arizona under a 30-year lease agreement that expires in January of 2028 and hasoptions to renew fortwo 15-year periods. On June 19, 2024, the Company entered into an agreement with the State of Arizona toextend this lease for 15 years beginning on January 17, 2028. The Company is currently obligated to make payments under the lease of $1,009,000 per year, which obligation will continue at that level until January 16, 2028. Beginning on January 17, 2028, the Company’s payments under the lease will increase to approximately $6,183,000 per year for the 15-year extension term with adjustments to the annual rent payment in 2033 and 2038 based on the consumer price index. As a result of this extension, the Company added an additional right-of-use asset in exchange for an operating lease liability of $48,683,000 during the second quarter of 2024. As of January 3, 2025, the Company has determined that the exercise of the second renewal option is not reasonably certain and thus that extension is not included in the lease term.

The Company’s equipment leases are included in the ROU asset and liability balances, but are not material.

The components of lease expense included in other operating expenses on the consolidated statements of income were as follows:

Supplemental cash flow information related to operating leases was as follows:

Supplemental balance sheet information related to operating leases was as follows:

Maturities of operating lease liabilities as of January 3, 2025:

Note 13: Commitments and Contingencies

The Company is a party to various 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 on its financial condition, results of operations or liquidity. However, due to the risks and uncertainties inherent in legal proceedings, actual results could differ from current expected results. All legal costs associated with litigation are expensed as incurred.

Note 14: Miscellaneous Income, Net

Miscellaneous income, net, consisted of the following:

Note 15: Industry and Client Credit Risk

The Company serves clients in various segments of the economy. During 2024, the Company provided services representing approxima tely 24%,19%,16% and 10% of revenues to clients in the consumer products industry, energy and utilities industries, the transportation industry and the chemical industry, respectively.

No single client comprised more than 10%of the Company’s revenues during 2024 or 2023. One client comprised 15% of the Company’s revenues during 2022.

Note 16: Supplemental Cash Flow Information

The following is supplemental disclosure of cash flow information:

Note 17: Segment Reporting

The Company hastwo reportable operating segments based on two primary areas of service. The Engineering and Other Scientific segment is a broad service group providing technical consulting in different practices primarily in engineering. The Environmental and Health segment provides services in the area of environmental, epidemiology and health risk analysis. This 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 is presented for selected data from the statements of income and statements of cash flows for 2024, 2023 and 2022. Segment information for selected data from the balance sheets is presented for the fiscal years ended January 3, 2025 and December 29, 2023. The Company’s CEO, the chief operating decision maker, does not review total assets in her evaluation of segment performance and capital allocation.

Revenues

Compensation and related expenses

Certain expenses are excluded from the Company’s measure of segment compensation and related expenses. These include the deferred compensation expense/benefit due to changes in value of assets associated with the Company’s deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards, and the compensation costs associated with the Company’s human resources, finance, information technology, corporate, and business development groups.

Operating Income

Certain operating expenses are excluded from the Company's measure of segment operating income. These expenses include the costs associated with the Company’s human resources, finance, information technology, corporate, and business development groups; the deferred compensation expense/benefit due to the change in value of assets associated with the Company’s deferred compensation plan; stock-based compensation associated with restricted stock unit and stock option awards; and the change in the Company’s allowance for contract losses and doubtful accounts.

Capital Expenditures

Certain capital expenditures associated with the Company's corporate cost centers and the related depreciation are excluded from the Company's segment information.

Depreciation and Amortization

Information regarding the Company’s operations in different geographical areas:

Property, Equipment and Leasehold Improvements, net

Revenues(1)

(1)

Geographic revenues are allocated based on the location of the client.

Below is a breakdown of goodwill, reported by segment as of January 3, 2025 and December 29, 2023:

There wereno changes in the carrying amount of goodwill for 2024, 2023 and 2022. There wereno goodwill impairments or gains or losses on disposals for any portion of the Company’s reporting units during 2024, 2023, and 2022.

Note 18: Subsequent Events

On February 6, 2025, the Company announced that its Board of Directors had declared a quarterly cash dividend of $0.30 per share to be paid on March 21, 2025 to all common stockholders of record as of March 7, 2025.