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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 September 30, 2002
 
OR
 
¨
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 
For the transition period from                                         
 
Commission file number 0-30035
 
 
EXULT, INC.
(Exact Name of Registrant as Specified in Its Charter)
 
Delaware
(State or Other Jurisdiction
of Incorporation or Organization)
  
8742
(Primary Standard
Industrial Classification Number)
  
33-0831076
(I.R.S. Employer
Identification No.)
 
121 Innovation Drive, Suite 200
Irvine, California 92612
(949) 856-8800
(Address, Including Zip Code and Telephone Number,
Including Area Code, of Registrant’s Principal Executive Offices)
 
(Former name, former address and former fiscal year, if changed since last report)
 
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  ¨
 
APPLICABLE ONLY TO CORPORATE ISSUERS:
 
Indicate the number of shares outstanding and each of the issuer’s classes of common stock, as of the latest practicable date.
 
Class
  
Outstanding at October 18, 2002
Common Stock
  
105,516,310
 
 

 
PART I.    FINANCIAL INFORMATION.
 
ITEM 1.    FINANCIAL STATEMENTS.
 
EXULT, INC. AND SUBSIDIARIES
 
CONDENSED CONSOLIDATED BALANCE SHEETS
(amounts in thousands except per share amounts)
 
      
December 31, 2001
       
September 30, 2002
  
               
(unaudited)
  
ASSETS
                      
Current Assets:
                      
Cash and cash equivalents
     
$
144,357
 
     
$
47,326
 
Investments
     
 
25,212
 
     
 
78,305
 
Accounts receivable, net
     
 
19,574
 
     
 
32,023
 
Prepaid expenses and other current assets
     
 
16,480
 
     
 
28,150
 
      
    
Total Current Assets
     
 
205,623
 
     
 
185,804
 
Fixed Assets and Direct Contract Costs, net
     
 
39,600
 
     
 
54,875
 
Intangible Assets, net
     
 
28,683
 
     
 
38,760
 
Other Assets, net
     
 
17,687
 
     
 
19,132
 
      
    
Total Assets
     
$
291,593
 
     
$
298,571
 
      
    
LIABILITIES AND STOCKHOLDERS’ EQUITY
                      
Current Liabilities:
                      
Accounts payable
     
$
9,907
 
     
$
22,966
 
Accrued liabilities and other
     
 
44,582
 
     
 
34,359
 
Current portion of long-term obligations
     
 
1,589
 
     
 
2,264
 
      
    
Total Current Liabilities
     
 
56,078
 
     
 
59,589
 
      
    
Long-Term Obligations
     
 
1,881
 
     
 
12,465
 
      
    
Commitments and Contingencies
                      
Stockholders’ Equity:
                      
Preferred stock, $0.0001 par value;
Authorized — 15,000 shares;
Issued and outstanding — none at December 31, 2001 and September 30, 2002
     
 
—
 
     
 
—
 
Common stock, $0.0001 par value;
Authorized — 500,000 shares;
Issued and outstanding — 104,195 at December 31, 2001
and 105,516 at September 30, 2002
     
 
10
 
     
 
11
 
Additional paid-in capital
     
 
419,814
 
     
 
422,584
 
Deferred compensation
     
 
(1,198
)
     
 
(476
)
Cumulative translation adjustments
     
 
(125
)
     
 
882
 
Unrealized gain on investments
     
 
—
 
     
 
793
 
Accumulated deficit
     
 
(184,867
)
     
 
(197,277
)
      
    
Total Stockholders’ Equity
     
 
233,634
 
     
 
226,517
 
      
    
Total Liabilities and Stockholders’ Equity
     
$
291,593
 
     
$
298,571
 
      
    
 
See accompanying notes to unaudited condensed consolidated financial statements.

1

 
EXULT, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
  
    
2001
     
2002
     
2001
     
2002
  
Revenue
   
$
75,332
 
   
$
102,865
 
   
$
183,114
 
   
$
298,746
 
Cost of revenue(1)
   
 
77,684
 
   
 
91,975
 
   
 
205,300
 
   
 
278,831
 
    
  
  
  
Gross profit (loss)
   
 
(2,352
)
   
 
10,890
 
   
 
(22,186
)
   
 
19,915
 
    
  
  
  
Expenses:
                                    
Selling, general and administrative(1) (Note 5)
   
 
7,683
 
   
 
7,919
 
   
 
30,573
 
   
 
20,980
 
Depreciation and amortization
   
 
2,891
 
   
 
4,793
 
   
 
9,019
 
   
 
13,115
 
    
  
  
  
Total expenses
   
 
10,574
 
   
 
12,712
 
   
 
39,592
 
   
 
34,095
 
    
  
  
  
Loss from operations
   
 
(12,926
)
   
 
(1,822
)
   
 
(61,778
)
   
 
(14,180
)
Investment and interest income, net
   
 
1,055
 
   
 
564
 
   
 
2,799
 
   
 
1,770
 
    
  
  
  
Net loss
   
$
(11,871
)
   
$
(1,258
)
   
$
(58,979
)
   
$
(12,410
)
    
  
  
  
Net loss per common share:
                                    
Basic and diluted
   
$
(0.12
)
   
$
(0.01
)
   
$
(0.63
)
   
$
(0.12
)
    
  
  
  
Weighted average number of common shares outstanding:
                                    
Basic and diluted
   
 
99,497
 
   
 
105,406
 
   
 
94,323
 
   
 
105,028
 
    
  
  
  
(1)
 
Exclusive of depreciation and amortization.
 
EXULT, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS
(amounts in thousands)
 
    
Three Months Ended September 30,
     
Nine Months Ended September 30,
  
    
2001
     
2002
     
2001
     
2002
  
Net loss
   
$
(11,871
)
   
$
(1,258
)
   
$
(58,979
)
   
$
(12,410
)
    
  
  
  
Other comprehensive income:
                                    
Foreign currency translation adjustment
   
 
688
 
   
 
358
 
   
 
103
 
   
 
1,007
 
Unrealized gain on investments
   
 
—
 
   
 
374
 
   
 
—
 
   
 
793
 
    
  
  
  
Total other comprehensive income
   
 
688
 
   
 
732
 
   
 
103
 
   
 
1,800
 
    
  
  
  
Net comprehensive loss
   
$
(11,183
)
   
$
(526
)
   
$
(58,876
)
   
$
(10,610
)
    
  
  
  
 
See accompanying notes to unaudited condensed consolidated financial statements.

2

 
EXULT, INC. AND SUBSIDIARIES
 
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
 
    
Nine Months Ended September 30,
  
    
2001
     
2002
  
CASH FLOWS FROM OPERATING ACTIVITIES:
                  
Net loss
   
$
(58,979
)
   
$
(12,410
)
Adjustments to reconcile net loss to net cash used in operating activities —
                  
Depreciation and amortization
   
 
10,849
 
   
 
15,875
 
Stock option charges
   
 
2,192
 
   
 
—
 
Write-off of intangible assets
   
 
2,165
 
   
 
—
 
Changes in operating assets and liabilities —
                  
Accounts receivable
   
 
(3,657
)
   
 
(12,449
)
Prepaid expenses and other current assets
   
 
(7,552
)
   
 
(5,352
)
Accounts payable
   
 
5,350
 
   
 
13,059
 
Accrued liabilities and other
   
 
14,050
 
   
 
(11,319
)
    
  
Net cash used in operating activities
   
 
(35,582
)
   
 
(12,596
)
    
  
CASH FLOWS FROM INVESTING ACTIVITIES:
                  
Expenditures for fixed asset purchases and direct contract costs
   
 
(14,367
)
   
 
(19,124
)
Expenditures for client contract related intangible assets
   
 
—
 
   
 
(13,600
)
Change in other assets
   
 
1,506
 
   
 
(1,618
)
Purchases of investments
   
 
(2,710
)
   
 
(206,821
)
Proceeds from investments
   
 
5,000
 
   
 
154,521
 
    
  
Net cash used in investing activities
   
 
(10,571
)
   
 
(86,642
)
    
  
CASH FLOWS FROM FINANCING ACTIVITIES:
                  
Proceeds from issuance of common stock
   
 
130,102
 
   
 
2,831
 
Payments on long-term obligations
   
 
(246
)
   
 
(485
)
    
  
Net cash provided by financing activities
   
 
129,856
 
   
 
2,346