SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
| x | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE |
| SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended March 31, 2003
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 000-50161
HEWITT HOLDINGS LLC
(Exact name of registrant as specified in its charter)
| Delaware | 36-3974824 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
100 Half Day Road; Lincolnshire, Illinois 60069; 847-295-5000
(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)
N/A
(Former Name, Former Address & 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 periods as the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES ¨ NO x
Indicate by check mark whether the Registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act). YES ¨ NO x
HEWITT HOLDINGS LLC
FORM 10-Q
FOR THE PERIOD ENDED
MARCH 31, 2003
| PAGE | ||||
| PART I. |
FINANCIAL INFORMATION |
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| ITEM 1. |
Financial Statements: |
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Consolidated Balance Sheets— |
3 | |||
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Consolidated Statements of Operations— |
5 | |||
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Consolidated Statements of Cash Flows— |
6 | |||
| 7 | ||||
| ITEM 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
20 | ||
| ITEM 3. |
44 | |||
| ITEM 4. |
46 | |||
| PART II. |
OTHER INFORMATION |
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| ITEM 1. |
47 | |||
| ITEM 6. |
47 | |||
| 47 | ||||
2
PART I. FINANCIAL INFORMATION
| ITEM 1. | Financial Statements |
HEWITT HOLDINGS LLC
(Dollars in thousands)
| September 30, 2002 |
March 31, 2003 | |||||
| (Unaudited) | ||||||
| ASSETS | ||||||
| Current Assets |
||||||
| Cash and cash equivalents |
$ | 173,736 | $ | 158,521 | ||
| Client receivables and unbilled work in process, less allowances of $18,960 at September 30, 2002 and $16,973 at March 31, 2003 |
401,700 | 412,724 | ||||
| Prepaid expenses and other current assets |
34,483 | 46,193 | ||||
| Deferred income taxes, net |
16,976 | 16,973 | ||||
| Total current assets |
626,895 | 634,411 | ||||
| Non-Current Assets |
||||||
| Property and equipment, net |
499,265 | 466,586 | ||||
| Property held for sale |
— | 6,628 | ||||
| Goodwill, net |
201,286 | 217,400 | ||||
| Intangible assets, net |
170,854 | 168,507 | ||||
| Other assets, net |
40,087 | 20,697 | ||||
| Total non-current assets |
911,492 | 879,818 | ||||
| Total Assets |
$ | 1,538,387 | $ | 1,514,229 | ||
| LIABILITIES | ||||||
| Current Liabilities |
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| Accounts payable |
$ | 23,345 | $ | 15,350 | ||
| Accrued expenses |
180,951 | 181,571 | ||||
| Advanced billings to clients |
73,965 | 84,893 | ||||
| Current portion of long-term debt |
45,076 | 41,257 | ||||
| Current portion of capital lease obligations |
11,375 | 10,385 | ||||
| Employee deferred compensation and accrued profit sharing |
56,481 | 25,722 | ||||
| Total current liabilities |
391,193 | 359,178 | ||||
| Long-Term Liabilities |
||||||
| Debt, less current portion |
361,046 | 353,754 | ||||
| Capital lease obligations, less current portion |
65,166 | 84,959 | ||||
| Other long-term liabilities |
54,844 | 70,253 | ||||
| Deferred income taxes, net |
19,265 | 19,265 | ||||
| Total long-term liabilities |
500,321 | 528,231 | ||||
| Total Liabilities |
$ | 891,514 | $ | 887,409 | ||
| Minority Interest |
$ | 150,716 | $ | 162,523 | ||
3
HEWITT HOLDINGS LLC
CONSOLIDATED BALANCE SHEETS—(Continued)
(Dollars in thousands)
| September 30, 2002 |
March 31, 2003 | |||||
| (Unaudited) | ||||||
| OWNERS’ CAPITAL | ||||||
| Owners’ Capital |
||||||
| Accumulated earnings and paid-in-capital |
$ | 480,469 | $ | 446,966 | ||
| Accumulated other comprehensive income |
15,688 | 17,331 | ||||
| Total owners’ capital |
496,157 | 464,297 | ||||
| Total Liabilities, Minority Interest and Owners’ Capital |
$ | 1,538,387 | $ | 1,514,229 | ||
The accompanying notes are an integral part of these statements.
4
HEWITT HOLDINGS LLC
CONSOLIDATED STATEMENTS OF OPERATIONS (1) (2)
(Unaudited)
(Dollars in thousands)
| Three Months Ended March 31, |
Six Months Ended March 31, |
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| 2002 |
2003 (1) (2) |
2002 |
2003 (1) (2) |
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| Revenues: |
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| Revenue before reimbursements (net revenues) |
$ | 408,703 | $ | 478,056 | $ | 812,777 | $ | 958,375 | ||||||||
| Reimbursements |
6,667 | 13,928 | 13,470 | 27,534 | ||||||||||||
| Total revenues |
415,370 | 491,984 | 826,247 | 985,909 | ||||||||||||
| Operating expenses: |
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| Compensation and related expenses, excluding restricted stock awards |
225,657 | 310,468 | 444,096 | 622,786 | ||||||||||||
| Restricted stock award compensation |
— | 4,659 | — | 29,544 | ||||||||||||
| Reimbursable expenses |
6,667 | 13,928 | 13,470 | 27,534 | ||||||||||||
| Other operating expenses |
82,243 | 90,955 | 164,648 | 182,803 | ||||||||||||
| Selling, general and administrative expenses |
21,457 | 25,273 | 35,058 | 45,134 | ||||||||||||
| Total operating expenses |
336,024 | 445,283 | 657,272 | 907,801 | ||||||||||||
| Operating income |
79,346 | 46,701 | 168,975 | 78,108 | ||||||||||||
| Other expenses, net: |
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| Interest expense |
(8,149 | ) | (8,779 | ) | (15,661 | ) | (17,461 | ) | ||||||||
| Interest income |
555 | 528 | 1,217 | 1,264 | ||||||||||||
| Other income (expense), net |
(1,274 | ) | 17,577 | (1,475 | ) | 19,207 | ||||||||||
| Total other expenses, net |
(8,868 | ) | 9,326 | (15,919 | ) | 3,010 | ||||||||||
| Income before taxes, minority interest and owner distributions |
$ | 70,478 | 56,027 | $ | 153,056 | 81,118 | ||||||||||
| Provision for income taxes |
16,259 | 26,591 | ||||||||||||||
| Income after taxes and before minority interest and owner distributions |
39,768 | 54,527 | ||||||||||||||
| Minority interest |
6,667 | 10,852 | ||||||||||||||
| Income after taxes and minority interest and before owner distributions |
$ | 33,101 | $ | 43,675 | ||||||||||||
| (1) | On May 31, 2002, one of the Company’s subsidiaries, Hewitt Associates, completed its transition to a corporate structure and the owners of Hewitt Holdings who worked in the business of Hewitt Associates became employees of the subsidiary. As a result, operating expenses after May 31, 2002 include the compensation expense related to these owners and income after taxes and minority interest and before owner distributions includes the corporate income taxes of Hewitt Associates for the period after May 31, 2002. Income after taxes and minority interest and before owner distributions does not include income taxes on the Company’s remaining operations, as these taxes are the responsibility of Hewitt Holdings’ owners. Prior to May 31, 2002, Hewitt Associates operated as a group of limited liability companies and as such, no income taxes nor owner compensation expense were recorded as owners were compensated through distributions of Hewitt Associates’ earnings and were personally responsible for the income taxes on those earnings. |
| (2) | On June 5, 2002, Hewitt Associates acquired the benefits consulting business of Bacon & Woodrow and its results are included in the Company’s results from the acquisition date of June 5, 2002. |
The accompanying notes are an integral part of these statements.
5
HEWITT HOLDINGS LLC
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
| Six Months Ended March 31, |
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| 2002 |
2003 |
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| Cash flows from operating activities: |
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| Income before taxes, minority interest and owner distributions |
$ | 153,056 | ||||||
| Income after taxes and minority interest and before owner distributions |
$ | 43,675 | ||||||
| Adjustments to reconcile income before taxes, minority interest and owner distributions and income after taxes and minority interest and before owner distributions to net cash provided by operating activities: |
||||||||
| Depreciation |
39,852 | 43,164 | ||||||
| Amortization |
12,701 | 15,986 | ||||||
| Initial public offering restricted stock awards (Note 12) |
— | 26,889 | ||||||
| Deferred income taxes |
— | 3 | ||||||
| Minority interest |
— | 10,852 | ||||||
| Gain on sale of property |
— | (17,184 | ) | |||||
| Changes in operating assets and liabilities: |
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| Client receivables and unbilled work in process |
15,553 | (5,422 | ) | |||||
| Prepaid expenses and other current assets |
(1,281 | ) | (5,645 | ) | ||||
| Accounts payable |
(15,078 | ) | (9,452 | ) | ||||
| Accrued expenses |
23,316 | 8,141 | ||||||
| Advanced billings to clients |
10,954 | 10,790 | ||||||
| Due to former owners |
(224 | ) | — | |||||
| Employees’ deferred compensation and accrued profit sharing |
(23,063 | ) | (30,939 | ) | ||||
| Other long-term liabilities |
1,794 | 21 | ||||||
| Net cash provided by operating activities |
217,580 | 90,879 | ||||||
| Cash flows from investing activities: |
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| Additions to property and equipment |
(18,484 | ) | (19,135 | ) | ||||
| Cash paid for acquisition, net of cash received |
— | (6,846 | ) | |||||
| Proceeds from sale of property |
— | 67,283 | ||||||
| Increase in other assets |
(17,387 | ) | (30,730 | ) | ||||
| Net cash provided by (used in) investing activities |
(35,871 | ) | 10,572 | |||||
| Cash flows from financing activities: |
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| Capital distributions, net |
(173,842 | ) | (115,034 | ) | ||||
| Proceeds from issuance of Hewitt Associates stock |
— | 252 | ||||||
| Short-term borrowings |
— | 529 | ||||||
| Refund of tax deposits for owners |
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