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Table of Contents

 

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 June 30, 2004

 

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   8742   33-0831076

(State or Other Jurisdiction

of  Incorporation

or Organization)

  

(Primary Standard

Industrial

Classification Number)

  

(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)

 

Not Applicable

(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   ¨

 

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

 

APPLICABLE ONLY TO CORPORATE ISSUERS:

 

Indicate the number of shares outstanding of each of the issuer’s classes of common stock, as of the latest practicable date.

 

Class   Outstanding at July 22, 2004
Common Stock   110,432,019

 

 

 

Table of Contents

TABLE OF CONTENTS

 

         Page

PART I

         

Item 1.

   FINANCIAL STATEMENTS    1
    Condensed Consolidated Balance Sheets (unaudited)    1
    Condensed Consolidated Statements of Income (Loss) (unaudited)    2
    Condensed Consolidated Statements of Comprehensive Income (Loss) (unaudited)    2
    Condensed Consolidated Statements of Cash Flows (unaudited)    3
    Notes to Unaudited Condensed Consolidated Financial Statements    4

Item 2.

   MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS    10

Item 3.

   QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK    45

Item 4.

   CONTROLS AND PROCEDURES    45

PART II

         

Item 1.

   LEGAL PROCEEDINGS    46

Item 2.

   CHANGES IN SECURITIES, USE OF PROCEEDS AND ISSUER PURCHASES    46

Item 4.

   SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS    46

Item 6.

   EXHIBITS AND REPORTS ON FORM 8-K    47

SIGNATURES

   48

 

Table of Contents

PREFATORY NOTE

 

In June 2004, we announced our Agreement and Plan of Merger with Hewitt Associates, Inc. (Hewitt), which provides for us to become a wholly owned subsidiary of Hewitt. We expect the merger to close around the end of September 2004, subject to satisfaction of various conditions including approval by stockholders of each company. The closing of the merger will affect many aspects of Exult’s business. This report is prepared on an independent company basis and does not purport to anticipate the effects of the merger. In connection with the merger, holders of Exult common stock will receive .20 of a share of Hewitt Class A common stock for each share of Exult common stock. Ownership of Hewitt stock involves some of the same risks or similar kinds of risks as ownership of Exult stock, but also some additional and different risks. See “Risk Factors – Our pending acquisition by Hewitt presents a number of risks to investors.”

 

PART I. FINANCIAL INFORMATION.

 

ITEM 1. FINANCIAL STATEMENTS.

 

EXULT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED BALANCE SHEETS

(Amounts in thousands)

(Unaudited)

 

     December 31, 2003
     June 30, 2004
  
ASSETS                 

Current Assets:

                 

Cash and cash equivalents

    $ 135,026     $ 58,548  

Short-term investments

      60,781       108,622  

Accounts receivable, net

      58,720       76,943  

Prepaid expenses and other current assets

      26,973       43,486  

Assets held for sale

      100       0  
    
 

Total Current Assets

      281,600       287,599  

Fixed Assets and Direct Contract Costs, net

      69,010       71,096  

Intangible Assets, net

      60,213       70,467  

Other Assets, net

      19,401       17,642  
    
 

Total Assets

    $ 430,224     $ 446,804  
    
 
LIABILITIES AND STOCKHOLDERS’ EQUITY                 

Current Liabilities:

                 

Accounts payable

    $ 24,331     $ 19,912  

Accrued and other liabilities

      32,154       69,323  

Current portion of long-term obligations

      2,444       12,695  
    
 

Total Current Liabilities

      58,929       101,930  
    
 

Convertible Senior Notes

      106,713       106,892  

Other Long-Term Obligations, net of current portion

      12,168       605  
    
 

Total Long-Term Obligations

      118,881       107,497  
    
 

Commitments and Contingencies (Notes 7 and 9)

                 

Stockholders’ Equity:

                 

Preferred stock, $0.0001 par value;
Authorized — 15,000 shares;
Issued and outstanding — none at December 31, 2003
and June 30, 2004

      0       0  

Common stock, $0.0001 par value;
Authorized — 500,000 shares;
Issued and outstanding — 108,711
at December 31, 2003 and 110,410
at June 30, 2004

      11       11  

Additional paid-in capital

      430,583       435,339  

Deferred compensation

      (1,789 )     (2,910 )

Accumulated Other Comprehensive Income/(Loss):

                 

Foreign currency translation adjustments

      4,018       3,622  

Unrealized gain/(loss) on investments, net

      99       (429 )

Accumulated deficit

      (180,508 )     (198,256 )
    
 

Total Stockholders’ Equity

      252,414       237,377  
    
 

Total Liabilities and Stockholders’ Equity

    $ 430,224     $ 446,804  
    
 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

1

Table of Contents

EXULT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF INCOME (LOSS)

(Amounts in thousands, except per share amounts)

(Unaudited)

 

     Three Months Ended June 30,
     Six Months Ended June 30,
  
     2003
     2004
     2003
     2004
  

Revenue

    $ 120,494     $ 128,520     $ 232,660     $ 226,314  

Cost of Revenue

      108,395       116,757       210,692       223,011  
    
 
 
 

Gross Profit

      12,099       11,763       21,968       3,303  

Selling, General and Administrative Expense

      7,901       9,511       14,585       18,901  
    
 
 
 

Income (Loss) from Operations

      4,198       2,252       7,383       (15,598 )

Investment and Interest Income (Expense), net

      481       (417 )     1,330       (778 )
    
 
 
 

Income (Loss) from Continuing Operations before
Provision for Income Taxes

      4,679       1,835       8,713       (16,376 )

Provision for Income Tax Expense

      0       26       0       144  
    
 
 
 

Income (Loss) from Continuing Operations

      4,679       1,809       8,713       (16,520 )

(Loss) from Discontinued Operations

      (90 )     0       (212 )     (1,228 )
    
 
 
 

Net income (Loss)

    $ 4,589     $ 1,809     $ 8,501     $ (17,748 )
    
 
 
 

Net Income (Loss) per Common Share – Basic
Income (Loss) from Continuing Operations

    $ 0.04     $ 0.02     $ 0.08     $ (0.15 )
    
 
 
 

Loss from Discontinued Operations

    $ 0.00     $ 0.00     $ 0.00     $ (0.01 )
    
 
 
 

Net Income (Loss)

    $ 0.04     $ 0.02     $ 0.08     $ (0.16 )
    
 
 
 

Net Income (Loss) per Common Share – Diluted
Income (Loss) from Continuing Operations

    $ 0.04     $ 0.02     $ 0.08     $ (0.15 )
    
 
 
 

Loss from Discontinued Operations

    $ 0.00     $ 0.00     $ (0.01 )   $ (0.01 )
    
 
 
 

Net Income (Loss)

    $ 0.04     $ 0.02     $ 0.07     $ (0.16 )
    
 
 
 

Weighted Average Number
of Common Shares Outstanding:

                                 

Basic

      106,395       109,345       106,128       109,024  
    
 
 
 

Diluted

      115,587       114,729       114,481       109,024  
    
 
 
 

 

EXULT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)

(Amounts in thousands)

(Unaudited)

 

 

 

 

 

     Three Months Ended June 30,
     Six Months Ended June 30,
  
     2003
     2004
     2003
     2004
  

Net Income (Loss)

    $ 4,589     $ 1,809     $ 8,501     $ (17,748 )
    
 
 
 

Other Comprehensive Income (Loss):

                                 

Foreign currency translation adjustment

      813       (849 )     480       (396 )

Unrealized gain (loss) on investments, net

      127       (551 )     50       (520 )

Reclassification adjustment for realized
Gain/(loss) on investments, net

      (204 )     8       (644 )     (8 )
    
 
 
 

Total other comprehensive income (loss)

      736       (1,392 )     (114 )     (924 )
    
 
 
 

Net Comprehensive Income (Loss)

    $ 5,325     $ 417     $ 8,387     $ (18,672 )
    
 
 
 

 

See accompanying notes to unaudited condensed consolidated financial statements.

 

2

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EXULT, INC. AND SUBSIDIARIES

 

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Amounts in thousands)

(Unaudited)

 

     Six months Ended June 30,
  
     2003
     2004
  

CASH FLOWS FROM OPERATING ACTIVITIES:

                 

Net Income (Loss)

    $ 8,501     $ (17,748 )

Adjustments to reconcile net income (loss) to net cash and cash
equivalents provided by (used in) operating activities —

                 

Depreciation and amortization

      12,783       24,141  

Write off of assets held for sale

      0       100  

Discount accretion on long-term obligations

      0       628  

Net realized gains, net

      0       461  

Changes in operating assets and liabilities —