Hewitt Associates Reports First Quarter Results; Company Awarded Three New HR BPO Clients.LINCOLNSHIRE Lincolnshire (lĭng`kənshĭr), county (1991 pop. 573,900), 2,662 sq mi (6,895 sq km), E England, on the Humber estuary, the North Sea, and The Wash. The county seat is Lincoln. , Ill. -- Hewitt Associates Some of the information in this article may not be verified by . It should be checked for inaccuracies and modified to cite reliable sources. Hewitt Associates , Inc. (NYSE NYSE See: New York Stock Exchange :HEW), a global human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. services firm, today reported results for its fiscal 2005 first quarter ended December December: see month. 31, 2004. Results for the first quarter include the operations of Exult, Inc. since the merger closing date of October October: see month. 1, 2004. For the first fiscal quarter, Hewitt's reported net revenues (revenues before reimbursements) increased 34%, to $710.4 million, from $532.0 million in the comparable prior-year quarter. Outsourcing (1) Contracting with outside consultants, software houses or service bureaus to perform systems analysis, programming and datacenter operations. Contrast with insourcing. See netsourcing, ASP, SSP and facilities management. revenues increased 47%, and Consulting revenues increased 7%. The net favorable fa·vor·a·ble adj. 1. Advantageous; helpful: favorable winds. 2. Encouraging; propitious: a favorable diagnosis. 3. effects of foreign currency translation were $12 million. Reported net income for the first quarter increased 16%, to $34.0 million, $0.28 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, from $29.4 million, $0.30 per diluted share, in the prior-year quarter. Pro forma As a matter of form or for the sake of form. Used to describe accounting, financial, and other statements or conclusions based upon assumed or anticipated facts. The phrase pro forma information is provided to assist in the comparability of current-period results as if Hewitt Hewitt may refer to:
--Net revenues increased 11%, to $710.4 million, from $641.8 million in the pro forma prior-year first quarter. On this basis, Outsourcing revenues increased 12%, and Consulting revenues increased 7%. --Total Company operating income Operating Income The profit realized from a business' own operations. Notes: This would not include income from things such as investments in other firms. Also referred to as operating profit or recurring profit. grew 9% over the pro forma prior-year quarter; total Company operating margin Operating Margin A ratio used to measure a company's pricing strategy and operating efficiency. Calculated by: was 8.7%, compared to 8.8% in the pro forma prior-year period. --Net income grew 16%, to $34.0 million, or $0.28 per diluted share, from $29.3 million, or $0.24 per diluted share, in the pro forma prior-year first quarter. "Our first quarter results were good, and met early expectations that we had of the combination with Exult, particularly with respect to the success we've we've Contraction of we have. we've have had integrating the companies thus far," said Dale L. Gifford Dale L. Gifford was Hewitt Associates Chief Executive Officer from 1992 and Chairman of the Board of Directors between March 2002 and his retirement in October 2006. Prior to those roles, Gifford managed Hewitt's Southwest and Midwest U.S. , chairman and chief executive officer. "Outsourcing revenue growth and core earnings met our expectations, and our comprehensive HR BPO BPO Business Process Outsourcing BPO Benevolent & Protective Order (of Elks of the USA) BPO Benzoyl Peroxide BPO Business Process Optimization BPO Broker Price Opinions BPO Buffalo Philharmonic Orchestra solution continues to gain traction Traction Definition Traction is the use of a pulling force to treat muscle and skeleton disorders. Purpose Traction is usually applied to the arms and legs, the neck, the backbone, or the pelvis. , as evidenced by our strong backlog Backlog The total value of sales orders waiting to be fulfilled. Notes: This figure is used mainly in the manufacturing industry. Increases or decreases in a company's backlog indicate the future direction of sales and earnings. and growing pipeline of opportunities. Including new relationships with Rockwell Automation Rockwell Automation NYSE: ROK is an industrial automation company. Its products include Allen-Bradley controls and engineered services and Rockwell Software factory management software. The company headquarters are located in Milwaukee, Wisconsin. and two additional large clients who we expect to name shortly, we have now been awarded seven new clients since the closing of the merger on October 1." Gifford noted that Consulting revenue growth was modestly lower than expected, primarily resulting from a decline in health management consulting Noun 1. management consulting - a service industry that provides advice to those in charge of running a business service industry - an industry that provides services rather than tangible objects revenues. Gifford indicated his expectations for total Company net revenue growth of approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. 31% to 35% for the fiscal year, and reaffirmed guidance for core earnings of about $152 million to $156 million. Reported Earnings Reported net income for the first quarter increased 16%, to $34.0 million, $0.28 per diluted share, which included a $4.4 million pre-tax pre-tax adj → anterior al impuesto pre-tax adj → avant impôt(s) pre-tax adj → al lordo d'imposta charge for the fiscal 2002 Initial Public Offering (IPO (Initial Public Offering) The first time a company offers shares of stock to the public. While not a computer term per se, many founders, employees and insiders of computer companies have found this acronym more exciting than any tech term they ever heard. )-related grant of restricted stock to employees, $5.3 million of expense related to the amortization of Exult acquisition-related intangible assets Intangible Asset An asset that is not physical in nature. Notes: Examples are things like copyrights, patents, intellectual property, and goodwill. These are the opposite of tangible assets. , $4.2 million of synergies realized in connection with the merger with Exult, and $2.9 million of integration and retention costs related to the merger. Reported net income in the comparable prior-year quarter was $29.4 million, $0.30 per diluted share, and included a $4.1 million pre-tax charge for the one-time one-time adj. 1. or one·time a. Occurring or undertaken only once: a one-time winner in 1995. b. , IPO-related grant of restricted stock to employees. Pro Forma Results In accordance Accordance is Bible Study Software for Macintosh developed by OakTree Software, Inc.[] As well as a standalone program, it is the base software packaged by Zondervan in their Bible Study suites for Macintosh. with SEC regulations for the determination of pro forma results, the prior-year pro forma results have been prepared assuming that the Company's merger with Exult had occurred on October 1, 2003, and exclude all related non-recurring items. Pro forma information is provided to assist in the comparability of current-period results as if Hewitt and Exult operations were combined in fiscal 2004. Pro forma results are non-GAAP financial measures. Total Company net revenues grew 11% in the first quarter, to $710.4 million, from $641.8 million in the pro forma prior-year quarter. Adjusting for the net favorable effects of foreign currency translation of approximately $12 million, and the fiscal 2005 first quarter impacts of Exult's ReloAction acquisition and the acquisition of the majority interest of the Company's Puerto Rico Puerto Rico (pwār`tō rē`kō), island (2005 est. pop. 3,917,000), 3,508 sq mi (9,086 sq km), West Indies, c.1,000 mi (1,610 km) SE of Miami, Fla. operations ("2004 acquisitions") of approximately $7 million, total Company revenues increased 8%. Net income increased 16% in the first quarter to $34.0 million, or $0.28 per diluted share, from $29.3 million, or $0.24 per diluted share, in the pro forma comparable prior-year quarter. Core Earnings The Company presents core earnings, a non-GAAP financial measure, to provide current quarterly information on a basis that includes the results of Exult from the date of the combination, October 1, 2004, forward; includes $8.1 million of costs and $4.2 million of synergy The enhanced result of two or more people, groups or organizations working together. In other words, one and one equals three! It comes from the Greek "synergia," which means joint work and cooperative action. savings referred to above related to the merger with Exult; and excludes pre-tax charges of $4.4 million and $4.1 million for the 2005 and 2004 first quarters, respectively, related to the amortization of the one-time, IPO-related grant of restricted stock to employees. Core earnings per share also includes the shares issued in the IPO-related grant as if they had been outstanding from the beginning of fiscal 2002. Core earnings for the first quarter of fiscal 2005 increased 16% to $36.6 million, or $0.30 per diluted share, from $31.7 million, or $0.32 per diluted share, in the first quarter of 2004. Business Segment Results Outsourcing Reported Outsourcing segment revenues increased 47% in the first quarter, to $520.4 million, from $355.1 million in the prior-year quarter. On a pro forma basis, Outsourcing revenues increased 12% in the first quarter, to $520.4 million, from $465.0 million in the comparable prior-year period. Adjusting for the favorable effects of the 2004 acquisitions of approximately $7 million and the net favorable effects of foreign currency translation of approximately $4 million, Outsourcing revenues increased 10% over the pro forma comparable prior-year period. The growth was driven primarily by new clients and an increase in services to existing clients in both the HR BPO business and in benefits administration. Reported Outsourcing segment income (which excludes certain shared services shared services, n.pl the administrative, clinical, or other service functions that are common to two or more hospitals or their health care facilities and used jointly or cooperatively by them. costs not allocated to segments) increased 8%, to $85.8 million in the quarter, compared to $79.7 million in the prior-year quarter. Exclusive of the effects of integration and retention costs related to the merger with Exult of approximately $2.9 million, reported Outsourcing segment margin was 17.0%, compared to 22.4% in the prior-year quarter. The decline was principally driven by the inclusion of Exult in the current-year period. On a pro forma basis, Outsourcing segment income increased 3% in the quarter, to $85.8 million, from $83.3 million in the first quarter of 2004. Adjusting for the effects of the 2004 acquisitions of approximately $1 million, Outsourcing segment margin was 16.5%, compared to 17.9% in the pro forma comparable prior-year quarter. The margin decline is due to delayed timing of new outsourcing agreements relative to anticipated levels, increases in outside vendor expenses, and integration and retention costs related to the merger. The decline was partially offset by the absence of loss reserve charges recorded in the prior-year quarter for two initial HR BPO clients. As of December 31, 2004, the Company was serving 18.8 million end-user (job) end-user - The person who uses a computer application, as opposed to those who developed or support it. The end-user may or may not know anything about computers, how they work, or what to do if something goes wrong. benefits participants, an increase of 8%, compared to the 17.4 million benefits participants served at the end of the prior-year quarter. Total benefits participants for the quarter consists of 6.9 million health and welfare participants, 6.4 million defined benefit participants and 5.4 million defined contribution participants. As of December 31, 2004, the Company was serving 635,000 client employees with HR BPO services. With the recent announcements of HR BPO relationships with Rockwell Automation and two new additional large clients, the Company has been awarded seven new HR BPO contracts since the closing of the merger with Exult on October 1. Including these recent additions, the Company now has approximately $180 million of annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. Outsourcing revenue in backlog (defined as a signed contract or letter of intent), of which over 75% is related to HR BPO services, and the remainder is for stand-alone (jargon) stand-alone - Capable of operating without other programs, libraries, computers, hardware, networks, etc. Exactly what is absent is presumed to be obvious from context. "We only run Windows on stand-alone PCs because it's too dangerous to run it on networked ones." benefits services. The Company has approximately $225 million of annualized Outsourcing revenue in the pipeline (defined as a formal proposal outstanding), of which over 65% is related to HR BPO. Consulting Consulting segment revenues increased 7% in the first quarter, on both a reported and a pro forma basis, to $190.0 million, from $176.9 million in the first quarter of 2004. Adjusting for the net favorable effects of foreign currency translation of approximately $8 million, and the favorable effects of the acquisition of the majority interest of the Company's Puerto Rico operations of approximately $1 million, Consulting revenues increased 3% over the prior-year quarter. Growth in retirement plan management consulting and discretionary consulting services Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.) service - work done by one person or group that benefits another; "budget separately for goods and services" was offset by lower revenues in health benefit management consulting. Consulting segment income (which excludes certain shared services costs not allocated to segments) increased 16%, to $26.0 million, in the first quarter of 2005, compared to $22.4 million in the first quarter of 2004. Consulting segment margin on a reported basis was 13.7% in the first quarter, compared to 12.7% in the prior-year quarter. The increased margin was primarily due to increases in the European European emanating from or pertaining to Europe. European bat lyssavirus see lyssavirus. European beech tree fagussylvaticus. European blastomycosis see cryptococcosis. region, driven by a combination of higher revenues and a low comparable in the prior-year quarter due to facility exit costs in that period. The improvement was partially offset by lower margins in the health management consulting business due to a shift in the timing of these services to later in the year. On a pro forma basis, Consulting segment income grew 13% in the quarter, to $26.0 million, from $23.0 million in the first quarter of 2004. On this basis, Consulting segment margin was 13.7%, compared to 13.0% in the prior-year quarter. In addition to the drivers mentioned on a reported basis, pro forma results in the prior-year quarter are slightly higher due to the effect of adding Exult to the base for the allocation The apportionment or designation of an item for a specific purpose or to a particular place. In the law of trusts, the allocation of cash dividends earned by a stock that makes up the principal of a trust for a beneficiary usually means that the dividends will be treated as of certain fixed costs fixed costs, n.pl the costs that do not change to meet fluctuations in enrollment or in use of services (e.g., salaries, rent, business license fees, and depreciation). . Unallocated Shared Services Costs Reported unallocated shared services costs were $45.7 million, 6.4% of revenues, in the first quarter, compared to $42.1 million, 7.9% of revenues, in the prior-year quarter. On a pro forma basis, unallocated shared services costs in the first quarter were $45.7 million, 6.4% of revenues, compared to $45.6 million, 7.1% of revenues, in the prior-year quarter. The decline in expenses as a percentage of revenues reflects the addition of Exult, as well as increased leverage of overhead costs overhead costs see fixed costs. . Operating Margin Reported total Company operating income for the quarter was $61.7 million, and included $4.4 million of pre-tax expenses for the one-time, IPO-related grant of restricted stock to employees, and $8.1 million of costs and $4.2 million of synergy savings referred to above related to the merger with Exult. Total Company operating income for the prior-year quarter was $55.9 million and included $4.1 million of pre-tax expenses for the IPO-related grant of restricted stock to employees. Reported total Company operating margin was 8.7%, compared to 10.5% in the prior-year period. Adjusting for the $4.4 million and $4.1 million pre-tax charges for the fiscal 2002 IPO-related grant of restricted stock to employees for the fiscal 2005 and 2004 first quarters, respectively, total Company core operating income for the quarter grew 10%, to $66.2 million, from $60.0 million in the first quarter of 2004. On this basis, total Company operating margin was 9.3%, compared to 11.3% in the prior-year quarter. The decline was primarily due to lower Outsourcing margins resulting from the addition of Exult to the mix. Improved Consulting margins and leverage of centrally managed unallocated shared services costs only partially offset the decline. On a pro forma basis, total Company operating income grew 9% in the quarter, to $61.7 million, from $56.6 million in the prior-year quarter. On this basis, total Company operating margin was 8.7%, compared to 8.8% in the prior-year quarter. Lower Outsourcing margins were only partially offset by improved Consulting margins and leverage of unallocated shared services costs. Cash Flow and Investments Cash flow from operations Cash flow from operations A firm's net cash inflow resulting directly from its regular operations (disregarding extraordinary items such as the sale of fixed assets or transaction costs associated with issuing securities), calculated as the sum of net income plus noncash expenses was $50.7 million in the first quarter, compared to $45.8 million in the prior-year quarter, an increase of 11%. Free cash flow, defined as cash flow from operations less investments (which includes capital expenditures of $17.4 million, and capitalized Capitalized Recorded in asset accounts and then depreciated or amortized, as is appropriate for expenditures for items with useful lives longer than one year. software of $14.8 million) increased 15%, to $18.2 million, for the first quarter, versus $15.9 million in the prior-year quarter. (Capital expenditures in the first quarter of 2004 were $17.0 million, and capitalized software was $11.9 million.) The increase was primarily due to an improvement in the timing of receivables Receivables An asset designation applicable to all debts, unsettled transactions or other monetary obligations owed to a company by its debtors or customers. Receivables are recorded by a company's accountants and reported on the balance sheet, and they and include all debts owed collections, and the Company's improved operating performance in the quarter. The increase was partially offset by a higher annual incentive payout pay·out n. 1. The act or an instance of paying out. 2. A percentage of corporate earnings that is paid as dividends to shareholders. in fiscal 2005 for the 2004 fiscal year, versus a lower payout in fiscal 2004 from fiscal 2003 accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. . Share Repurchase Share Repurchase A program by which a company buys back its own shares from the marketplace, reducing the number of outstanding shares. This is usually an indication that the company's management thinks the shares are undervalued. During the first quarter of fiscal 2005, the Company repurchased approximately 1.7 million Class A shares at an average price of $27.85, for a total of approximately $47 million. At December 31, 2004, the Company had approximately $103 million of share repurchase authority remaining. Hewitt also announced that its board of directors has authorized au·thor·ize tr.v. au·thor·ized, au·thor·iz·ing, au·thor·iz·es 1. To grant authority or power to. 2. To give permission for; sanction: the Company to repurchase re·pur·chase tr.v. re·pur·chased, re·pur·chas·ing, re·pur·chas·es To buy (something) again. n. The act of buying something that one previously sold or owned. Noun 1. up to $300 million of Hewitt's Class A, B and C common shares, depending on market conditions and other customary factors, in the next twelve months. The repurchase may be executed executed 1) adj. to have been completed. (Example: "it is an executed contract") 2) v. to have completed or fully performed. (Example: "he executed all the promises made in the contract") 3) v. through open market purchases, tender offers, privately negotiated purchases, or other means. This program replaces the remainder of the $150 million share repurchase program previously in place. Expectations described in the Business Outlook section exclude the effect of any share repurchase. Business Outlook For fiscal 2005, the Company expects total Company net revenue growth of approximately 31% to 35%, or approximately 9% to 11% on a pro forma basis. The revenue growth forecast comprises approximately 45% to 50% growth in Outsourcing (approximately 10% to 13% on a pro forma basis) and 4% to 8% growth in Consulting. The Company continues to expect core operating margins of around 9.5%, including Outsourcing segment margins of about 14% to 15%, Consulting segment margins of greater than 18%, and unallocated shared services costs of around 6.5% of total revenue. The Company continues to expect core earnings in fiscal 2005 of about $152 million to $156 million, including about $20 million of estimated expenses related to the amortization of Exult acquisition-related intangible assets, approximately $20 million of integration and retention costs related to the merger and approximately $25 million of estimated operating synergies. The company expects free cash flow of $175 million to $190 million. Should the rate of new client acquisition change, which would impact the amount of required set-up costs, expectations for cash flow could differ. For the second quarter of fiscal 2005, the Company expects total Company net revenue growth of about 27% to 29% (approximately 7% to 8% on a pro forma basis) and core earnings of about $33 million to $35 million, including expenses related to the amortization of intangible assets and integration and retention costs, as well as estimated operating synergies. Conference Call At 7:30 a.m. (CT) today, management will host a conference call with investors to discuss first quarter results and the Company's outlook for the remainder of fiscal 2005. The live presentation is accessible through the Investor Relations Investor relations The process by which the corporation communicates with its investors. section of Hewitt's Web site at www.hewitt.com. The Webcast will be archived on the site for approximately one month. During the call, management will discuss "core earnings," and with the addition of Exult, Inc. for the first time to reported results, "pro forma earnings pro forma earnings Income not necessarily calculated in accordance with generally accepted accounting principles. For example, a company might report pro forma earnings that exclude depreciation expense and nonrecurring expenses such as restructuring costs. ," both non-GAAP financial measures. A full reconciliation of core earnings to GAAP GAAP See: Generally Accepted Accounting Principles GAAP See generally accepted accounting principles (GAAP). earnings, and the computation Computation is a general term for any type of information processing that can be represented mathematically. This includes phenomena ranging from simple calculations to human thinking. of pro forma earnings, is included in this press release and posted on our Web site. This release will be under the Investor Relations section of www.hewitt.com. About Hewitt Associates With more than 60 years of experience, Hewitt Associates (NYSE: HEW) is the world's foremost provider of human resources outsourcing and consulting services. The firm consults with more than 2,300 companies and administers human resources, health care, payroll payroll a list of employees, their salary rates, tax deductions, amounts paid, payroll tax, long service leave entitlements. and retirement programs on behalf of more than 300 companies to millions of employees and retirees worldwide. Located in 35 countries, Hewitt employs approximately 19,000 associates. For more information, please visit: www.hewitt.com. Forward-Looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. and Pro Forma Information This release contains forward-looking statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. within the meaning of the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and of 1995. Such statements include, but are not limited to, statements about the benefits of the merger between Hewitt and Exult, including future financial and operating results, Hewitt's plans, objectives, expectations and intentions and other statements that are not historical facts. Such statements are based upon the current beliefs and expectations of Hewitt's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the risk that the heritage Hewitt and Exult businesses will not be integrated successfully; the risk that the cost savings and any revenue synergies from merging Hewitt and Exult may not be fully realized or may take longer to realize than expected; disruption disruption /dis·rup·tion/ (dis-rup´shun) a morphologic defect resulting from the extrinsic breakdown of, or interference with, a developmental process. from the merger, making it more difficult to maintain relationships with clients, employees or suppliers; increased competition and its effect on pricing, spending, third-party relationships and revenues; the risk of new and changing regulations in the U.S. and internationally. Additional factors that could cause Hewitt's results to differ materially from those described in the forward-looking statements can be found in Hewitt's most recent Form 10-K Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. and most recent prospectus A document, notice, circular, advertisement, letter, or communication in written form or by radio or television that offers any security for sale, or confirms the sale of any security. filed with the Securities and Exchange Commission ("SEC") and available at the SEC's Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the site (http://www.sec.gov See .gov and GovNet. (networking) gov - The top-level domain for US government bodies. ). The unaudited pro forma combined fiscal 2004 financial statements are presented for illustrative il·lus·tra·tive adj. Acting or serving as an illustration. il·lus  tra·tive·ly adv.Adj. 1. purposes only and are not indicative indicative: see mood. of the results of operations that might have occurred had the merger with Exult actually taken place as of the dates specified spec·i·fy tr.v. spec·i·fied, spec·i·fy·ing, spec·i·fies 1. To state explicitly or in detail: specified the amount needed. 2. To include in a specification. 3. , or that may be expected to occur in the future. They do not assume any benefits from cost savings or synergies, and they do not reflect any integration costs that the combined company realized or incurred after the merger. The unaudited pro forma combined financial statements Combined financial statement A financial statement that merges the assets, liabilities, net worth, and operating figures of two or more affiliated companies. A combined statement is distinguished from a consolidated financial statement of a company and subsidiaries, which must do reflect the estimated effect of Exult's adoption of Hewitt's accounting policy of recognizing revenue based upon delivery of services. Hewitt's ongoing service revenues are typically billed and recognized on a monthly basis as services are rendered. Exult's policy was to recognize revenue for long-term Long-term Three or more years. In the context of accounting, more than 1 year. long-term 1. Of or relating to a gain or loss in the value of a security that has been held over a specific length of time. Compare short-term. multi-deliverable process management contracts for each reporting period based on the proportion of contract costs incurred to date to then-current estimates of total contract costs. The effect of changes to total estimated contract revenues or costs was recognized in the period in which the determination was made that facts and circumstances CIRCUMSTANCES, evidence. The particulars which accompany a fact. 2. The facts proved are either possible or impossible, ordinary and probable, or extraordinary and improbable, recent or ancient; they may have happened near us, or afar off; they are public or dictate TO DICTATE. To pronounce word for word what is destined to be at the same time written by another. Merlin Rep. mot Suggestion, p. 5 00; Toull. Dr. Civ. Fr. liv. 3, t. 2, c. 5, n. 410. a change of estimate. For a more detailed description of Hewitt's and the former Exult, Inc.'s revenue recognition policies, please refer to Hewitt's first quarter Form 10-Q Form 10-Q See 10-Q. .
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(Dollars in thousands, except for share and per-share amounts)
Three Months Ended
December 31,
--------------------------
2004 (1) 2003 % Change
------------ ----------- ---------
Revenues:
Revenues before
reimbursements
(net revenues) $ 710,399 $ 531,964 33.5%
Reimbursements 14,889 18,725 (20.5)%
------------ ----------- ---------
Total revenues 725,288 550,689 31.7%
------------ ----------- ---------
Operating expenses:
Compensation and related
expenses, excluding initial
public offering
restricted stock awards 420,345 340,204 23.6%
Initial public offering
restricted stock awards 4,426 4,119 7.5%
Reimbursable expenses 14,889 18,725 (20.5)%
Other operating expenses 185,644 104,726 77.3%
Selling, general and
administrative expenses 38,251 26,985 41.7%
------------ ----------- ---------
Total operating expenses 663,555 494,759 34.1%
------------ ----------- ---------
Operating income 61,733 55,930 10.4%
Other expenses, net:
Interest expense (5,458) (4,836) 12.9%
Interest income 2,289 329 n/m
Other income (expense), net (895) (1,872) (52.2)%
------------ ----------- ---------
Total other expenses,
net (4,064) (6,379) (36.3)%
------------ ----------- ---------
Income before income taxes 57,669 49,551 16.4%
Provision for income taxes 23,644 20,188 17.1%
------------ ----------- ---------
Net income $ 34,025 $ 29,363 15.9%
============ =========== =========
Earnings per share:
Basic $ 0.29 $ 0.31 (5.6)%
Diluted $ 0.28 $ 0.30 (5.5)%
Weighted average shares:
Basic 117,580,361 95,796,640 22.7%
Diluted 119,598,958 97,546,144 22.6%
n/m = not meaningful
(1) The results of Exult, Inc. are included in the Company's
results from the acquisition date of October 1, 2004.
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
PRO FORMA COMPARISON
(Unaudited)
(Dollars in thousands, except for share and per-share amounts)
Three Months Ended
December 31,
----------------------------
2004 2003 (1) % Change
------------ ------------- ---------
Pro Forma
Revenues:
Revenues before
reimbursements (net
revenues) $ 710,399 $ 641,847 10.7%
Reimbursements 14,889 18,725 (20.5)%
------------ ------------- ---------
Total revenues 725,288 660,572 9.8%
------------ ------------- ---------
Operating expenses:
Compensation and related
expenses, excluding
initial public offering
restricted stock awards 420,345 379,954 10.6%
Initial public offering
restricted stock awards 4,426 4,119 7.5%
Reimbursable expenses 14,889 18,725 (20.5)%
Other operating expenses 185,644 165,376 12.3%
Selling, general and
administrative expenses 38,251 35,824 6.8%
------------ ------------- ---------
Total operating
expenses 663,555 603,998 9.9%
------------ ------------- ---------
Operating income 61,733 56,574 9.1%
Other expenses, net (4,064) (6,871) (40.9)%
------------ ------------- ---------
Income before income taxes 57,669 49,703 16.0%
Provision for income taxes 23,644 20,378 16.0%
------------ ------------- ---------
Net income $ 34,025 $ 29,325 16.0%
============ ============= =========
Earnings per share:
Basic $ 0.29 $ 0.25 16.0%
Diluted $ 0.28 $ 0.24 16.7%
Weighted average shares:
Basic 117,580,361 117,889,466 (0.3)%
Diluted 119,598,958 119,869,085 (0.2)%
(1) In accordance with SEC regulations for the determination of
pro forma results, the prior year pro forma results assume
that the Company's merger with Exult had occurred on October
1, 2003, and exclude all related non-recurring adjustments to
allow for comparability. A reconciliation of GAAP results to
pro forma results can be found on our Web site at
www.hewitt.com.
HEWITT ASSOCIATES, INC.
CORE EARNINGS AND CORE EARNINGS PER SHARE
(Unaudited)
(Dollars in thousands, except for share and per-share amounts)
Core Earnings and Core Earnings Per Share -- a Non-GAAP Financial
Measure
The Company reported net income of $34 million, or $0.28 per
diluted share, for the three months ended December 31, 2004, in
accordance with accounting principles generally accepted in the United
States of America. In assessing operating performance, the Company
also reviews its results once all non-recurring or offering-related
adjustments made in connection with the Company's initial public
offering have been removed. We call this measure of earnings "core
earnings," a non-GAAP financial measure. We believe this measure
provides a better understanding of our underlying operating
performance. For the three months ended December 31, 2004 and 2003,
our core earnings and core EPS were:
Core Earnings and Core Earnings Three Months Ended
Per Share December 31,
--------------------------
2004 2003 % Change
------------ ----------- ---------
Income before income taxes as
reported $ 57,669 $ 49,551 16.4%
Add back amortization of one-
time initial public offering
restricted stock awards 4,426 4,119 7.5%
------------ ----------- ---------
Core pretax income $ 62,095 $ 53,670 15.7%
Adjusted income tax
expense (1) 25,459 22,005 15.7%
------------ ----------- ---------
Core net income $ 36,636 $ 31,665 15.7%
============ =========== =========
Core earnings per share:
Basic $ 0.31 $ 0.32 (4.5)%
Diluted $ 0.30 $ 0.32 (4.7)%
Core shares outstanding:
Basic (2) 119,202,328 98,362,358 21.2%
Diluted (3) 120,700,339 99,415,800 21.4%
(1) Assumes an effective tax rate of 41.0%.
(2) Shares are weighted for the time that they are outstanding as
noted below. Core shares outstanding assumes that the
following shares of common stock are outstanding:
-- For the entire period:
-- 70,819,520 shares of common stock issued to FORE
Holdings LLC for the benefit of our owners in
connection with the transition to a corporate
structure;
-- 5,789,908 shares underlying the one-time, initial
public offering restricted stock award less net
forfeitures of 408,956 and 324,786 at December 31,
2004 and 2003, respectively, and 2,199,606 and 270,294
of treasury stock at December 31, 2004 and 2003,
respectively.
-- Since the acquisition date, June 5, 2002:
-- 9,417,526 shares issued in connection with the June 5,
2002, acquisition of the actuarial and benefits
consulting business of Bacon & Woodrow.
-- Since the offering date, June 27, 2002:
-- 11,150,000 shares of common stock issued in connection
with the initial public offering weighted as of June
27, 2002;
-- 1,672,500 shares of common stock issued in connection
with the exercise of the over-allotment option for the
initial public offering weighted as of July 9, 2002.
-- Since the Exult acquisition date, October 1, 2004:
-- 22,092,086 shares of common stock issued in connection
with the acquisition weighted as of October 1, 2004.
-- Throughout the periods presented:
-- 24,801 and 10,749 shares of common stock, restricted
stock and restricted stock units issued for Director
compensation at December 31, 2004 and 2003,
respectively.
-- 221,042 and 35,808 shares of common stock issued to
fulfill the exercise of stock options at December 31,
2004 and 2003, respectively.
(3) In addition to the shares outstanding for core basic EPS, the
dilutive effect of stock options and restricted stock and
restricted stock units issued outside of the initial public
offering restricted stock award calculated using the Treasury
Stock Method as outlined in SFAS No. 128, Earnings Per Share,
was 1,498,011 shares and 1,053,442 shares for the three-month
periods ended December 31, 2004 and 2003, respectively.
HEWITT ASSOCIATES, INC.
BUSINESS SEGMENT RESULTS
(Unaudited)
(Dollars in thousands)
Business Segments Three Months Ended
December 31,
-------------------
2004 2003 % Change
--------- --------- ---------
Outsourcing (1)
Revenues before reimbursements (net
revenues) $520,364 $355,083 46.5%
Segment income 85,785 79,681 7.7%
Segment income as a percentage of
segment net revenues 16.5% 22.4%
Consulting
Revenues before reimbursements
(net revenues) $190,035 $176,881 7.4%
Segment income 26,045 22,433 16.1%
Segment income as a percentage of
segment net revenues 13.7% 12.7%
Total Company
Revenues before reimbursements
(net revenues) $710,399 $531,964 33.5%
Reimbursements 14,889 18,725 (20.5)%
-------- -------- ---------
Total revenues $725,288 $550,689 31.7%
======== ======== =========
Segment income $111,830 $102,114 9.5%
Charges not recorded at the Segment
level:
Initial public offering restricted
stock awards (2) 4,426 4,119 7.5%
Unallocated shared services costs 45,671 42,065 8.6%
-------- -------- ---------
Operating income $ 61,733 $ 55,930 10.4%
======== ======== =========
(1) On October 1, 2004, the Company acquired Exult. As such,
Exult's results are included in the Company's Outsourcing
segment results from the acquisition date.
(2) In connection with the Company's initial public offering, the
Company made a one-time restricted stock grant to associates,
which vests over time. As such, related expenses of
approximately $4 million were incurred in each of the
three-month periods ended December 31, 2004 and 2003,
respectively.
HEWITT ASSOCIATES, INC.
BUSINESS SEGMENT RESULTS
PRO FORMA COMPARISON
(Unaudited)
(Dollars in thousands)
Business Segments Three Months Ended
December 31,
-------------------
2004 2003 % Change
--------- --------- ---------
Pro Forma
Outsourcing (1)
Revenues before reimbursements (net
revenues) $520,364 $464,966 11.9%
Segment income 85,785 83,283 3.0%
Segment income as a percentage of
segment net revenues 16.5% 17.9%
Consulting
Revenues before reimbursements (net
revenues) $190,035 $176,881 7.4%
Segment income 26,045 22,988 13.3%
Segment income as a percentage of
segment net revenues 13.7% 13.0%
Total Company (1)
Revenues before reimbursements (net
revenues) $710,399 $641,847 10.7%
Reimbursements 14,889 18,725 (20.5)%
-------- -------- ---------
Total revenues $725,288 $660,572 9.8%
======== ======== =========
Segment income $111,830 $106,271 5.2%
Charges not recorded at the Segment
level:
Initial public offering restricted
stock awards (2) 4,426 4,119 7.5%
Unallocated shared services costs 45,671 45,578 0.2%
-------- -------- ---------
Operating income $ 61,733 $ 56,574 9.1%
======== ======== =========
(1) In accordance with SEC regulations for the determination of
pro forma results, the prior year pro forma results assume
that the Company's merger with Exult had occurred on October
1, 2003, and exclude all related non-recurring adjustments to
allow for comparability.
(2) In connection with the Company's initial public offering, the
Company made a one-time restricted stock grant to associates,
which vests over time. As such, related expenses of
approximately $4 million were incurred in each of the
three-month periods ended December 31, 2004 and 2003,
respectively.
HEWITT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except for share amounts)
December 31, September 30,
2004 2004
-------------- -------------
(Unaudited)
ASSETS
Current Assets
Cash and cash equivalents $ 155,257 $ 129,481
Short-term investments 260,485 183,205
Client receivables and unbilled
work in process, less allowances
of $21,158 and $21,732 at
December 31, 2004 and September
30, 2004, respectively 548,774 522,882
Prepaid expenses and other current
assets 86,084 50,546
Funds held for clients 65,050 14,693
Deferred income taxes, net 3,324 246
------------ ------------
Total current assets 1,118,974 901,053
------------ ------------
Non-Current Assets
Deferred contract costs 168,987 162,602
Property and equipment, net 250,384 236,480
Capitalized software, net 97,736 84,969
Other intangible assets, net 298,296 107,322
Goodwill, net 669,745 285,743
Other assets, net 43,127 29,805
------------ ------------
Total non-current assets 1,528,275 906,921
------------ ------------
Total Assets $ 2,647,249 $ 1,807,974
============ ============
LIABILITIES
Current Liabilities
Accounts payable $ 27,388 $ 20,909
Accrued expenses 135,218 83,226
Funds held for clients 64,038 14,693
Advanced billings to clients 137,360 106,934
Accrued compensation and
benefits 97,414 181,812
Short-term debt and current
portion of long-term debt 32,389 13,445
Current portion of capital
lease obligations 5,842 5,373
Employee deferred compensation
and accrued profit sharing 61,025 49,450
------------ ------------
Total current
liabilities 560,674 475,842
------------ ------------
Long-Term Liabilities
Deferred contract revenues 115,267 118,025
Debt, less current portion 225,660 121,253
Capital lease obligations,
less current portion 79,491 79,982
Other long-term liabilities 99,158 83,063
Deferred income taxes, net 27,863 70,456
------------ ------------
Total long-term
liabilities 547,439 472,779
------------ ------------
Total Liabilities $ 1,108,113 $ 948,621
------------ ------------
STOCKHOLDERS' EQUITY
Stockholders' Equity
Class A common stock, par value $0.01
per share, 750,000,000 shares
authorized, 57,341,894 and 32,480,669
shares issued and outstanding, as of
December 31, 2004 and September 30,
2004, respectively $ 573 $ 325
Class B common stock, par value $0.01
per share, 200,000,000 shares
authorized, 59,805,496 and 61,707,114
shares issued and outstanding as of
December 31, 2004 and September 30,
2004, respectively 598 617
Class C common stock, par value $0.01
per share, 50,000,000 shares
authorized, 4,368,162 and 4,391,862
shares issued and outstanding as of
December 31, 2004 and September 30,
2004, respectively 44 44
Restricted stock units, 134,955 and
118,363 units issued and outstanding,
as of December 31, 2004 and September
30, 2004, respectively 2,213 2,166
Additional paid-in capital 1,309,073 633,934
Cost of common stock in treasury,
2,199,906 and 526,518 shares of Class A
common stock as of December 31, 2004
and September 30, 2004, respectively (59,976) (13,414)
Retained earnings 228,455 194,430
Unearned compensation (41,561) (27,799)
Accumulated other comprehensive income 99,717 69,050
----------- -----------
Total stockholders' equity 1,539,136 859,353
----------- -----------
Total Liabilities and
Stockholders' Equity $ 2,647,249 $ 1,807,974
=========== ===========
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(Dollars in thousands)
Three Months Ended
December 31,
-----------------------
2004 2003
----------- -----------
Cash flows from operating activities:
Net income $ 34,025 $ 29,363
Adjustments to reconcile net income to net
cash provided by
Operating activities:
Depreciation 21,054 19,887
Amortization 15,778 10,628
Initial public offering
restricted stock awards 3,882 3,503
Restricted stock awards 2,984 -
Director stock remuneration 84 20
Deferred income taxes 15,641 (450)
Realized losses on short-term
investments, net (91) -
Changes in operating assets and
liabilities, net of effect of
acquisition:
Client receivables and unbilled
work in process 53,180 (4,194)
Prepaid expenses and other
current assets 179 (6,424)
Funds held for clients (17,707) 5,616
Deferred contract costs (5,900) 1,862
Accounts payable (16,476) 5,715
Accrued compensation and
benefits (101,411) (54,421)
Accrued expenses (12,841) 26,052
Funds held for clients liability 16,695 (5,616)
Advanced billings to clients 24,551 6,929
Deferred contract revenues (3,093) (4,429)
Employee deferred compensation
and accrued profit sharing 11,453 10,512
Other long-term liabilities 8,743 1,231
---------- ----------
Net cash provided by operating activities 50,730 45,784
Cash flows from investing activities:
Sales (purchases) of short-term
investments, net 32,964 14,500
Additions to property and equipment (17,435) (16,957)
Cash received from acquisitions, net of
cash paid for transaction costs 4,617 (1,123)
Increase in other assets (15,143) (12,974)
---------- ----------
Net cash provided by (used in) investing
activities 5,003 (16,554)
Cash flows from financing activities:
Proceeds from the exercise of stock
options 2,002 704
Short-term borrowings 27,756 14,491
Repayments of short-term borrowings (15,033) (4,803)
Repayments of capital lease obligations (938) (2,471)
Purchase of Class A common shares into
treasury (46,562) -
---------- ----------
Net cash provided by (used in) financing
activities (32,775) 7,921
Effect of exchange rate changes on cash and
cash equivalents 2,818 575
---------- ----------
Net increase in cash and cash equivalents 25,776 37,726
Cash and cash equivalents, beginning of
period 129,481 67,785
---------- ----------
Cash and cash equivalents, end of period $ 155,257 $ 105,511
========== ==========
Supplementary disclosure of cash paid during
the period:
Interest paid $ 6,852 $ 5,831
Income taxes paid 6,148 4,507
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