##### Table of Contents



---

---

FORM 10-Q
________________

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

(Mark One)

|    |  |                                                                                        
|--- |  | ---------------------------------------------------------------------------------------
|[X] |  | QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended March 31, 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.)

4 Park Plaza, Suite 1000
Irvine, California 92614
(949) 250-8002
(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 [   ]

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 March 31, 2002
|             |  |                              
|Common Stock |  | 104,812,639                  



---

---





---

TABLE OF CONTENTS



|                               |                                                                                                |                                            |  |  |  |  |  | 
|------------------------------ | ---------------------------------------------------------------------------------------------- | ------------------------------------------ |  |  |  |  |  | 
|PART I. FINANCIAL INFORMATION.
|                               | Item 1. FINANCIAL STATEMENTS.                                                                 
|                               |                                                                                                | CONSOLIDATED BALANCE SHEETS               
|                               |                                                                                                | CONSOLIDATED STATEMENTS OF OPERATIONS     
|                               |                                                                                                | CONSOLIDATED STATEMENTS OF CASH FLOWS     
|                               |                                                                                                | NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
|                               | ITEM 2. MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|                               | ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.                           
|PART II. OTHER INFORMATION.   
|                               | ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.                                                     
|SIGNATURES                    
|EXHIBIT INDEX                 
|EXHIBIT 10.40                 



---



##### Table of Contents






PART I. FINANCIAL INFORMATION.




Item 1. FINANCIAL STATEMENTS.

EXULT, INC.




CONSOLIDATED BALANCE SHEETS
(amounts in thousands except per share amounts)

|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |          |             |         | 
|-------------------------------------------- | ----------------------------------------- | ------------------------------------------------------------------------------------------------------------------------------------------------------------- | ------------------------------------------ | -------- | ----------------- | ------- | -------------- | -------- | ----------- | ------- | 
|                                             |                                           |                                                                                                                                                               |                                            |          | December 31, 2001 |         | March 31, 2002
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |               
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |          | (unaudited)
|ASSETS                                       |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|Current Assets:                              |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             | Cash and cash equivalents                 |                                                                                                                                                               | $                                          | 166,888  |                   |         | $              | 132,166  |            
|                                             | Investments                               |                                                                                                                                                               |                                            | 2,681    |                   |         |                | 2,636    |            
|                                             | Accounts receivable                       |                                                                                                                                                               |                                            | 19,574   |                   |         |                | 23,455   |            
|                                             | Prepaid expenses and other current assets |                                                                                                                                                               |                                            | 16,694   |                   |         |                | 24,957   |            
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             |                                           |                                                                                                                                                               | Total Current Assets                       |          |                   | 205,837 |                |          |             | 183,214 | 
|Fixed assets and service delivery costs, net |                                           |                                                                                                                                                               | 39,600                                     |          |                   |         | 41,581         |         
|Intangibles assets, net                      |                                           |                                                                                                                                                               | 28,683                                     |          |                   |         | 40,842         |         
|Other assets                                 |                                           |                                                                                                                                                               | 17,687                                     |          |                   |         | 18,257         |         
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             |                                           |                                                                                                                                                               | Total Assets                               |          | $                 | 291,807 |                |          | $           | 283,894 | 
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|LIABILITIES AND STOCKHOLDERS EQUITY         |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|Current Liabilities:                         |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             | Accounts payable                          |                                                                                                                                                               | $                                          | 9,907    |                   |         | $              | 14,413   |            
|                                             | Accrued liabilities and other             |                                                                                                                                                               |                                            | 48,266   |                   |         |                | 41,161   |            
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             |                                           |                                                                                                                                                               | Total Current Liabilities                  |          |                   | 58,173  |                |          |             | 55,574  | 
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|Commitments and Contingencies                |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|Stockholders Equity:                        |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             | Preferred stock, $0.0001 par value;       |                                                                                                                                                               |                                            |          |                   |         |                |          |            
|                                             |                                           | Authorized  15,000 shares;                                                                                                                                   |                                            |          |                   |         |                |          |             |        
|                                             |                                           | Issued and outstanding  none at December 31, 2001
and March 31, 2002 (unaudited)                                                                             |                                            |          |                  |         |                |          |            |        
|                                             |                                           | Common
stock, $0.0001 par value;
Authorized  500,000 shares;
Issued and outstanding  104,195 at December 31,
2001 and 104,813 at March 31, 2002 (unaudited) |                                            |          | 10                |         |                |          | 10          |        
|                                             | Additional paid-in capital                |                                                                                                                                                               |                                            | 419,814  |                   |         |                | 421,457  |            
|                                             | Deferred compensation                     |                                                                                                                                                               |                                            | (1,198   | )                 |         |                | (972     | )          
|                                             | Cumulative translation adjustments        |                                                                                                                                                               |                                            | (125     | )                 |         |                | (684     | )          
|                                             | Accumulated deficit                       |                                                                                                                                                               |                                            | (184,867 | )                 |         |                | (191,491 | )          
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             |                                           |                                                                                                                                                               | Total Stockholders Equity                 |          |                   | 233,634 |                |          |             | 228,320 | 
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         
|                                             |                                           |                                                                                                                                                               | Total Liabilities and Stockholders Equity |          | $                 | 291,807 |                |          | $           | 283,894 | 
|                                             |                                           |                                                                                                                                                               |                                            |          |                   |         |                |         

The accompanying notes are an integral part of these consolidated balance sheets.

1



---



##### Table of Contents



EXULT, INC.




CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except per share amounts)
(unaudited)

|                                                      |                                     |   |                |        |                              |        |        |         |   |        | 
|----------------------------------------------------- | ----------------------------------- | - | -------------- | ------ | ---------------------------- | ------ | ------ | ------- | - | ------ | 
|                                                      |                                     |   |                |        | Three Months Ended March 31,
|                                                      |                                     |   |                |        |                             
|                                                      |                                     |   |                |        | 2001                         |        | 2002  
|                                                      |                                     |   |                |        |                              |        |       
|Revenue                                               |                                     | $ | 43,464         |        |                              | $      | 95,017 |        
|Cost of revenue                                       |                                     |   | 54,855         |        |                              |        | 91,356 |        
|                                                      |                                     |   |                |        |                              |        |        |        
|Gross profit (loss)                                   |                                     |   | (11,391        | )      |                              |        | 3,661  |        
|                                                      |                                     |   |                |        |                              |        |        |        
|Expenses:                                             |                                     |   |                |        |                              |        |        |        
|                                                      | Selling, general and administrative |   |                | 8,431  |                              |        |        | 7,059   |  
|                                                      | Depreciation and amortization       |   |                | 3,562  |                              |        |        | 3,867   |  
|                                                      |                                     |   |                |        |                              |        |        |        
|                                                      |                                     |   | Total expenses |        |                              | 11,993 |        |         |   | 10,926 | 
|                                                      |                                     |   |                |        |                              |        |        |        
|Loss from operations                                  |                                     |   | (23,384        | )      |                              |        | (7,265 | )      
|                                                      | Interest income, net                |   |                | 1,077  |                              |        |        | 641     |  
|                                                      |                                     |   |                |        |                              |        |        |        
|Net loss                                              |                                     | $ | (22,307        | )      |                              | $      | (6,624 | )      
|                                                      |                                     |   |                |        |                              |        |        |        
|Net loss per common share:                            |                                     |   |                |        |                              |        |        |        
|                                                      | Basic and diluted                   |   | $              | (0.24  | )                            |        | $      | (0.06   | )
|                                                      |                                     |   |                |        |                              |        |        |        
|Weighted average number of common shares
outstanding: |                                     |   |                |        |                              |        |        |        
|                                                      | Basic and diluted                   |   |                | 91,186 |                              |        |        | 104,592 |  
|                                                      |                                     |   |                |        |                              |        |        |        

The accompanying notes are an integral part of these consolidated financial statements.

2



---



##### Table of Contents



EXULT, INC.




CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
(unaudited)

|                                               |                                                                                        |                                           |                                       |         |                              |        |         |         |        |         |  
|---------------------------------------------- | -------------------------------------------------------------------------------------- | ----------------------------------------- | ------------------------------------- | ------- | ---------------------------- | ------ | ------- | ------- | ------ | ------- | -
|                                               |                                                                                        |                                           |                                       |         | Three Months Ended March 31,
|                                               |                                                                                        |                                           |                                       |         |                             
|                                               |                                                                                        |                                           |                                       |         | 2001                         |        | 2002   
|                                               |                                                                                        |                                           |                                       |         |                              |        |        
|CASH FLOWS FROM OPERATING ACTIVITIES:          |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               | Net loss                                                                               |                                           | $                                     | (22,307 | )                            |        | $       | (6,624  | )     
|                                               | Adjustments to reconcile net loss to net cash
used in operating activities            |                                           |                                       |         |                              |        |         |         |       
|                                               |                                                                                        | Depreciation and amortization             |                                       |         | 4,019                        |        |         |         | 4,760  |        
|                                               | Changes
in operating assets and liabilities                                           |                                           |                                       |         |                              |        |         |         |       
|                                               |                                                                                        | Investments                               |                                       |         | 2,852                        |        |         |         | 45     |        
|                                               |                                                                                        | Accounts receivable                       |                                       |         | 3,294                        |        |         |         | (3,881 | )      
|                                               |                                                                                        | Prepaid expenses and other current assets |                                       |         | (553                         | )      |         |         | (8,263 | )      
|                                               |                                                                                        | Other assets                              |                                       |         | 564                          |        |         |         | (590   | )      
|                                               |                                                                                        | Accounts payable                          |                                       |         | 2,036                        |        |         |         | 4,506  |        
|                                               |                                                                                        | Accrued liabilities and other             |                                       |         | 5,008                        |        |         |         | (7,207 | )      
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               |                                                                                        |                                           | Net cash used in operating activities |         |                              | (5,087 | )       |         |        | (17,254 | )
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|CASH FLOWS FROM INVESTING ACTIVITIES:          |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               | Expenditures for fixed asset purchases,
service delivery systems and intangible assets |                                           |                                       | (5,141  | )                            |        |         | (18,649 | )     
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|CASH FLOWS FROM FINANCING ACTIVITIES:          |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               | Proceeds from issuance of common stock                                                 |                                           |                                       | 875     |                              |        |         | 1,643   |       
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|EFFECT OF EXCHANGE RATE CHANGES ON CASH        |                                                                                        |                                           | (148                                  | )       |                              |        | (462    | )      
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|Net decrease in cash and cash equivalents      |                                                                                        |                                           | (9,501                                | )       |                              |        | (34,722 | )      
|Cash and cash equivalents, beginning of period |                                                                                        |                                           | 94,890                                |         |                              |        | 166,888 |        
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|Cash and cash equivalents, end of period       |                                                                                        | $                                         | 85,389                                |         |                              | $      | 132,166 |        
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|SUPPLEMENTAL CASH FLOW INFORMATION:            |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               | Cash paid during the period for:                                                       |                                           |                                       |         |                              |        |         |         |       
|                                               |                                                                                        | Interest                                  |                                       | $       | 9                            |        |         | $       | 40     |        
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               |                                                                                        | Income taxes                              |                                       | $       | 152                          |        |         | $       | 120    |        
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        
|SUMMARY OF NON-CASH FINANCING ACTIVITIES:      |                                                                                        |                                           |                                       |         |                              |        |         |        
|                                               | Acquisition of equipment through capital lease                                         |                                           | $                                     |        |                              |        | $       | 102     |       
|                                               |                                                                                        |                                           |                                       |         |                              |        |         |        

The accompanying notes are an integral part of these consolidated financial statements.

3



---



##### Table of Contents



EXULT, INC.




NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

1. Summary of Significant Accounting Policies

Basis of Presentation

The unaudited consolidated financial statements of Exult, Inc. and
subsidiaries (Exult or the Company) have been prepared by Exults
management and reflect all adjustments that, in the opinion of management, are
necessary for a fair presentation of the interim periods presented. The results
of operations for the three months ended March 31, 2002 are not necessarily
indicative of the results to be expected for any subsequent periods or for the
entire year ending December 31, 2002. Certain information and footnote
disclosures normally included in financial statements prepared in accordance
with generally accepted accounting principles have been condensed or omitted
under the Securities and Exchange Commissions rules and regulations. A
consolidated statement of comprehensive loss has not been presented because the
components of comprehensive loss are not material.

These unaudited consolidated financial statements and notes included
herein should be read in conjunction with Exults audited consolidated
financial statements and notes for the year ended December 31, 2001 which were
included in its Annual Report on Form 10-K filed with the Securities and
Exchange Commission. Certain amounts in the 2001 financial statements have been
reclassified to conform with the 2002 presentation.

Accounting Estimates

The preparation of financial statements in conformity with accounting
principles generally accepted in the United States requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosures of contingencies at the date of the financial
statements as well as the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from estimated amounts.

Segment Information and Concentration of Revenue/Credit Risk

Management has determined that the Company operates within a single
operating segment. For the three months ended March 31, 2001 and 2002, 72% and
87%, respectively, of the Companys revenue has been derived from within the
United States with the balance being derived primarily from within the United
Kingdom.

During the three months ended March 31, 2001, two of the Companys process
management clients accounted for 59% and 27% of revenue. During the three
months ended March 31, 2002, three of the Companys process management clients
accounted for 46%, 30% and 13% of revenue. No other client accounted for more
than 10% of revenue in the 2001 and 2002 periods. The Company believes that the
resulting concentration of credit risk in its receivables, with respect to the
limited client base, is substantially mitigated by the credit evaluation
process. To date, bad debt write-offs have not been significant.

Intangible Assets, Net

Intangible assets consist of the portion of the purchase price of assets
in excess of the fair value of identifiable net tangible assets acquired.
Amortization is computed using the straight-line method over the estimated
useful lives of the assets. Certain of the intangible assets are being
amortized as a reduction of revenue. For the quarter ended March 31,
2002, the Company expended $13.6 million in cash for the acquisition
of intangible assets.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and is effective for fiscal years
beginning after December 15, 2001, with early adoption permitted in certain
instances for entities with fiscal years beginning after March 15, 2001. The
Company adopted the provisions of SFAS 142 as of January 1, 2002. Adoption did
not have a material impact on the Companys financial condition and results of
operations.

4



---



##### Table of Contents



EXULT, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(continued)

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of assets that result from the acquisition, construction,
development and/or the normal operation of an asset, except for certain
obligations of lessees. SFAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
asset. SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002, with earlier application being encouraged. The
Company does not expect the adoption of SFAS 143 to have a material impact on
its financial condition and results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of assets. SFAS 144 supersedes SFAS
No. 121, Accounting for the Impairment of Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously
defined in that Opinion). The provisions of SFAS 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
with early application encouraged and generally are to be applied
prospectively. The Company adopted the provisions of SFAS 144 as of January 1,
2002. Adoption did not have a material impact on the Companys financial
condition and results of operations.

2. Income Taxes

The Company did not record a tax provision for the three-month periods
ended March 31, 2001 and 2002, as it had incurred only net operating losses as
of these dates. A full valuation allowance is provided against the tax benefit
generated by the net operating losses because of the uncertainty of realizing
the deferred tax assets associated therewith. As of March 31, 2002, Exult has
$65.2 million of deferred tax assets, arising primarily from its net operating
losses, for which it has fully reserved through its valuation allowance.

3. Net Loss Per Share

The net loss per share, basic and diluted, for the three-month periods
ended March 31, 2001 and 2002, was computed using the weighted average number
of shares of Common Stock outstanding during the respective periods. The impact
of all outstanding warrants and stock options to purchase Common Stock were
excluded from the respective computations as their impact is antidilutive.

5



---



##### Table of Contents






|ITEM 2. | MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.
|------- | --------------------------------------------------------------------------------------

This report contains forward-looking statements that are based on our
current expectations, assumptions, estimates and projections about our company
and our industry. When used in this report, the words may, will, should,
predict, continue, plans, expects, anticipates, estimates,
intends and similar expressions are intended to identify forward-looking
statements. These statements include, but are not limited to, statements under
the caption Managements Discussion and Analysis of Financial Condition and
Results of Operations and elsewhere in this report concerning, among other
things, our goals and strategies, the anticipated scope and result of our
business operations, and our ability to:



| |  |  | complete development of our service delivery infrastructure;                                                                                      
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | obtain new comprehensive process management contracts;                                                                                            
|
| |  |  | successfully implement our comprehensive Exult eHRSM solutions for
our existing clients and scale our service offering across a broad
client base;
|
| |  |  | establish new client service centers;                                                                                                             
|
| |  |  | increase revenue, control expenditures, recognize economies of scale and achieve profitability; and                                               
|
| |  |  | expand our sales and marketing capabilities and our technology and general operating infrastructure.                                              

These forward-looking statements are subject to risks and uncertainties
that could cause actual results to differ materially from those projected. We
have not yet proven our business model and must invest substantial resources to
build our service capabilities. It is not certain that our Exult eHR solution
will perform as anticipated. The market in which we operate is competitive and
other service providers may be more effective at selling or delivering human
resources process management services. These and other risks and uncertainties
are described in this report under the heading Risk Factors and in our other
filings made from time to time with the Securities and Exchange Commission. The
cautionary statements made in this report should be read as being applicable to
all related forward-looking statements wherever they appear in this report.
These statements are only predictions. We cannot guarantee future results,
levels of activity, performance or achievements. We assume no obligation to
publicly update or revise these forward-looking statements for any reason, or
to update the reasons actual results could differ materially from those
anticipated in these forward-looking statements, even if new information
becomes available in the future.

OVERVIEW

Our primary source of revenue is fees we earn for providing our HR
business process management services under long-term contracts. We also receive
additional revenue from our consulting services. We recognize revenue for our
services as the services are performed. We fulfill some of our service delivery
obligations through use of third-party vendors, including vendors that had
previously contracted directly with our clients and were then assigned to us
for management in connection with our process management services. We may
continue to use these vendors, hire replacement vendors, or provide some of
these services directly; however, we are responsible for the delivery and
acceptability of these third-party vendor services. We include in revenue all
charges for services that we are contractually obligated to provide to our
clients, whether we provide these services directly using our own personnel or
through third-party vendors. We pay the charges of the third-party vendors that
provide services for which we are responsible to our clients, and such costs
are included in our cost of revenue. In many cases our initial cost of paying
these vendors is equal to our revenue attributable to their services. In order
to realize a profit from revenue received in connection with these third-party
vendor contracts we must reduce these vendor costs by rationalizing the
vendors, improving efficiencies, obtaining more favorable pricing, or
performing the services ourselves at a lower cost.

To date, we have typically generated leads for potential process
management clients through our management, existing outsourcing and consulting
relationships, our board of directors, third-party consultants, contact with
key executives at Global 500 corporations or direct communication from such
companies. After initial discussions with and qualification of the potential
client, we typically enter into a non-disclosure agreement. If subsequent
discussions result in a mutual desire to pursue a transaction, we then
typically enter into a non-binding letter of intent with the client which
establishes a framework for due diligence and contract negotiations. Our letter
of intent may provide for reimbursement of some or all of our direct and
indirect costs incurred during this process.

6



---



##### Table of Contents



Our contracts are generally structured so that we receive a fee that is no
greater than our clients historical cost of operating the functions assumed by
us. We are generally required to provide a minimum savings to the client on the
labor-based portion of the contract that we refer to as direct after about
one year from contract signing, and, we may be required to share further
savings with our clients in negotiated gain sharing arrangements for the third
party portion of the contract covering services previously subcontracted by
the client. The amount of minimum savings is determined in accordance with the
terms of the applicable contracts. After we sign a contract with a client, we
move its HR processes to our service platforms to increase efficiencies and
reduce costs. For brownfield clients that had their own centralized HR
processing capabilities, this process has involved two steps: first,
transition of the clients processes to our control, and second, transformation
of client processes to our own methodologies. More recently, for new
greenfield clients we are able to transform distributed client processes by
moving them directly to our platforms in a single step promptly after contract
signing. Typically the costs we have incurred during the early part of the
contract term to move client services to our platforms and provide services
have exceeded the revenue recognized for that client during the same period. By
operating client processes on a long-term contract basis using our service
platforms and methodologies, we seek to reduce the costs of service delivery
below the minimum savings provided in the contract, recover the excess costs
incurred during the early part of the contract term and realize a profit for
the contract period.

We incurred a net loss of $10.7 million in 1999, exclusive of a non-cash
warrant charge of $4.5 million, and a net loss of $64.9 million in 2000,
exclusive of a non-cash warrant charge of $29.9 million. Our net loss in 2001
was $56.2 million, exclusive of business optimization costs of $18.5 million,
and our net loss for the three months ended March 31, 2002 was $6.6 million.
We may incur losses in future periods. In the next two years, we anticipate
ongoing significant expense to fund the development and expansion of our
technology and general operating infrastructures. We may also make substantial
investments to pursue, obtain and transition new client contracts, and to
develop new service center capacity to accommodate any growth we may achieve
beyond the capacity of our existing service center infrastructure or to expand
geographically to better serve our clients or compete more effectively. To the
extent that revenue does not increase at a rate commensurate with our
increasing costs and expenditures, our future operating results and liquidity
could be materially and adversely affected.

Critical Accounting Policies and Estimates

Exults discussion and analysis of its financial condition and results of
operations are based upon Exults consolidated financial statements, which have
been prepared in accordance with accounting principles generally accepted in
the United States. The preparation of these financial statements requires Exult
to make estimates and judgments that affect the reported amounts of assets,
liabilities, revenues and expenses, and related disclosure of contingent assets
and liabilities. On an on-going basis, Exult evaluates its estimates, including
those related to long-term service contracts, bad debts, intangible assets,
income taxes, contingencies and litigation. Exult bases its estimates on
historical experience and on various other assumptions that are believed to be
reasonable under the circumstances, the results of which form the basis for
making judgments about the carrying values of assets and liabilities. Actual
results may differ from these estimates under different assumptions or
conditions. Exult believes the following critical accounting policies affect
its more significant judgments and estimates used in the preparation of its
consolidated financial statements.

Exult recognizes revenue and profit as work progresses on long-term
contracts based upon the proportion of costs incurred to the total expected
costs. This method relies to some degree on estimates of total expected
contract revenue and costs. Exult follows this method because reasonably
dependable estimates of the revenue and costs applicable to various stages of a
contract can be made. Recognized revenue and profit are subject to revisions as
the contract progresses to completion. Revisions in profit estimates that would
result in any contract losses are charged to income in the period in which the
facts that give rise to the revision become known.

Exult maintains allowances for doubtful accounts for estimated losses
resulting from the inability of its customers to make required payments. If the
financial condition of Exults customers were to deteriorate, resulting in an
impairment of their ability to make payments, additional allowances may be
required.

Exult records a valuation allowance to reduce its deferred tax assets to
the amount that is more likely than not to be realized. While Exult has
considered future taxable income and ongoing prudent and feasible tax planning
strategies in assessing the need for the valuation allowance, in the event
Exult was to determine that it would be able to realize its deferred tax assets
in the future in excess of its net recorded amount, an adjustment to the
deferred tax asset would increase income in the period such determination was
made. Likewise, should Exult determine that it would not be able to realize all
or part of its net deferred tax asset in the future, an adjustment to the
deferred tax asset would be charged to income in the period such determination
was made. As of March 31, 2002, Exult has $65.2 million of deferred tax assets,
arising primarily from its net operating losses, for which it has fully
reserved through its valuation allowance.

7



---



##### Table of Contents



RISK FACTORS

Any of the following risks and uncertainties could adversely affect our
business, financial condition or results of operations. Other risks and
uncertainties may also affect our business. The risks described in this
report, and other risks that may become apparent from time to time, should be
considered in assessing the Companys prospects.

We have a limited operating history and unproven business model.

We entered into our first process management contract in December 1999 and
we are still striving to prove that we can sustain growth and operate
profitably. Our success depends on our ability to develop and implement a high
quality, cost-effective service offering, operate it profitably, produce
satisfactory results for our clients and attract new clients. While we have met
our development objectives to date, and we believe our current clients have
perceived our services as beneficial, we have not been in operation long enough
to judge whether we can accomplish these objectives. Accordingly, our revenue
and income potential and future operating results are uncertain.

We currently depend on a small number of clients for substantially all of our
revenue. If any of these clients were to substantially reduce or stop using our
services, or if we experience significant, repeated performance failures in
providing services to these clients, our reputation and future revenues would
be seriously impaired.

Bank of America Corporation, BP p.l.c., International Paper Company,
Prudential Financial and Unisys Corporation are the first clients for which we
are offering a comprehensive HR process management solution, and we anticipate
revenue from each of these contracts will represent a substantial portion of
our revenue through 2002 and possibly in future periods. For the first three
months of fiscal 2002, BP, Bank of America, International Paper and Prudential
Financial collectively accounted for approximately 90% of our revenues. Our
contracts with these clients are still relatively new and our service offering
is not yet fully implemented for all of these clients. We believe our ability
to secure future clients and revenues will be largely dependent upon our
ability to perform and achieve the contracted service levels and cost savings
for these clients. Each of our process management contracts can be terminated
for material breach, significant or repeated performance failures or in certain
instances for convenience upon required notice and, in many cases, payment of
specified early termination penalties. In addition, Bank of America has the
right to terminate its agreement with us if our current Chief Executive Officer
or our current Chief Operating Officer ceases to be employed by us (other than
due to non-performance, death or disability) within one year after specified
contract milestones are met. The early termination penalties are designed to
help defray the expenses we incur in implementing the contract, including
diligence, transition, set-up and installation costs, and may provide some
compensation to us, but they are not adequate substitutes for the revenue or
profit that could be lost as a result of contract termination. If any of these
clients were to substantially reduce or stop using our services, or if we
experience significant, repeated performance failures, our reputation and
future revenues would be seriously impaired. We expect to face similar risks
with other significant clients until our business model and service offering
are more firmly established.

Our client contracts and vendor relationships may not yield the results we expect.

We try to maintain a reasonably current estimate of the aggregate
anticipated revenue for our entire contract base. In addition, we may from
time to time provide estimates of revenues we expect to receive from specific
contracts over their anticipated duration. These estimates change as our
contracts evolve, and a number of factors can cause our revenue expectations to
decrease. These factors include client workforce contraction; insourcing or
retention by the client of processes previously contracted to us (subject to
our approval under the terms of the contract); non-assignment to us of
third-party vendor contracts that we initially envisioned taking over from the
client, either because the client chooses to retain a direct relationship with
the vendor or the vendor refuses to provide services within the scope of our
contract; early termination of client contracts in whole or part; and other
circumstances within the clients organization. In addition, our receipt of
revenue under any particular contract may be delayed if transition of the
clients processes to our infrastructure takes longer than anticipated. While
our contracts with our clients may contemplate further expansion, this may not
occur, and if it does occur, significant additional expenditures by us may be
required to fund such expansion. In addition, our process management contracts
generally permit our clients to impose financial penalties against us for
specified material performance failures.

A significant part of our revenue is attributable to services we offer to
our clients through third-party vendors that provide specialized services, such
as benefits administration and relocation services. We select some of these
vendors and assume others from relationships established by our clients before
contracting with us. These vendors may act as subcontractors or vendors to us
or provide services directly to our clients under our management; in either
case, we are responsible for the delivery and acceptability of these services
and errors or omissions by our vendors could cause us to have liability to our
clients in excess of the limits of liability

8



---



##### Table of Contents



the vendors negotiate with us. If our clients are not satisfied with the
services provided by these third-party vendors, they may be entitled to recover
penalties or to terminate their agreements with us, which could seriously harm
our business. In many cases our initial cost of paying these vendors is equal
to our revenue attributable to their services. In order to generate target
operating margins and realize a profit from revenue received in connection with
these third-party vendor contracts we must reduce these vendor costs by
rationalizing the vendors, improving efficiencies, obtaining more favorable
pricing, or performing the services ourselves at a lower cost. We plan to
achieve these efficiencies and cost reductions through vendor management and
consolidation. This may involve delay as existing contracts run their course
and we attempt to renegotiate with or replace these vendors. In addition, at
the conclusion of these third-party contracts, we must negotiate new
third-party contracts, or provide these services ourselves, at the same or more
favorable rates in order to generate our target operating margins. We are
still developing our third-party vendor management capabilities, and to date
our third-party business has not generated significant operating margins.

We might not be able to achieve the cost savings required to become profitable under our contracts.

We provide our services for fixed fees that are generally equal to or less
than our clients historical costs to provide for themselves the services we
contract to deliver. Additionally, our contracts generally require one or more
percentage reductions of this fixed fee during the contract term, generally
beginning upon completion of process transitions or approximately one year
after we commence services, irrespective of our cost of providing these
services. As a result, we bear the risk of increases in the cost of delivering
HR process management services to our clients, and our margins associated with
particular contracts will depend on our ability to control our costs of
performance under those contracts and meet our service commitments
cost-effectively. Over time, vendor costs and our own internal operating
expenses will tend to increase, and taking over services previously delivered
by vendors involves further increases in internal operating expense.
Therefore, our business model involves ongoing pressure on our operating
margins. We must respond by continuing to grow so that our costs are spread
over an increasing revenue base, and by successfully transforming clients HR
operations to more efficient processes and continuously improve our service
efficiency and vendor management; if we stop improving, our ability to generate
profits will be jeopardized. Further, operating margins may be more difficult
to achieve in the portion of our revenue attributable to our management of
third-party vendors, which represents approximately half of our revenue.
Accordingly, until we are able to develop our third-party vendor management
business to the point that it generates meaningful operating margins, our
overall margins and profitability will rely upon strong performance in the
direct process management, project and consulting services that make up the
balance of our revenue.

Achieving the efficiency we need to operate profitably depends upon our
ability to develop our process operations and our Exult eHR solution into a
standardized management system that can be operated from our client service
centers and extended to multiple clients with limited client-specific
adaptation and modification. The actual cost reductions we are able to achieve
will vary by client for a variety of reasons, including the scope of services
we agree to provide and the existing state of our clients HR departments and
processes. To operate profitably we must transform clients HR operations by
standardizing, centralizing, and simplifying their processes, notwithstanding
the complexity of their existing systems and potential resistance by some parts
of the client organization to change. If we miscalculate the resources or time
we need to perform under any of our contracts, or if our transformation efforts
are not as successful as we anticipate, the costs of providing our services
could exceed the fees we receive from our clients, and we would lose money.

Our Exult eHR solution is evolving and requires ongoing development.

We are still developing the Exult Service Delivery ModelSM and our service
delivery infrastructure, and our ability to continue to deliver and expand our
broad process management solution depends upon continued success in assembling
and managing our own systems and capabilities and third-party vendors into an
integrated and efficient delivery platform. Our clients use disparate
information systems and operating methods, and transitioning their processes to
our operating platforms requires significant technology and process
integration. We often must adapt or develop new systems and processes to
accommodate various clients needs. Clients employees may access and utilize
our web-enabled Exult eHR solution and systems through interfaces that require
significant development and integration of many independent programs and
complex functions, as well as ongoing revision, adaptation and maintenance. If
we fail to develop a clients service delivery infrastructure in accordance
with the specifications and delivery milestones agreed upon, or if we are
unable to complete development of scalable systems and achieve the
functionality we expect, our ability to deliver our services and achieve our
business objectives in general could be seriously impeded.

We must anticipate and conform to the new and evolving market in which we operate.

Our business model is based on integrated management of a variety of
client HR and finance processes. Based on client reaction to date, we believe
there is significant market demand for this service, but our ability to satisfy
this demand depends upon our ability to

9



---



##### Table of Contents



anticipate market developments. If we are unable to react quickly to
changes in the market, if the market fails to develop in the ways we expect, or
if our services do not achieve additional market acceptance, then we are
unlikely to maintain our leadership position or become or remain profitable.
Our ability to be successful in this regard may be impaired because the market
is new and may evolve quickly.

Capacity constraints and the length of our new client sales and integration
cycles may limit our revenue growth.

We expect most of our future revenue growth beyond 2002 to come from new
client engagements. However, because we are a new company and are still
creating the components of our service offering, we plan to limit the number of
additional client engagements we accept over the near term. This strategy may
negatively affect our revenue growth until we have developed our services to
the point that they can be extended more rapidly across a greater number of
clients.

Our client contracts involve significant commitments and cannot be made
without a lengthy, mutual due diligence process during which we identify the
potential clients service needs and costs, and our ability to meet those needs
and provide specified cost savings. While we may receive some fees for
conducting due diligence, we will not recover all our costs from conducting the
due diligence unless it results in a long-term client engagement. We must
devote significant management time and other resources to each due diligence
process over a period of six months or more, and we can conduct at most only a
few of these due diligence undertakings at one time. This lengthy due diligence
process limits our revenue growth, and we have invested significant time in
some potential client relationships that have not resulted in contracts. It is
possible that any potential client due diligence process could result in a
decision by us or the potential client not to enter into a contract after we
have made significant investments of time and resources.

After a new client contract is signed, we must convert the clients HR
processes to our systems and infrastructure. This transition period can take
from three months to over one year and may involve unanticipated difficulties
and delays. Transition takes longer for greenfield clients that have not
centralized their HR operations, and goes more quickly for brownfield clients
that have consolidated HR operations that we can take over in place. We cannot
realize the full efficiencies of providing services to the client through our
infrastructure until this transition is complete. Therefore, any increase in
our earnings that could be expected from our agreements can be delayed for at
least several months after the contract is signed, and it could take a
significant amount of time for our agreements to contribute significantly to
profits or cash flow. We attempt to negotiate long-term contracts in order to
give us time to complete the transition and earn a profit, but if
implementation of our service model is delayed, or if the client terminates our
engagement early for convenience or because we do not meet our service
commitments, we might experience no return, and possibly a loss, on our
substantial investment of time and resources in that client.

Our new business objectives may not be realized.

Our new contract sales pipeline consists of potential expansions of
contracts with existing clients, as well as potential contracts with new
clients. We currently define the highly qualified portion of the new contract
pipeline as frontlog. These are the contract prospects which we have
identified as highly desirable, and for which the prospective client has
generally agreed to go forward on a sole source negotiation basis or for which
a non-disclosure agreement has generally been executed and we are performing
detailed due diligence and analysis toward the goal of reaching a definitive
agreement. From time to time, we publicly discuss our estimated frontlog in
order to provide investors with information that is relevant to an
understanding of our business. These estimates are based upon our assumptions
regarding the potential scope and pricing, and assume an average ten-year
contract term. Frontlog estimates are not representations; the sales cycle for
our services is long and complex and the pipeline is fluid, so the frontlog
does not represent any assurance of future revenue and it is impossible to
predict in advance which prospects may become clients or how quickly contracts
may be signed.

There is no assurance that we will achieve profitability.

Since our formation, we have not had a profitable quarter. We incurred net
losses of $94.8 million, $74.7 million and $6.6 million for the years ended
December 31, 2000 and 2001 and the three months ended March 31, 2002,
respectively, inclusive of warrant charges and business optimization costs. We
expect to incur net losses during the remainder of the first half of 2002 and
potentially in future periods thereafter as we continue to develop our service
offering and transition new business. While we do not enter into contracts for
which we expect to incur a loss, and although we estimate and model each of our
client contracts to be individually profitable, due to our rapid growth, the
expense of creating our company, and other factors described in this report, we
cannot be certain that we will ever operate profitably, or that we can sustain
or increase profitability on a quarterly or annual basis in the future.

10



---



##### Table of Contents



From time to time we make projections about our future operating results,
including the time we may achieve profitable operations and the amount of
potential profitability. These projections are estimates intended to provide
information that is relevant to an understanding of our business, but are not a
representation or guaranty regarding future performance. The timing and
magnitude of any profitability we may achieve depends upon a number of factors
including those set forth in these Risk Factors.

We may need additional capital, which might not be available or might dilute
existing stockholders.

For the years ended December 31, 2000 and 2001 and the three months ended
March 31, 2002, we used cash of $60.7 million, $33.9 million and $17.3 million,
respectively, in operating activities and $23.8 million, $21.0 million and
$18.6 million, respectively, in investing activities. Ongoing development and
expansion of our infrastructure and service capacity, acquiring new client
contracts and transitioning their services requires significant capital
investment. We anticipate rapid growth and until our operating income covers
our cash needs we may need to raise additional funds through public or private
debt or equity financings in order to maintain adequate cash balances to
satisfy the expectations of prospective clients; finance acquisitions, new
client contracts with capital investment requirements, and other strategic
opportunities; and address operating issues. If we are required to raise
additional funds through the issuance of equity securities, the percentage
ownership of our existing stockholders would be reduced. Further, such equity
securities may be sold at prices below those paid by existing stockholders, and
have rights, preferences or privileges senior to those of our common stock. We
cannot be certain that we will be able to raise additional funds on favorable
terms, or at all, and if we need additional funds but cannot obtain them, our
ability to fund our operations or strategic initiatives may be impaired.

To succeed we must hire, assimilate and retain key management personnel and
large numbers of new employees, open new client service centers, assimilate our
clients personnel and systems and expand our own systems and controls.

To achieve sustainable profitability, we must extend our service model
across many client organizations and gain critical mass in the size and breadth
of our operations. Our ability to achieve rapid growth depends upon the
following essential elements:



| |  |  | Current markets for skilled employees are competitive, and we must be
able to hire, train and retain key management personnel and large
numbers of human resources specialists, web and Internet technologists
and programmers, business development and process management specialists
and technical and customer support personnel.                                                                                                                                                                                                                                                                                                                                 
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | We currently operate four large-scale client service centers, in
North Carolina, Scotland, Tennessee and Texas. These centers are
designed to handle our existing client demands, and have capacity to
handle anticipated near-term growth in our service volumes, but we must
open new client service centers in new geographic locations to handle
significant additional growth in our business. We must devote
substantial financial and management resources to launch and operate
these centers successfully, and we may not select appropriate locations
for these centers, open them in time to meet our client service
commitments or manage them profitably.
|
| |  |  | As we assume responsibility for the existing HR departments of our
clients, we must be able to assimilate HR personnel from these clients
and integrate disparate systems, procedures, controls and
infrastructures.                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|
| |  |  | We will need to improve our financial and management controls,
reporting systems and operating systems to accommodate growth. If we do
not manage growth effectively, our ability to perform under our
contracts may be jeopardized and our reputation may be harmed.                                                                                                                                                                                                                                                                                                                                                                                                 

Our quarterly financial results are volatile and may cause our stock price to fluctuate.

Our quarterly financial results have varied in the past and are likely to
vary significantly in the future. It is possible that in some future quarter or
quarters our financial results will be below the revenue or profit expectations
of public market analysts or investors. If so, the market price of our common
stock may decline significantly. Factors that may cause our results to
fluctuate include:



| |  |  | the growth of the market for our HR services and our ability to obtain new client contracts;
| | - |  | --------------------------------------------------------------------------------------------
|
| |  |  | our ability to continue to execute successfully on client contracts;                        
|
| |  |  | the length of the sales and integration cycle for our new clients;                          
|
| |  |  | cancellations or reductions in the scope of our contracts;                                  

11



---



##### Table of Contents





| |  |  | delays in transitioning various client processes to our infrastructure;                                     
| | - |  | ------------------------------------------------------------------------------------------------------------
|
| |  |  | our ability to develop and implement additional service offerings and technologies;                         
|
| |  |  | the introduction of comprehensive HR services by new and emerging competitors;                              
|
| |  |  | changes in our pricing policies or those of our competitors;                                                
|
| |  |  | our ability to manage costs, including personnel costs, support services costs and third-party vendor costs;
|
| |  |  | the timing and cost of anticipated openings or expansions of client service centers; and                    
|
| |  |  | the timing and extent of achieving overall profitability.                                                   

We have in the past purchased assets and hired personnel from our clients.
We expect to continue such transactions in the future. Client asset
acquisitions may result in amortization expense and other charges. In addition,
rationalizing headcount and facilities consolidation following transition of
client processes to our systems may result in severance and closing expense. As
our business evolves, we may from time to time incur costs for severance and
infrastructure consolidation, as well as costs
relating to the implementation of new organization structures, technologies,
processes and other changes in our business (business optimization costs). These expenses will reduce our
reported earnings.

We could experience damages, service interruptions or failures at our client
service centers or in our computer and telecommunications systems.

Our business could be interrupted by damage to or disruption of our client
service centers, computer and telecommunications equipment and software systems
from fire, power loss, hardware or software malfunctions, penetration by
computer hackers, computer viruses, natural disasters and other causes. Our
clients businesses may be harmed by any system or equipment failure we
experience. As a result of any of the foregoing, our relationship with our
clients may be adversely affected, we may lose clients, our ability to attract
new clients may be adversely affected and we could be exposed to liability. We
cannot be certain that we will be able to route calls and other operations from
an affected center to another in the event service is disrupted. In addition,
in the event of widespread damage or failures at our facilities, we cannot
guarantee that the disaster recovery plans we have in place will protect our
business.

We are subject to risks associated with our international operations.

We believe multinational capabilities will be important as the competitive
market for outsourcing evolves. Our business strategy includes international
expansion as we broaden the geographic scope of services we deliver to our
clients from United States and United Kingdom operations to foreign operations
and as we take on additional large, multinational clients. Overseas expansion
requires capital investment and presents significant risks and operational
challenges. Foreign legal and regulatory requirements, affecting business
operations in general as well as human resources processes in particular, may
be complex and require significant investment in compliance capabilities. We
do not yet have the expertise required to deal effectively with different
countries workplace practices, and developing this expertise could be
expensive and time consuming. Tariffs and other trade barriers, political
instability, and international currency exchange rates and related issues may
increase the cost and risks associated with overseas operations. We must
design and operate web sites and other service delivery components that are
accessible by employees of overseas clients, and differing technology standards
and Internet regulations may affect access to and operation of our web sites
and our clients web sites. Because of these and other factors, overseas
operations will require significant management resources and may be more prone
to service delivery errors and delays, which could damage our reputation and
jeopardize existing contracts.

We use overseas vendors to assist in our business, including to provide
services to our clients overseas and to take advantage of lower overseas labor
costs for some support functions. We expect to increase this practice. Some
clients and potential clients may resist our use of overseas vendors because of
concerns about service quality, legal and cultural issues, and other reasons.
Overseas vendors may be difficult to manage and require significant investments
in monitoring and systems integration. If we have disputes with overseas
vendors it may be difficult for us to enforce our rights, and replacing
overseas vendors may involve delay and expense.

12



---



##### Table of Contents



We depend on our senior executives, including a number who have recently joined
us, and if they are unable or unwilling to continue in their present positions,
these executives would be difficult to replace and our business could be
harmed.

We believe that our success is dependent upon our senior management team
and our senior executives leadership skills. The loss of any of these
individuals or an inability to attract, retain and maintain qualified personnel
could adversely effect us. A number of our senior management, including our
Chief Financial Officer and Chief Operating Officer, joined us in 2000 or 2001.
Due to the competitive nature of our industry, we may not be able to retain all
of our senior managers. If one or more members of our senior management team
were unable or unwilling to continue in their present positions, these
executives would be difficult to replace and our business could be harmed.

Each of our senior executives employment is at will, which means that
the executives employment with us may be terminated by either us or the
executive at any time, for any reason without cause or advance notice.

The market for our services and our revenue growth depends on our ability to
use the Internet as a means of delivering human resources services.

We rely on the Internet as a mechanism for delivering our services to our
clients and achieving efficiencies in our service model, and this reliance
exposes us to various risks.



| |  |  | We use public networks to transmit and store extremely confidential
information about our clients and their employees, such as compensation,
medical information and social security numbers. We may be required to
expend significant capital and other resources to address security
breaches. We cannot be certain that our security measures will be
adequate and security breaches could disrupt our operations, damage our
reputation and expose us to litigation and possible liability.                                                                                                                                                                                                                                                                                    
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Our target clients may not be receptive to human resources services
delivered over the Internet because of concerns over transaction
security, user privacy, the reliability and quality of Internet service
and other reasons. In addition, growth in Internet traffic may cause
performance and reliability to decline. Interruptions in Internet
service and infrastructure delays could interfere with our ability to
use the Internet to support our Exult eHR service, which would impair
our revenue growth and results of operations.                                                                                                                                                                                                                                      
|
| |  |  | Laws and regulations may be adopted relating to Internet user
privacy, pricing, usage fees and taxes, content, distribution and
characteristics and quality of products and services. This could
decrease the popularity or impede the expansion of the Internet and
decrease demand for our services. Moreover, the applicability of
existing laws to the Internet is uncertain with regard to many important
issues, including property ownership, intellectual property, export of
encryption technology, libel and personal privacy. The application of
laws and regulations from jurisdictions whose laws do not currently
apply to our business, or the application of existing laws and
regulations to the Internet and other online services, could also harm
our business.

We must keep our computing and communications infrastructure on pace with
changing technologies.

Our success depends on our sophisticated computer, Internet and
telecommunications systems. We have invested significantly in our technological
infrastructure and anticipate that it will be necessary to continue to do so in
the future to remain competitive. These technologies are evolving rapidly and
are characterized by short product life cycles, which require us to anticipate
technological changes and developments. Our success in designing and delivering
high quality, cost-effective services that add value for our clients depends,
in part, upon our ability to adapt our processes to incorporate new and
improved software applications, communications systems and other technologies
and devices. If we fail to adapt to technological developments, our clients may
experience service implementation delays or our services may become
non-competitive or obsolete.

We rely on third-party vendors for software. If their products are not
available or are inadequate, our business could be seriously harmed.

Our service delivery capability incorporates and relies on software owned
by third parties that we license directly or use through existing license
arrangements between our clients and the vendor. If these vendors change or
fail to maintain a product that we are using, or if these agreements are
terminated or not renewed, we might have to delay or discontinue our services
until equivalent technology can be found, licensed and installed.

13



---



##### Table of Contents



The markets we serve are highly competitive and our competitors may have much
greater resources to commit to growth, new technology and marketing.

Our current and potential competitors include in-house HR departments of
large multinational corporations, as well as other third parties that provide
discrete or combined HR and information technology functions, including certain
information technology outsourcers and broad-based outsourcing and consultancy
firms that aspire to provide business process outsourcing services and may seek
to add selected HR offerings; companies that provide a discrete group of
transactional services, such as payroll or benefits administration, and aspire
to provide additional services; and other consulting companies that perform
individual projects, such as development of HR strategy and HR information
systems. We expect that the predicted growth of the HR outsourcing market will
attract and motivate competitors to assume responsibility for broad integration
of HR processes.

Several of our existing or potential competitors have substantially
greater financial, technical and marketing resources, larger customer bases,
greater name recognition and more established relationships with their
customers and key product and service suppliers than we do. Our competitors may
be able to:



| |  |  | develop and expand their delivery infrastructure and service offerings more quickly;
| | - |  | ------------------------------------------------------------------------------------
|
| |  |  | adapt better to new or emerging technologies and changing client needs;             
|
| |  |  | take advantage of acquisitions and other opportunities more readily;                
|
| |  |  | devote greater resources to the marketing and sale of their services; and           
|
| |  |  | adopt more aggressive pricing policies.                                             

Some of our competitors may also be able or willing to provide clients
with additional benefits at lower overall costs. In addition, we believe there
will be future consolidation in our market, which could increase competition in
ways that may be adverse to us.

We operate in a complex regulatory environment, and failure to comply with
applicable laws and regulations could adversely affect our business.

Corporate human resources operations are subject to a number of laws and
regulations, including those applicable to payroll practices, benefits
administration, employment practices and data privacy. Because our clients have
employees in states across the United States and in various countries around
the world, we must perform our services in compliance with the legal and
regulatory requirements of multiple jurisdictions. Some of these laws and
regulations may be difficult to ascertain or interpret, may change, and may be
inconsistent with our business practices. Violation of laws and regulations
could subject us to fines and penalties, damage our reputation, constitute
breach of our client contracts and impair our ability to do business in various
jurisdictions or according to our established processes.

The European Commissions Directive on Data Privacy limits transfer of
personal data outside the European Union. In order to receive personal data
about our clients European employees and fulfill our service commitments, we
have elected to comply with the Safe Harbor Principles established by the
United States Department of Commerce, in collaboration with the European
Commission, to provide adequate protection for personal data about European
Union residents. Because we process HR data, we are required by the Safe Harbor
Principles to submit to the jurisdiction of the European Union Data Protection
Authorities (DPAs). Specifically, we must cooperate with the DPAs in the
investigation and resolution of complaints brought under the Safe Harbor
Principles by European citizens and comply with any corrective advice and
remedial or compensatory measures they dictate. In addition, operation under
the Safe Harbor Principles subjects us to the jurisdiction of the Federal Trade
Commission. If we fail to process personal data in accordance with these
principles, we could be subject to legal penalties under the Federal Trade
Commission Act and foreign privacy laws. We could also lose our ability to move
personal data from the European Union to the United States, which would
significantly impair our ability to fulfill our contractual commitments to our
clients. We expect to have to comply with similar laws of other foreign
jurisdictions in which we do business in the future.

14



---



##### Table of Contents



We may undertake acquisitions which may limit our ability to manage and
maintain our business, may result in adverse accounting treatment and may be
difficult to integrate into our business.

We expect to pursue acquisitions under appropriate circumstances. We
cannot provide any assurance that we will be able to complete any acquisitions,
or that any acquisitions we may complete will enhance our business. Any
acquisition we do complete could subject us to a number of risks, including:



| |  |  | diversion of our managements attention;                                                                                                              
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | inability to integrate the acquired company and its employees into
our organization effectively, and to retain key personnel of the
acquired business;
|
| |  |  | inability to retain the acquired companys customers; and                                                                                             
|
| |  |  | exposure to legal claims for activities of the acquired business prior to acquisition.                                                                

Client satisfaction or performance problems with an acquired business also
could affect our reputation as a whole. In addition, any acquired business
could significantly underperform relative to our expectations.

We must protect our intellectual property and avoid infringing upon the
intellectual property rights of others.

We may not be able to detect or deter unauthorized use of our intellectual
property. If third parties infringe upon or misappropriate our trade secrets,
copyrights, trademarks, service marks, trade names or proprietary information,
our business could be seriously harmed. In addition, although we believe that
our proprietary rights do not infringe upon the intellectual property rights of
others, other parties may assert that we have violated their intellectual
property rights. These claims, even if not true, could result in significant
legal and other costs and may be a distraction to management. In addition,
protection of intellectual property in many foreign countries is weaker and
less reliable than in the United States. If our business expands into
additional foreign countries, risks associated with protecting our intellectual
property will increase.

Our executive officers, directors and their affiliates control the company.

Our executive officers, directors and their respective affiliates
beneficially own approximately 57% of our outstanding common stock. As a
result, these stockholders, acting together, have the ability to control
matters requiring stockholder approval, including the election of directors and
mergers, consolidations and sales of all or substantially all of our assets.
These stockholders may have interests that differ from other investors and they
may approve actions that other investors vote against or reject actions that
other investors have voted to approve. In addition, this concentration of
ownership may also have the effect of preventing, discouraging or deferring a
change in control of Exult, which, in turn, could depress the market price of
our common stock.

Our stock price is likely to be highly volatile.

The price at which our common stock trades has fluctuated significantly
and is likely to continue to be highly volatile. From our IPO in June 2000
through March 31, 2002, the sales price of our stock, as reported on the Nasdaq
National Market, has ranged from a low of $7.00 to a high of $19.85. We are a
relatively new company with no record of profits, and we utilize the Internet
and a technology infrastructure to deliver our services. The share prices for
other companies with similar characteristics have at times increased to levels
that bore no relationship to their operating performance, and at other times
have declined dramatically, even without apparent changes in their business.

In addition, the stock market in general has from time to time experienced
significant price and volume fluctuations that have affected the market prices
for companies like ours. In the past, this kind of market price volatility has
often resulted in securities class action litigation against companies
comparable to ours. Securities litigation could result in substantial costs and
divert our managements attention and resources.

Substantial sales of our common stock by our existing investors could cause our
stock price to decline.

The vast majority of our outstanding shares are in the hands of their
original purchasers and can be sold publicly pursuant to Rule 144. These
investors may seek to sell their shares, and sales of large numbers of shares
in the same time period could cause the market

15



---



##### Table of Contents



price of our common stock to decline significantly. These sales also might
make it more difficult for us to sell securities in the future at a time and
price that we deem appropriate.

Our charter documents and Delaware law could deter a takeover effort.

Provisions of our certificate of incorporation and bylaws, including those
that provide for a classified board of directors, authorized but unissued
shares of common and preferred stock and notice requirements for stockholder
meetings, and Delaware law regarding the ability to conduct specific types of
mergers within specified time periods, could make it more difficult for a third
party to acquire us, even if doing so would provide our stockholders with a
premium to the market price of their common stock. A classified board of
directors may inhibit acquisitions in general, and a tender offer not endorsed
by our board of directors in particular, because only one-third of our
directors are reelected annually, thereby requiring two annual meetings before
a majority of our directors could be replaced. The authorization of
undesignated preferred stock gives our board of directors the ability to issue
preferred stock with voting or other rights or preferences that could impede
the success of any attempt to change control of the company. If a change in
control or change in management is delayed or prevented, the market price of
our common stock could decline.

16



---



##### Table of Contents



RESULTS OF OPERATIONS

Because of the rapidly evolving nature of our business and our limited
operating history, we believe that period to period comparisons of our
operating results, including our revenue, expenses, gross loss and expenses as
a percentage of revenue, should not be relied upon as an indication of our
future performance. The following table sets forth statement of operations data
expressed as a percentage of revenue for the periods indicated:

|                     |                                     |                |       |                              |      |      |       |     |      | 
|-------------------- | ----------------------------------- | -------------- | ----- | ---------------------------- | ---- | ---- | ----- | --- | ---- | 
|                     |                                     |                |       | Three Months Ended March 31,
|                     |                                     |                |       |                             
|                     |                                     |                |       | 2001                         |      | 2002
|                     |                                     |                |       |                              |      |     
|Revenue              |                                     |                | 100.0 | %                            |      |      | 100.0 | %  
|Cost of revenue      |                                     |                | 126.2 |                              |      |      | 96.1  |    
|                     |                                     |                |       |                              |      |      |       |    
|Gross profit (loss)  |                                     |                | (26.2 | )                            |      |      | 3.9   |    
|                     |                                     |                |       |                              |      |      |       |    
|Expenses:            |                                     |                |       |                              |      |      |       |    
|                     | Selling, general and administrative |                |       | 19.4                         |      |      |       | 7.4 |     
|                     | Depreciation and amortization       |                |       | 8.2                          |      |      |       | 4.1 |     
|                     |                                     |                |       |                              |      |      |       |    
|                     |                                     | Total expenses |       |                              | 27.6 |      |       |     | 11.5 | 
|                     |                                     |                |       |                              |      |      |       |    
|Loss from operations |                                     |                | (53.8 | )                            |      |      | (7.6  | )  
|Interest income, net |                                     |                | 2.5   |                              |      |      | 0.6   |    
|                     |                                     |                |       |                              |      |      |       |    
|Net loss             |                                     |                | (51.3 | )%                           |      |      | (7.0  | )% 
|                     |                                     |                |       |                              |      |      |       |    

Three Months Ended March 31, 2002 and 2001

Revenue.Revenue for the three months ended March 31, 2002 and 2001, was
$95.0 million and $43.5 million, respectively. The 2002 amount included $91.0
million, or 96%, of revenue derived from seven business process management
clients, and the 2001 amount included $40.2 million, or 92%, of revenue derived
from five business process management clients. The balance of our 2002 and 2001
revenue primarily consisted of consulting revenue generated from various
clients. As our process management business expands, we expect the relative
contribution of revenue derived from consulting clients to continue to
decrease.

The revenue increase for the 2002 period as compared to 2001 period
principally resulted from the progressive transition of service responsibility
to Exult under five process management contracts which were executed at various
dates from December 1999 through November 2000 together with two scope
expansion amendments for an existing client during the course of 2001 plus the
addition of two new process management clients in October 2001 and January
2002. For the three months ended March 31, 2002 and 2001, one process
management client accounted for 46% and 59%, respectively, of revenue. A
second process management client accounted for 30% and 27% of revenue for the
three months ended March 31, 2002 and 2001, respectively. A third process
management client accounted for 13% and 0% of revenue for the three months
ended March 31, 2002 and 2001, respectively. No other client accounted for
more than 10% of revenue in the 2002 and 2001 periods. An important part of
our revenue growth to date has resulted from sales of additional services to
existing clients. The potential for further revenue growth within our existing
client base is finite, and we must continue to attract new clients to sustain
growth.

Cost of Revenue.Our cost of revenue for the three months ended March 31,
2002 and 2001, was $91.4 million and $54.9 million, respectively, and our gross
margin (loss) for the same periods was 3.9% and (26.2)%, respectively, as a
percentage of revenue. Cost of revenue consists primarily of expenses
associated with third-party vendors that we manage who provide services for our
clients within the scope of our process management contracts, compensation and
benefits paid to our employees who are directly involved in providing our
services, computer and communications equipment and services costs, and
facilities costs. The increase in the cost of revenue for the three months
ended March 31, 2002 as compared to the three months ended March 31, 2001
principally resulted from the progressive transition of service responsibility
to Exult under our various process management contracts and the continuing
expansion of our infrastructure and service capacity. By the end of calendar
2000, we were operating two primary client service centers and in late January
2001 we began operating our third primary center. We expanded the services
provided by this third center throughout the first half of 2001 and in January
2002 we began operating our fourth primary center. Operating expense will tend
to increase to support any growth we may achieve, and our profitability depends
upon our ability to leverage existing resources across a broader revenue base
and limit increases in operating expense associated with new business to levels
significantly below our clients historical costs of operating the processes we
assume. We have incurred, and may incur in the future, negative gross margins
as we continue to transition and transform our clients HR processes.

17



---



##### Table of Contents



Selling, General and Administrative Expense.Selling, general and
administrative expense for the three months ended March 31, 2002 and 2001, was
$7.1 million, or 7.4% as a percentage of revenue, and $8.4 million, or 19.4% as
a percentage of revenue, respectively. Selling, general and administrative
expense generally consists of compensation for employees engaged in developing
product features and Internet capabilities; marketing, promoting and selling
our services; and management and administrative activities. Selling, general
and administrative expense also includes third-party consulting and marketing
expenditures, as well as facilities and office costs, and legal, accounting and
recruiting fees and expenses. In addition, selling, general and administrative
expense may include any business optimization costs that are incurred during
the period. We call these charges business optimization costs because they
reflect our pursuit of strategies intended to enhance our efficiency and
profitability as our operating scale increases and our business progresses
toward operational maturity. We may incur business optimization costs from time
to time as we implement new organization structures, technologies, processes
and other changes in our business. For the three months ended March 31, 2002
and 2001, there were no business optimization costs incurred in either period.

Included in selling, general and administrative expense for the three
months ended March 31, 2002 and 2001, are $0.5 million and $2.2 million,
respectively, related to product development efforts. The decrease in selling,
general and administrative expense in both amount and as a percentage of
revenue for the three months ended March 31, 2002 as compared to the three
months ended March 31, 2001, primarily resulted from redeployment of a portion
of resources to implementation and transformation activities relating to the
progressive transition of service responsibility to Exult for our process
management contracts and the decrease in the expense as a percentage of revenue
was further impacted by the revenue growth experienced in the 2002 period as
compared to the 2001 period.

Depreciation and Amortization Expense.Depreciation and amortization
expense for the three months ended March 31, 2002 and 2001, was $3.9 million,
or 4.1% as a percentage of revenue, and $3.6 million, or 8.2% as a percentage
of revenue, respectively. Included in the 2002 and 2001 periods was $3.2
million and $2.3 million, respectively, of depreciation and amortization
expense from property and equipment. Also included in the 2002 and 2001 periods
was intangible asset amortization of $0.5 million and $1.0 million,
respectively, and $0.2 million and $0.3 million, respectively, of deferred
compensation amortization. The increase in depreciation and amortization from
property and equipment reflects the continuing build out of our infrastructure
and service delivery capabilities.

Interest Income, net.Interest income, net for the three months ended
March 31, 2002 and 2001 consisted of interest income of $0.7 million and $1.3
million, respectively, partially offset by interest expense of $0.1 million and
$0.2 million, respectively. Interest income is generated primarily from
short-term investing of cash in excess of current requirements. The decrease in
interest income in the 2002 period as compared to the 2001 period is
principally the result of lower interest rates in the 2002 period.

Income Taxes.We incurred losses since our founding in 1998, resulting in
federal, state and foreign net operating loss carryforwards. The federal and
state net operating loss carryforwards expire beginning in 2018 and 2003,
respectively. The foreign net operating loss may be carried forward
indefinitely. A full valuation allowance has been provided against the tax
benefit generated by the net operating losses because of the uncertainty of
realizing the deferred tax assets.

Net Loss.The foregoing resulted in a net loss for the three-month periods
ended March 31, 2002 and 2001, of $6.6 million, or $0.06 per basic and diluted
share, and $22.3 million, or $0.24 per basic and diluted share, respectively.
We expect to continue to incur losses at least through the first half of 2002.

Liquidity and Capital Resources

Since our inception in October 1998, we have financed our operations
primarily with equity contributions including private placement sales of our
capital stock for consideration of approximately $1.0 million in 1998, $55.1
million in 1999, $161.3 million in 2000, and $26.0 million in 2001; the net
proceeds from our June 2000 initial public offering and the August 2001
follow-on public offering totaling $157.0 million; and, to a lesser extent, by
cash generated from our business and the exercise of stock options and
warrants. The $161.3 million from equity contributions in 2000 included
non-cash items of $29.9 million from warrants issued in connection with the
sale of Common Stock and $44.0 million of indebtedness owed to us that was
subsequently satisfied with prepaid rent and an intangible asset in connection
with one of our business process management contracts. The intangible asset is
being amortized as a reduction of revenue over the life of the contract.

Net cash used in operating activities was $17.3 million and $5.1 million
for the three months ended March 31, 2002 and 2001, respectively. During the
quarter ended March 31, 2001, we generated revenue from five process management
clients with the commencement of service delivery for Bank of America in late
January 2001. We also opened our third primary client service center during
the 2001 first quarter. By March 31, 2002, we had begun generating revenue from
our sixth and seventh process management

18



---



##### Table of Contents



clients, International Paper and Prudential Financial, respectively. In
addition, we began operation of our fourth primary client service center during
the 2002 first quarter. At December 31, 2000, we employed approximately 630
people, by March 31, 2001 approximately 1,300 people, by December 31, 2001
approximately 1,560 people and by March 31, 2002 over 1,600 people. During the
three-month periods ended March 31, 2002 and 2001, we expended operating cash
in support of revenue generated by our process management contracts and to fund
the transition and transformation costs associated with these process
management contracts. We also continued using operating cash to pursue
additional business opportunities and the development of our corporate
infrastructure. Cash used in investing activities was $18.6 million in the 2002
period and $5.1 million in the 2001 period and was used to construct and expand
our client service centers and our internal systems during both periods and, in
addition during the 2002 period, to make certain payments with respect to new
client contracts. We generated $1.6 million and $0.9 million in cash, net from
financing activities during the three months ended March 31, 2002 and 2001,
respectively, primarily from the exercise of stock options and purchases of
Common Stock under our employee stock purchase plan.

We expect to generate negative operating cash flow until we become
profitable. We also expect to continue our investments in property and
equipment to support the expansion and renovation of our facilities, including
our existing client service centers, to make certain payments with regard to
new client acquisitions, and to purchase related computer and other equipment
necessary to support our client contracts and growth. In addition, from time to
time in the ordinary course of business, we evaluate potential acquisitions of
related businesses, assets, services and technologies. Such acquisitions, if
completed, may require significant cash expenditures.

We believe that our cash on hand will be sufficient to satisfy our working
capital requirements for at least the next 12 months. We anticipate rapid
growth and we may need to raise additional funds through public or private debt
or equity financings in order to maintain adequate cash balances to satisfy the
expectations of prospective clients; finance acquisitions, new client contracts
with capital investment requirements, and other strategic opportunities; and
address operating issues. We cannot be certain that we will be able to raise
additional funds on favorable terms, or at all, and if we need additional funds
but cannot obtain them, our ability to fund our operations or strategic
initiatives may be impaired.

Recent Accounting Pronouncements

In June 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets. SFAS 142 addresses financial accounting and reporting for
acquired goodwill and other intangible assets and is effective for fiscal years
beginning after December 15, 2001, with early adoption permitted in certain
instances for entities with fiscal years beginning after March 15, 2001. We
have adopted the provisions of SFAS 142 as of January 1, 2002. Adoption did
not have a material impact on our financial condition and results of
operations.

In June 2001, the FASB issued SFAS No. 143, Accounting for Asset
Retirement Obligations. SFAS 143 addresses financial accounting and reporting
for obligations associated with the retirement of tangible assets and the
associated asset retirement costs. It applies to legal obligations associated
with the retirement of assets that result from the acquisition, construction,
development and/or the normal operation of an asset, except for certain
obligations of lessees. SFAS 143 requires that the fair value of a liability
for an asset retirement obligation be recognized in the period in which it is
incurred if a reasonable estimate of fair value can be made. The associated
asset retirement costs are capitalized as part of the carrying amount of the
asset. SFAS 143 is effective for financial statements issued for fiscal years
beginning after June 15, 2002, with earlier application being encouraged. We do
not expect the adoption of SFAS 143 to have a material impact on our financial
condition and results of operations.

In August 2001, the FASB issued SFAS No. 144, Accounting for the
Impairment or Disposal of Assets. SFAS 144 addresses financial accounting and
reporting for the impairment or disposal of assets. SFAS 144 supersedes SFAS
No. 121, Accounting for the Impairment of Assets to Be Disposed Of, and the
accounting and reporting provisions of APB Opinion No. 30, Reporting the
Results of Operations  Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for the disposal of a segment of a business (as previously
defined in that Opinion). The provisions of SFAS 144 are effective for
financial statements issued for fiscal years beginning after December 15, 2001,
with early application encouraged and generally are to be applied
prospectively. We have adopted the provisions of SFAS 144 as of January 1,
2002. Adoption did not have a material impact on our financial condition and
results of operations.




ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.

Not applicable.

19



---



##### Table of Contents






PART II. OTHER INFORMATION.




ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K.

(a)  Exhibits.

The following Exhibits are incorporated herein by reference.

|        |  |                                                                                                                      |  |  |  | 
|------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                                                                      |  |  |  | 
|Number  |  | Description                                                                                                          |  |  |  | 
|        |  |                                                                                                                      |  |  |  | 
|3.1*    |  | Fourth Amended and Restated Certificate of Incorporation of Exult, Inc.                                             
|       
|3.2*    |  | Amended and Restated Bylaws of Exult, Inc.                                                                          
|       
|10.40** |  | Services Agreement between Exult, Inc. and The Prudential Insurance
Company of America dated as of January 11, 2002.



---

|*  |  | Previously filed with the Companys Registration Statement on Form S-1
Registration No. 333-31754, and incorporated herein by reference.                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Confidential treatment is being sought with respect to certain portions
of this agreement. Such portions have been omitted from this filing and
filed separately with the Securities and Exchange Commission.

(b)  Reports on Form 8-K.

None.

20



---



##### Table of Contents






SIGNATURES

Pursuant to the requirements of the Securities Act of 1934, as amended,
the undersigned has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized, on the 25th day of April, 2002.



| | EXULT, INC.
| | -----------



| | By: | /s/ | JAMES C. MADDEN, V                                                                                            
| | --- | --- | --------------------------------------------------------------------------------------------------------------
| |     |    
| |     |     | James C. Madden, V
Chief Executive Officer, President, and
Chairman of the Board
(principal executive officer)



| | By: | /s/ | MICHAEL F. HENN                                                                                              
| | --- | --- | -------------------------------------------------------------------------------------------------------------
| |     |    
| |     |     | Michael F. Henn
Executive Vice President, Treasurer and
Chief Financial Officer
(principal financial officer)



| | By: | /s/ | ROBERT G. MCGRAW                                                                                    
| | --- | --- | ----------------------------------------------------------------------------------------------------
| |     |    
| |     |     | Robert G. McGraw
Vice President, Finance and
Chief Accounting Officer
(principal accounting officer)

21



---



##### Table of Contents






EXHIBIT INDEX

|        |  |                                                                                                                      |  |  |  | 
|------- |  | -------------------------------------------------------------------------------------------------------------------- |  |  |  | 
|Exhibit |  |                                                                                                                      |  |  |  | 
|Number  |  | Description                                                                                                          |  |  |  | 
|        |  |                                                                                                                      |  |  |  | 
|3.1*    |  | Fourth Amended and Restated Certificate of Incorporation of Exult, Inc.                                             
|       
|3.2*    |  | Amended and Restated Bylaws of Exult, Inc.                                                                          
|       
|10.40** |  | Services Agreement between Exult, Inc. and The Prudential Insurance
Company of America dated as of January 11, 2002.



---

|*  |  | Previously filed with the Companys Registration Statement on Form S-1
Registration No. 333-31754, and incorporated herein by reference.                                                                     
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|** |  | Confidential treatment is being sought with respect to certain portions
of this agreement. Such portions have been omitted from this filing and
filed separately with the Securities and Exchange Commission.

22