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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
--------------------
FORM 6-K
REPORT OF FOREIGN PRIVATE ISSUER
Pursuant to Rule 13a-16 or 15d-16 of
the Securities Exchange Act of 1934
For the Quarter ended September 30, 2001
--------------------
WILLIS GROUP LIMITED
(Translation of registrant's name into English)
Ten Trinity Square, London EC3P 3AX
(Address of principal executive offices)
--------------------
(Indicate by check mark whether the registrant files or will
file annual reports under cover of Form 20-F or Form 40-F.)
Form 20-F |X| Form 40-F |_|
(Indicate by check mark whether the registrant by furnishing the
information contained in this form is also thereby furnishing the
information to the Commission pursuant to Rule 12g3-2(b) under the
Securities Exchange Act of 1934.)
Yes |_| No |X|
(If "Yes" is marked, indicate below the file number assigned to the
registrant in connection with Rule 12g3-2(b): 82- .)
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WILLIS GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(in millions of pounds sterling)
(unaudited)
Three months Nine months
ended September ended September
30, 30,
--------------- ---------------
2001 2000 2001 2000
------ ------ ------ ------
Operating revenues
Commissions and fees ........................................................................ 214.4 186.6 685.3 589.3
Interest and investment income .............................................................. 11.3 11.9 35.0 31.9
------ ------ ------ ------
225.7 198.5 720.3 621.2
Operating expenses .......................................................................... (188.2) (178.9) (571.3) (536.4)
------ ------ ------ ------
Operating income ............................................................................ 37.5 19.6 149.0 84.8
Gain on disposal/closure of operations ...................................................... 12.9 0.2 5.2 0.2
Share of profit/(loss) of associates ........................................................ 1.0 (0.6) 10.6 8.9
Interest income (Note 2) .................................................................... 14.5 15.1 45.5 43.5
Interest expense ............................................................................ (15.0) (15.2) (44.0) (42.9)
------ ------ ------ ------
Income before taxation ...................................................................... 50.9 19.1 166.3 94.5
Taxation .................................................................................... (14.5) (5.5) (55.3) (29.2)
------ ------ ------ ------
Income after taxation ....................................................................... 36.4 13.6 111.0 65.3
Equity minority interests ................................................................... 0.4 0.6 (1.3) 0.7
------ ------ ------ ------
Net income (i) .............................................................................. 36.8 14.2 109.7 66.0
====== ====== ====== ======
Net income per ordinary share (i) ........................................................... 7.7p 3.0p 22.9p 13.9p
====== ====== ====== ======
Average number of ordinary shares outstanding (in millions) ................................. 479.3 476.1 479.3 476.1
====== ====== ====== ======
- ---------------
(i) A summary of the significant adjustments to net income that would be
required if United States generally accepted accounting principles were to
be applied instead of those generally accepted in the United Kingdom is
set forth in Note 6 of Notes to Condensed Financial Statements.
CONSOLIDATED STATEMENTS OF TOTAL RECOGNIZED GAINS AND LOSSES
(in millions of pounds sterling)
(unaudited)
Three months
ended Nine months
September ended
30, September 30,
------------ -------------
2001 2000 2001 2000
---- ----- ----- -----
Net income ....................................................................................... 36.8 14.2 109.7 66.0
Currency translation differences ................................................................. 17.6 (14.3) (16.3) (46.9)
---- ----- ----- -----
Total recognized gains and losses (ii) ........................................................... 54.4 (0.1) 93.4 19.1
==== ===== ===== =====
- ---------------
(ii)A statement of Comprehensive Income under U.S. GAAP is set forth in Note 6
of Notes to Condensed Financial Statements.
The Notes to Condensed Financial Statements are an integral part of these
Condensed Consolidated Financial Statements.
2
WILLIS GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(in millions of pounds sterling)
(unaudited)
September 30, December 31,
2001 2000(i)
------------- ------------
ASSETS
Current assets
Cash and short-term deposits .................. 481.2 427.1
Investments ................................... 422.8 318.4
Accounts receivable, net ...................... 4,988.2 4,511.8
------- -------
5,892.2 5,257.3
------- -------
Fixed assets
Intangible assets - goodwill, net ............. 37.7 35.2
Tangible assets, net .......................... 122.4 128.0
Investments ................................... 48.5 44.7
------- -------
208.6 207.9
------- -------
Total assets ................................... 6,100.8 5,465.2
======= =======
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable .............................. 4,246.4 3,655.8
Corporate tax payable ......................... 76.7 41.6
Accruals and deferred income .................. 91.7 86.3
Bank loans and overdrafts ..................... 7.3 8.7
Other current liabilities ..................... 791.7 799.3
------- -------
5,213.8 4,591.7
------- -------
Noncurrent liabilities
Bank loans .................................... 261.9 271.7
9% Senior Subordinated Notes due 2009 ......... 304.7 362.6
Other noncurrent liabilities .................. 37.1 35.9
------- -------
603.7 670.2
------- -------
Provisions for liabilities and charges (Note 5) 93.2 105.1
Equity minority interests ...................... 9.4 12.8
------- -------
Total liabilities and minority interests ....... 5,920.1 5,379.8
Shareholders' equity(ii)
Share capital ................................. 59.9 59.9
Share premium ................................. 124.0 124.0
Revaluation reserve ........................... 14.9 14.9
Retained deficit .............................. (18.1) (113.4)
------- -------
180.7 85.4
------- -------
Total liabilities and shareholders' equity ..... 6,100.8 5,465.2
======= =======
- ---------------
(i) The balance sheet at December 31, 2000 has been derived from the audited
financial statements at that date but does not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements.
(ii)A summary of the significant adjustments to shareholders' equity that
would be required if United States generally accepted accounting
principles were to be applied instead of those generally accepted in the
United Kingdom is set forth in Note 6 of Notes to Condensed Financial
Statements.
The Notes to Condensed Financial Statements are an integral part of these
Condensed Consolidated Financial Statements.
3
WILLIS GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(in millions of pounds sterling)
(unaudited)
Nine months
ended
September 30,
--------------
2001 2000
------ -----
Net cash inflow from operating activities .................... 312.6 209.7
Dividends from associates .................................... 2.3 3.0
Returns on investments and servicing of finance
Interest received ........................................... 56.2 52.3
Interest paid ............................................... (51.8) (49.2)
Bank fees on borrowings ..................................... (0.3) (0.4)
Minority dividends paid ..................................... (1.8) (0.5)
------ -----
2.3 2.2
------ -----
Taxation ..................................................... (16.4) (8.9)
Capital expenditure and financial investment
Purchase of tangible fixed assets ........................... (13.8) (12.0)
Sale of tangible fixed assets ............................... 2.4 2.9
Purchase of fixed asset investments ......................... (0.1) (0.2)
Sale of fixed asset investments ............................. 0.1 --
------ -----
(11.4) (9.3)
------ -----
Acquisitions and disposals
Purchase of subsidiaries .................................... (3.0) (7.1)
Purchase of associates ...................................... -- (0.8)
Sale of subsidiaries ........................................ 20.1 0.3
Proceeds from sale of operations ............................ 2.4 --
Net cash transferred on purchase/sale of subsidiaries ....... (6.6) 2.4
------ -----
12.9 (5.2)
------ -----
Equity dividends paid ........................................ (15.1) (13.1)
------ -----
Cash flow before management of liquid resources and financing 287.2 178.4
Management of liquid resources ............................... (165.3) (88.0)
Financing
Amounts due to/from parent company .......................... (45.2) (51.8)
Debt due beyond a year:
Decrease in long-term borrowings........................... (84.5) (8.6)
------ -----
(129.7) (60.4)
------ -----
(Decrease)/increase in cash .................................. (7.8) 30.0
====== =====
- ---------------
The significant differences between the consolidated statement of cash flows
presented above and that required under U.S. GAAP are described in Note 6 of
Notes to Condensed Financial Statements
The Notes to Condensed Financial Statements are an integral part of these
Condensed Consolidated Financial Statements
4
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS
(in millions of pounds sterling)
(unaudited)
Note 1 - Basis of preparation
These condensed consolidated financial statements, which are unaudited, have
been prepared in accordance with U.K. GAAP and the accounting policies
described in the Company's audited consolidated financial statements for the
year ended December 31, 2000. In the opinion of the Company's management, all
adjustments (consisting of normal recurring adjustments) considered necessary
for a fair presentation have been included. Operating results for the nine
months ended September 30, 2001 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2001.
The company prepares its financial statements in pounds sterling. The
following U.S. dollar exchange rates have been used in preparing these
financial statements:
2001 2000
----- -----
Average rate: nine months ended September 30 ................. $1.44 $1.54
Closing rate: September 30 ................................... $1.47 $1.48
December 31 .................................... -- $1.50
Note 2 - Interest income
Substantially all the Group's external borrowings have been advanced to the
Company's indirect parent company, Trinity Acquisition Limited. Interest
receivable on the amounts advanced has been disclosed separately from interest
receivable on other funds, which is included in operating revenues.
Note 3 - Reconciliation of operating income to net cash inflow from operating
activities
Nine months
ended September
30,
---------------
2001 2000
------ ------
Operating income ............................................ 149.0 84.8
Depreciation and amortization ............................... 19.5 19.7
Increase in receivables ..................................... (433.6) (645.2)
Increase in payables ........................................ 590.6 769.2
Net movement on provisions .................................. (12.9) (18.8)
------ ------
Net cash inflow from operating activities ................... 312.6 209.7
====== ======
Reconciliation of net cash flow to movement in net funds
Nine months
ended
September 30,
-------------
2001 2000
----- -----
Net funds at beginning of period .............................. 672.4 590.1
Net cash flow ................................................. (7.8) 30.0
Management of liquid resources ................................ 165.3 88.0
Financing ..................................................... 129.7 60.4
Non-cash movements ............................................ -- (35.8)
Currency exchange movements ................................... (13.4) (16.9)
----- -----
Net funds at end of period .................................... 946.2 715.8
===== =====
5
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(in millions of pounds sterling)
(unaudited)
Note 4 - Reconciliation of movements in shareholders' equity
Nine months
ended
September 30,
-------------
2001 2000
----- -----
Net income .................................................... 109.7 66.0
Dividends ..................................................... (8.2) (42.6)
Goodwill on disposals written back ............................ 10.1 0.2
Exchange adjustments .......................................... (16.3) (46.9)
----- -----
Net increase/(decrease) in shareholders' equity ............... 95.3 (23.3)
Shareholders' equity at beginning of period ................... 85.4 101.8
----- -----
Shareholders' equity at end of period ......................... 180.7 78.5
===== =====
Note 5 - Provisions for liabilities and charges
In common with many companies involved in selling personal pension plans
in the U.K., the Company's financial advisory business, Willis Corroon
Financial Planning Limited ("WCFP"), is required by the Financial Services
Authority and the Personal Investment Authority ("the Regulator"), which
regulates these matters, to review certain categories of personal pension
plans sold to individuals between 1988 and 1994. WCFP is required to
compensate those individuals who transferred from, opted out or did not join,
their employer-sponsored pension plan if the expected benefits from their
personal pension plan did not equal the benefits that would have been
available from their employer-sponsored pension plan. Whether compensation is
due to a particular individual, and the amount thereof, is dependent upon the
subsequent performance of the personal pension plan sold and the net present
value of the benefits that would have been available from the employer-
sponsored pension plan calculated using financial and demographic assumptions
prescribed by the Regulator. The Regulator currently requires all offers of
compensation to be made by June 30, 2002.
At December 31, 2000, the Company held provisions of (L)34.0 million
relating to this issue. During the third quarter and nine months ended
September 30, 2001, the Company used (L)3.5 million and (L)10.1 million,
respectively, of this provision in settling claims and other related costs and
the remaining balance at September 30, 2001 was (L)23.9 million. Although the
Company considers the established provisions to be prudent and expects to pay
out these provisions over the next two years, there remains some uncertainty
as to the ultimate exposure relating to the review. This exposure is subject
to a number of variable factors including, among others, the effect of future
changes in prescribed U.K. interest rates and in financial and other
assumptions which are issued by the Regulator on a quarterly basis.
At December 31, 2000, the Company held provisions of (L)20.8 million for
discontinued operations that include estimates for future costs of
administering the run-off of the Company's former U.K. underwriting
operations. Willis Faber (Underwriting Management) Limited ("WFUM"), a wholly-
owned subsidiary of the Company, provided underwriting agency and other
services to certain insurance companies including Sovereign Marine & General
Insurance Company Limited ("Sovereign") (in Scheme of Arrangement)
(collectively, the "stamp companies") and in 1991 ceased arranging new
business on behalf of the stamp companies. Willis Faber Limited has agreed
with certain of the stamp companies to fund certain costs of the run-off,
subject to agreed guidelines as to timing and amount. Although the Company
expects the run-off to be conducted in an orderly manner, it may ultimately
prove to be a lengthy and expensive process. The amounts to be funded under
the run-off arrangements are currently within the aggregate of the provisions
made. During the third quarter and nine months ended September 30, 2001, the
Company used (L)0.5 million and (L)1.7 million, respectively, of these
provisions and, allowing for foreign exchange adjustments, the remaining
balance at September 30, 2001 was (L)19.2 million.
6
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(in millions of pounds sterling)
(unaudited)
Note 5 - Provisions for liabilities and charges (continued)
The Company has extensive operations and is subject to claims and litigation
in the ordinary course of business resulting principally from alleged errors
and omissions in connection with its businesses. At December 31, 2000, the
Company held provisions of (L)34.9 million, representing management's
assessment of liabilities that may arise from asserted and unasserted claims
for errors and omissions. During the third quarter and nine months ended
September 30, 2001, the Company charged (L)3.1 million and (L)7.9 million,
respectively, to operations and used (L)1.1 million and (L)6.1 million,
respectively, in settling claims and, allowing for foreign exchange
adjustments, the balance remaining at September 30, 2001 was (L)37.0 million.
Most of the errors and omissions claims are covered by professional indemnity
insurance. In respect of self-insured deductibles applicable to those claims,
the Company has established provisions which are believed to be adequate in
the light of current information and legal advice. These provisions may be
adjusted from time to time according to developments. The Company does not
expect the outcome of those claims, either individually or in the aggregate,
to have a material effect on the Company's financial condition, results of
operations or liquidity.
Note 6 - Differences between accounting principles generally accepted in the
United Kingdom and the United States
The unaudited condensed consolidated financial statements are prepared in
accordance with U.K. GAAP which differ in certain respects from U.S. GAAP.
Summaries of the significant differences as they apply to the Company are set
forth in Note 31 of Notes to the Company's Consolidated Financial Statements
for the year ended December 31, 2000.
Under U.S. GAAP, compensation expense resulting from the grant of
performance-based stock options is measured as the difference between the
market price on the date the performance conditions are satisfied and the
exercise price. The cost is recognized over the period employees perform
related services, but no cost is recognized until it becomes probable that the
performance conditions will be met. Under U.K. GAAP, compensation expense is
measured by reference to the market price on the date of grant.
The effect on net income, comprehensive income and shareholders' equity of
applying the significant differences between U.K. GAAP and U.S. GAAP described
above is summarized as follows:
Net income
Three months Nine months
ended ended
September 30, September 30,
------------- --------------
2001 2000 2001 2000
------ ---- ------ -----
Net income as reported in the consolidated statement of income ................................. 36.8 14.2 109.7 66.0
Adjustments
Operating expenses - performance options .................................................... (100.6) -- (100.6) --
- restructuring costs .................................................... -- (5.9) -- (6.8)
Goodwill ....................................................................................... (5.6) (5.6) (16.7) (15.8)
Loss on disposal/closure of operations ......................................................... 2.6 -- 10.3 --
Gain/(loss) on derivative instruments .......................................................... 0.7 0.1 1.6 (4.1)
Pension costs .................................................................................. 2.4 4.8 6.3 13.0
Interest on tax refund relating to prior acquisition ........................................... -- -- (1.6) --
Taxation ....................................................................................... 10.2 0.5 7.8 (0.6)
------ ---- ------ -----
Net (loss)/income as adjusted to accord with U.S. GAAP ......................................... (53.5) 8.1 16.8 51.7
====== ==== ====== =====
7
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(in millions of pounds sterling)
(unaudited)
Note 6 - Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
Comprehensive income
Three months Nine months
ended ended
September September
30, 30,
------------ -----------
2001 2000 2001 2000
----- ---- ---- ----
Net (loss)/income as adjusted to accord with U.S. GAAP ............................................. (53.5) 8.1 16.8 51.7
Other comprehensive income:
Foreign currency translation adjustments .......................................................... (14.0) 8.8 (3.5) 26.9
Cumulative effect of accounting change ............................................................ -- -- 5.2 --
Net loss on derivative instruments ................................................................ 7.3 -- 4.9 --
Unrealized holding gains .......................................................................... 0.5 0.3 0.5 0.8
----- ---- ---- ----
Comprehensive (loss)/income ........................................................................ (59.7) 17.2 23.9 79.4
===== ==== ==== ====
Shareholders' equity
September 30, December 31,
2001 2000
------------- ------------
Shareholders' equity as reported in the
consolidated balance sheet.................... 180.7 85.4
Adjustments
Intangible assets:
Goodwill - cost............................... 895.4 880.1
- amortization....................... (68.1) (50.7)
Current assets:
Investments ................................... 1.4 0.5
Receivables - derivative instruments .......... 14.7 (0.9)
Pension cost asset ............................ 10.7 6.7
Noncurrent liabilities:
Other -pension costs liability................. (27.7) (29.5)
-taxation ................................. (0.5) --
Provisions for liabilities and charges:
Deferred taxes - effect of above adjustments .. 27.5 26.2
------- -----
Shareholders' equity as adjusted to accord with
U.S. GAAP..................................... 1,034.1 917.8
======= =====
8
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO CONDENSED FINANCIAL STATEMENTS (continued)
(in millions of pounds sterling)
(unaudited)
Note 6 - Differences between accounting principles generally accepted in the
United Kingdom and the United States (continued)
The categories of cash flow activity under U.S. GAAP can be summarized as
follows:
Consolidated statement of cash flows
Nine months
ended
September 30,
--------------
2001 2000
------ -----
Cash inflow from operating activities ........................ 166.7 81.0
Cash outflow from investing activities ....................... 2.9 (14.3)
Cash outflow from financing activities ....................... (144.8) (73.5)
------ -----
Increase/(decrease) in cash and cash equivalents ............. 24.8 (6.8)
Effect of foreign exchange rate changes ...................... (1.8) (0.3)
Cash and cash equivalents at beginning of period ............. 58.5 48.7
------ -----
Cash and cash equivalents at end of period ................... 81.5 41.6
====== =====
9
WILLIS GROUP LIMITED AND SUBSIDIARIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Summary
Total revenues increased by (L)27.2 million (14%) to (L)225.7 million in the
third quarter of 2001 from (L)198.5 million in the third quarter of 2000.
Excluding the effects of foreign currency exchange rate movements and the
effects of acquisitions and disposals, total revenues were 13% higher in the
third quarter than in the corresponding period a year ago. The increase in
revenues was primarily due to increased business from existing clients and
generally higher premium rates and volumes. For the nine months to September
30, 2001, total revenues were (L)720.3 million, 16% higher than a year ago and
12% higher on a constant currency basis excluding acquisitions and disposals.
Operating income increased by (L)17.9 million (91%) to (L)37.5 million in
the third quarter of 2001 from (L)19.6 million in the third quarter of 2000,
reflecting improved revenues and continued emphasis on the control of costs
and the elimination of waste throughout the Group. For the nine months,
operating income was 75% higher than a year ago.
Net income increased by (L)22.6 million to (L)36.8 million in the third
quarter of 2001 from (L)14.2 million in the third quarter of 2000. For the
nine months, net income was (L)109.7 million compared with (L)66.0 million a
year ago.
The events of September 11 have had a significant impact on the market for
insurance and reinsurance. Many insurers have been reducing the amount of
insurance they write, particularly in the airline, energy and large complex
property areas and net industry capacity may be reduced. These insurers are
also increasing premium rates and restricting coverage terms, a process that
had commenced before September 11 but has accelerated since that time. We
believe this is due to concerns about the ability to arrange for reinsurance,
as well as to a change to a more conservative view on risk, particularly in
the areas mentioned above, in the wake of the events of September 11. As a
result of these changes, the number of insurers required to cover certain
risks has generally increased relative to the number of insurers that would
typically have been needed to cover the same risk prior to September 11, thus
making it more difficult to place certain risks in the market. Less complex
risks are being generally handled as normal, albeit with significant price
increases. Given the unprecedented nature and scope of the events of September
11 as well as the possibility of U.S. and other governmental participation in
the market for insurance for terrorist acts, there remains uncertainty in the
insurance market today and we are unable to predict at this time when or if
the insurance market will return to pre-September 11 conditions.
Our results for the quarter ended September 30, 2001 were relatively
unaffected by the events of September 11, as September is typically a
relatively unexceptional month, with most insurance renewals in the quarter
having been completed before September 11. However, we believe that some
insurance that we would otherwise place in the fourth quarter of this year may
be pushed into the first quarter of 2002 or thereafter as a result of
insurance being extended on a month to month basis instead of being renewed
for a more customary 12-month period in the fourth quarter. We also expect
that for the fourth quarter of 2001 any loss of revenue due to business being
pushed into 2002 will be offset to some extent, and perhaps even more than
offset, by higher commissions resulting from increased premium rates and
higher fees on the insurance placed during the quarter. However, there can be
no assurance that this will be the case.
Revenues
Revenues consist of commissions and fees, which increased by (L)27.8 million
(15%) to (L)214.4 million in the third quarter of 2001 from (L)186.6 million
in the third quarter of 2000, and interest income, which decreased by (L)0.6
million (5%) to (L)11.3 million from (L)11.9 million.
North American Operations: Revenues generated by our North American
operations increased by (L)5.1 million (6%) to (L)87.4 million in the third
quarter of 2001 from (L)82.3 million in the third quarter of 2000. Adjusting
for the effect of the disposal of the PENCO programs division in January 2001,
revenues increased by 7% in constant currency terms, primarily attributable to
increased premium rates.
10
WILLIS GROUP LIMITED AND SUBSIDIARIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS (continued)
Global Business: Revenues generated by our Global Business operations
increased by (L)19.3 million (20%) to (L)113.9 million in the third quarter of
2001 from (L)94.6 million in the third quarter of 2000. In constant currency
terms, revenues increased by 15%. Adjusting for the effect of the Willis
National disposal in July 2001, revenues increased by 20%, with strong new
business performance being supplemented by rising premium rates.
International: Revenues generated by our International operations increased
by (L)2.8 million (13%) to (L)24.4 million in the third quarter of 2001 from
(L)21.6 million in the third quarter of 2000. In constant currency terms,
revenues increased by 16%, mainly as a result of our acquisitions in Norway,
Colombia and South Africa. Excluding the effect on revenue of these
acquisitions, International revenues increased by 5% in constant currency
terms. Most international insurance markets are now firming in line with those
in the United States.
Expenses
Operating expenses increased by (L)9.3 million (5%) to (L)188.2 million in
the third quarter of 2001 from (L)178.9 million in the third quarter of 2000.
Excluding acquisitions and disposals, operating expenses were 4% higher in
constant currency terms than in the corresponding period a year ago. Much of
this increase related to higher incentive payments arising from improved
revenues and operating profits. Controllable expenses, defined as operating
expenses excluding incentives and other expenses linked to revenue growth,
rose 1% on a constant currency basis in the third quarter. For the nine
months, operating expenses were (L)571.3 million, 7% higher than a year ago
but 4% higher on a constant currency basis adjusting for acquisitions and
disposals. Controllable expenses for the nine months were 1% higher than the
corresponding period for 2000.
Profit on disposal of operations
During the first quarter of 2001, the Company disposed of the PENCO programs
division. In accordance with U.K. accounting principles, a non-cash charge of
(L)7.7 million was recorded, representing the write-off of goodwill previously
eliminated against reserves. During the third quarter, the Company completed
the sale of Willis National, the U.K. independent financial advisor, of which
we owned 51%. The gain on disposal amounted to (L)12.9 million, after writing
off goodwill of (L)2.4 million.
Associates
Our share of income before taxation from our associates was a profit of
(L)1.0 million in the third quarter of 2001 and a profit of (L)10.6 million in
the nine months, compared with a loss of (L)0.6 million and a profit of (L)8.9
million, respectively, for the corresponding periods of 2000.
Interest
Interest income of (L)14.5 million in the third quarter of 2001 represents
interest receivable on loans advanced to our indirect parent company, Trinity
Acquisition Limited. For the nine months, interest income of (L)45.5 million
also included (L)2.3 million in respect of interest received on a U.S. tax
refund.
Interest expense of (L)15.0 million for the third quarter of 2001 and
(L)44.0 million for the nine months compares with (L)15.2 million and (L)42.9
million, respectively, for the corresponding periods a year ago. The higher
interest expense for the nine months ended September 30, 2001 is attributable
to the strengthening of the U.S. dollar against sterling despite actual
interest payments in U.S. dollars being lower as a result of early repayment
and open-market repurchases of debt. Interest expense represents interest
payable on our long-term debt consisting of term loans and the 9% Senior
Subordinated Notes due 2009, all of which are denominated in U.S. dollars.
11
WILLIS GROUP LIMITED AND SUBSIDIARIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS (continued)
Taxation
The tax charge for the nine months ended September 2001 amounted to (L)55.3
million, which included a U.S. tax refund in respect of prior years of (L)1.8
million. Excluding the net profit on disposal of operations of (L)5.2 million,
the effective tax rate for the nine months was 35%.
Liquidity and Capital Resources
During the first quarter of 2001, we repaid $22.5 million of our term loans
ahead of the repayment schedule. During the third quarter of 2001, Willis
North America repurchased in the open market and retired $72.7 million of 9%
Senior Subordinated Notes. For the nine months, the total principal amount of
notes repurchased and retired was $98.7 million.
We expect that internally generated funds will be sufficient to meet our
foreseeable operating cash requirements, capital expenditures and scheduled
debt repayments, the next of which is not due until 2005. In addition, we have
an undrawn $150 million revolving credit facility.
Differences between U.K. GAAP and U.S. GAAP
Net income for the third quarter of 2001 of (L)36.8 million and for the nine
months of (L)109.7 million under U.K. GAAP, compare with a net loss of (L)53.5
million and net income of (L)16.8 million, respectively, under U.S. GAAP.
In the third quarter of 2001, management determined that it was probable
that the outstanding performance-based stock options would be earned and
become exercisable in full. As a result, for the quarter ended September 30,
2001, an initial charge of (L)100.6 million was recorded based on the 11.4
million options outstanding at that date and a quarter-end stock price of
$23.39. This charge represents approximately 62% of the ultimate charge
(assuming an unchanged stock price) that will be recognised over the remaining
vesting period to the end of 2004.
Other differences arise principally from the differing accounting treatment
for goodwill, forward foreign exchange contracts in respect of future income,
pensions and related deferred taxation. Details of the reconciling differences
are given in Note 31 of the Company's audited consolidated financial
statements for the year ended December 31, 2000.
Forward looking information
This quarterly statement contains certain statements relating to future
results, which are forward-looking statements as that term is defined in the
Private Securities Litigation Reform Act of 1995. These forward-looking
statements are subject to certain risks and uncertainties that could cause
actual results to differ materially from historical results or those
anticipated, depending on a variety of factors such as general economic
conditions in different countries around the world, changes in premium rates,
the competitive environment and the actual cost of resolution of contingent
liabilities. Further information concerning the Company and its business,
including factors that potentially could materially affect the Company's
financial results are contained in the Company's filings with the Securities
and Exchange Commission.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
WILLIS GROUP LIMITED
By: /S/ THOMAS COLRAINE
Name: Thomas Colraine
Title: Group Chief Financial Officer
Date: November 14, 2001
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