SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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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, 2002
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WILLIS GROUP LIMITED
(Translation of registrant's name into English)
Ten Trinity Square, London EC3P 3AX
(Address of principal executive offices)
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(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
(unaudited)
Three months ended Nine months ended
September 30, September 30,
-------------------------- -------------------------------
2002 2001 2002 2001
As restated As restated
(Note 1) (Note 1)
------------ ------------ ------------- --------------
($ million, except per share data)
Operating revenues
Commissions and fees....................................... 370.8 308.6 1,199.9 986.5
Interest and investment income............................. 19.1 16.3 52.0 50.4
------------- -------------- -------------- --------------
389.9 324.9 1,251.9 1,036.9
Operating expenses......................................... (311.2) (270.9) (924.8) (822.4)
------------- -------------- -------------- --------------
Operating income........................................... 78.7 54.0 327.1 214.5
Profit/(loss) on disposal/closure of operations............ - 18.6 (11.8) 7.5
Share of profit of associates.............................. 3.4 1.5 15.3 15.3
Interest income (Note 2)................................... 15.3 20.9 49.7 65.5
Interest expense........................................... (15.3) (21.6) (48.6) (63.3)
------------- -------------- -------------- --------------
Income before taxation..................................... 82.1 73.4 331.7 239.5
Taxation................................................... (37.0) (20.1) (122.2) (80.1)
------------- -------------- -------------- --------------
Income after taxation...................................... 45.1 53.3 209.5 159.4
Equity minority interests.................................. (0.2) 0.5 (6.9) (1.9)
------------- -------------- -------------- --------------
Net income (i)............................................. 44.9 53.8 202.6 157.5
------------- -------------- -------------- --------------
Net income per ordinary share.............................. $0.09 $0.11 $0.42 $0.33
------------- -------------- -------------- --------------
Average number of ordinary shares outstanding (in millions) 481.7 479.3 481.7 479.3
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(i) A summary of the significant adjustments to net income that would be
required if United States generally accepted accounting principles ("U.S.
GAAP") were to be applied instead of those generally accepted in the United
Kingdom ("U.K. GAAP") is set forth in Note 6 of Notes to unaudited Condensed
Consolidated Financial Statements.
CONSOLIDATED STATEMENT OF TOTAL RECOGNIZED GAINS AND LOSSES
(unaudited)
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
------------- -------------- -------------- --------------
($ million)
Net income................................................. 44.9 53.8 202.6 157.5
Currency translation differences........................... (4.0) 30.5 (0.8) (21.6)
------------- -------------- -------------- --------------
Total recognized gains and losses in the period............ 40.9 84.3 201.8 135.9
Prior year adjustment (Note 1)............................. - - 21.4 -
------------- -------------- -------------- --------------
Total recognized gains and losses since last
annual report (ii)........................................ 40.9 84.3 223.2 135.9
- ------------------------------------------------------------ ------------- -------------- -------------- --------------
(ii) A statement of Comprehensive Income under U.S. GAAP is set forth in
Note 6 of Notes to unaudited Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
2
WILLIS GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEET
(unaudited)
September 30, December 31,
2002 2001(i)
As restated
(Note 1)
--------------- --------------
($ million)
ASSETS
Current assets
Cash and short-term deposits........................................................... 1,087.2 968.2
Investments............................................................................ 646.8 478.7
Accounts receivable, net............................................................... 8,129.8 7,776.3
-------------- --------------
9,863.8 9,223.2
-------------- --------------
Fixed assets
Intangible assets - goodwill, net...................................................... 115.1 44.7
Tangible assets, net................................................................... 201.6 185.1
Investments............................................................................ 46.8 70.7
-------------- --------------
363.5 300.5
-------------- --------------
Total assets............................................................................. 10,227.3 9,523.7
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LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................................... 8,230.7 6,796.3
Corporate tax payable.................................................................. 178.4 108.5
Accruals and deferred income .......................................................... 194.1 161.2
Other current liabilities.............................................................. 192.9 1,134.7
-------------- --------------
8,796.1 8,200.7
-------------- --------------
Noncurrent liabilities
Bank loans............................................................................. 242.6 348.0
9% Senior Subordinated Notes due 2009.................................................. 413.5 436.4
Other noncurrent liabilities........................................................... 54.0 52.5
-------------- --------------
710.1 836.9
-------------- --------------
Provisions for liabilities and charges (Note 5).......................................... 136.3 140.1
Equity minority interests................................................................ 19.5 15.5
-------------- --------------
Total liabilities and minority interests................................................. 9,662.0 9,193.2
Shareholders' equity (ii)
Share capital.......................................................................... 97.9 97.5
Share premium.......................................................................... 221.7 202.6
Revaluation reserve.................................................................... 21.5 21.5
Retained earnings...................................................................... 224.2 8.9
-------------- --------------
565.3 330.5
-------------- --------------
Total liabilities and shareholders' equity............................................... 10,227.3 9,523.7
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(i) The consolidated balance sheet at December 31, 2001 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 U.S. GAAP were to be applied instead of accounting principles
generally accepted in the United Kingdom is set forth in Note 6 of Notes to
unaudited Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
3
WILLIS GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS
(unaudited)
Nine months
ended September 30,
-----------------------------
2002 2001
-------------- --------------
($ million)
Net cash inflow from operating activities (Note 3)........................................ 509.2 449.9
Dividends from associates................................................................. 2.6 3.3
Returns on investments and servicing of finance
Interest received....................................................................... 63.2 80.9
Interest paid........................................................................... (57.8) (74.5)
Bank fees on borrowings................................................................. (0.6) (0.4)
Minority dividends paid................................................................. (2.0) (2.6)
-------------- --------------
2.8 3.4
-------------- --------------
Taxation.................................................................................. (55.7) (23.6)
Capital expenditure and financial investment
Purchase of tangible fixed assets....................................................... (29.6) (19.9)
Sale of tangible fixed assets........................................................... 1.6 3.5
Purchase of fixed asset investments..................................................... - (0.1)
Sale of fixed asset investments......................................................... - 0.1
-------------- --------------
(28.0) (16.4)
-------------- --------------
Acquisitions and disposals
Purchase of subsidiaries................................................................ (21.0) (4.3)
Sale of subsidiaries.................................................................... (0.2) 28.9
Proceeds from sale of operations........................................................ - 3.5
Net cash transferred on purchase/sale of subsidiaries................................... 30.6 (9.5)
-------------- --------------
9.4 18.6
-------------- --------------
Equity dividends paid..................................................................... - (21.8)
-------------- --------------
Cash flow before management of liquid resources and financing............................. 440.3 413.4
Management of liquid resources............................................................ (416.1) (237.9)
Financing
Capital contribution.................................................................... 2.4 -
Amounts due to/from parent company...................................................... (74.0) (65.0)
Debt due beyond a year:
Decrease in long-term borrowings...................................................... (129.4) (121.2)
-------------- --------------
(201.0) (186.2)
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Decrease in cash......................................................................... (176.8) (10.7)
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The significant differences between the condensed consolidated statement of cash
flows presented above and that required under U.S. GAAP are described in Note 6
of Notes to unaudited Condensed Consolidated Financial Statements.
The accompanying notes are an integral part of these unaudited
condensed consolidated financial statements.
4
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
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, 2001. 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, 2002 are not necessarily indicative of the results
that may be expected for the year ending December 31, 2002.
The Company has changed its reporting currency to United States dollars
($) from pounds sterling as a greater proportion of the Group's total revenues
are now earned in $ than in other currencies. Prior year financial statements
have been restated in $.
The adoption of U.K. Financial Reporting Standard No.19 (FRS19) "Deferred
Tax" with effect from January 1, 2002 has required changes in the method of
accounting for deferred tax assets and liabilities. As a result of this change
in accounting policy, the balance sheet at December 31, 2001 has been restated
to increase both deferred tax assets (included within accounts receivable) and
retained earnings by $21.4 million. The effect on the current and prior period
statements of income was not material.
Note 2 - Interest income
Substantially all the Group's external borrowings have been advanced to
the Company's indirect parent company, Trinity Acquisition Limited. Interest
receivable on the amounts advanced has been disclosed separately from interest
receivable on other funds, which is included in operating revenues.
Note 3 - Reconciliation of operating income to net cash inflow from operating
activities
Nine months
ended September 30,
-----------------------------
2002 2001
-------------- --------------
($ million)
Operating income.......................................................................... 327.1 214.5
Depreciation and amortization............................................................. 30.3 27.7
Loss on sale of tangible fixed assets..................................................... 0.5 0.4
Increase in receivables................................................................... (897.6) (624.2)
Increase in payables...................................................................... 1,061.4 850.1
Net movement on provisions................................................................ (12.5) (18.6)
-------------- --------------
Net cash inflow from operating activities................................................. 509.2 449.9
-------------- --------------
Reconciliation of net cash flow to movement in net funds
Nine months
ended September 30,
-----------------------------
2002 2001
-------------- --------------
($ million)
Net funds at beginning of period.......................................................... 1,548.7 1,008.8
Net cash flow............................................................................. (176.8) (10.7)
Management of liquid resources............................................................ 416.1 237.9
Financing ................................................................................ 203.4 186.2
Currency exchange movements............................................................... 45.3 (31.3)
-------------- --------------
Net funds at end of period................................................................ 2,036.7 1,390.9
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5
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 4 - Reconciliation of movements in shareholders' equity
Nine months ended
September 30,
-----------------------------
2002 2001
-------------- --------------
($ million)
Net income................................................................................ 202.6 157.5
Dividends................................................................................. - (11.6)
Ordinary shares issued.................................................................... 19.5 -
Goodwill reinstated on disposals.......................................................... 11.1 14.5
Capital contribution...................................................................... 2.4 -
Exchange adjustments...................................................................... (0.8) (21.6)
-------------- --------------
Net increase in shareholders' equity...................................................... 234.8 138.8
-------------- --------------
Shareholders' equity at beginning of period as previously stated.......................... 309.1 135.6
Prior year adjustment..................................................................... 21.4 25.1
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Shareholders' equity at beginning of period as restated................................... 330.5 160.7
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Shareholders' equity at end of period..................................................... 565.3 299.5
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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 ("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.
At September 30, 2002, the Company had provisions of $25.9 million
relating to this issue. Although the Company considers these 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.
At September 30, 2002, the Company had provisions of $21.7 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.
The Company is subject to various actual and potential claims, lawsuits
and proceedings relating principally to alleged errors and omissions in
connection with the placement of insurance and reinsurance in the ordinary
course of business. Some of those claims, lawsuits and proceedings seek damages
in amounts which could, if assessed, be significant.
The Company acted as broker, but not as underwriter, for the placement of
both property and casualty insurance for a number of entities that were directly
impacted by the September 11, 2001 destruction of the World Trade Center
complex, including Silverstein Properties L.L.C., which acquired a 99-year
leasehold interest in the twin towers and related facilities from the Port
Authority of New York and New Jersey in July 2001. There are a number of
lawsuits pending in the U.S. between the insured parties and the insurers.
Although the Company is not a party to any of these lawsuits, other disputes may
arise with respect to the destruction of the World Trade Center complex which
could affect the Company.
The Company maintains insurance, subject to certain deductibles and
self-insurance, against such claims, lawsuits and proceedings. The Company has
also established provisions against these items which are believed to be
adequate in the light of current information and legal advice, and the Company
adjusts such provisions from time to time according to developments. On the
basis of current information, the Company does not expect that the ultimate
outcome of the actual or potential claims, lawsuits and proceedings to which the
Company is subject, either individually or in the aggregate, will have a
material adverse effect on the Company's financial condition, results of
operations or liquidity.
6
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
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, 2001.
The effect on net income/(loss), comprehensive income/(loss), and
shareholders' equity of applying the significant differences between U.K. GAAP
and U.S. GAAP described above is summarized as follows:
Net income/(loss)
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
As restated(i) As restated(i)
------------- -------------- -------------- --------------
($ million)
Net income as reported in the condensed consolidated 44.9 53.8 202.6 157.5
statement of income
Adjustments
Operating expenses - performance options................... (18.4) (144.8) (114.4) (144.8)
Goodwill................................................... 2.2 (8.0) 5.7 (24.0)
Gain on disposal/closure of operations..................... - 3.7 11.1 14.8
(Loss)/gain on derivative instruments...................... (0.3) 1.0 1.1 2.3
Pension costs.............................................. 0.7 3.5 2.0 9.1
Foreign currency translation adjustments................... 1.2 - 1.2 -
Interest on tax refund relating to prior acquisition....... - - - (2.3)
Taxation................................................... 25.6 13.9 18.3 11.7
------------- -------------- -------------- --------------
Net income/(loss) as adjusted to accord with U.S. GAAP..... 55.9 (76.9) 127.6 24.3
------------- -------------- -------------- --------------
(i) The reconciliation of net income from U.K. to U.S. GAAP has been restated
to reflect the implementation of FRS19, as described in Note 1.
Comprehensive income/(loss)
Three months ended Nine months ended
September 30, September 30,
----------------------------- -----------------------------
2002 2001 2002 2001
As restated(i) As restated(i)
------------- -------------- -------------- --------------
($ million)
Net income/(loss) as adjusted to accord with U.S. GAAP 55.9 (76.9) 127.6 24.3
Other comprehensive income:
Foreign currency translation adjustments................. (4.8) (43.8) (0.8) (28.7)
Cumulative effect of accounting change................... - - - 7.5
Net gain on derivative instruments....................... 17.6 10.6 29.1 7.1
Unrealized holding gain.................................. 1.1 0.7 1.4 0.7
------------- -------------- -------------- --------------
Comprehensive income/(loss)................................ 69.8 (109.4) 157.3 10.9
------------- -------------- -------------- --------------
(i) The reconciliation of comprehensive income/(loss) from U.K. to U.S. GAAP
has been restated to reflect the implementation of FRS19, as described in
Note 1.
7
WILLIS GROUP LIMITED AND SUBSIDIARIES
NOTES TO UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued)
Note 6 - Differences between accounting principles generally accepted in
the United Kingdom and the United States (continued)
Shareholders' equity
December 31,
September 30, 2001
2002 As restated(i)
--------------- --------------
($ million)
Shareholders' equity as reported in the consolidated balance sheet....................... 565.3 330.5
Adjustments
Intangible assets:
Goodwill - cost........................................................................ 1,318.8 1,318.8
- amortization................................................................ (100.7) (106.4)
Current assets:
Investments............................................................................ 3.3 1.3
Receivables - derivative instruments................................................... 37.0 18.0
Pension cost asset..................................................................... 25.2 17.4
Noncurrent assets:
Receivables - derivative instruments................................................... 32.3 14.5
Current liabilities:
Payables - derivative instruments...................................................... (0.1) (2.5)
Noncurrent liabilities:
Other - pension costs liability....................................................... (43.6) (39.6)
- payables - derivative instruments............................................. (7.3) (10.9)
- taxation...................................................................... (9.0) (6.0)
Provisions for liabilities and charges:
Deferred taxes ........................................................................ 42.4 34.9
-------------- --------------
Shareholders' equity as adjusted to accord with U.S. GAAP................................ 1,863.6 1,570.0
-------------- --------------
(i) The reconciliation of shareholders' equity from U.K. to U.S. GAAP has been
restated to reflect the implementation of FRS19, as described in Note 1.
The categories of cashflow activity under U.S. GAAP can be summarized as
follows:
Consolidated statement of cash flows
Nine months ended
September 30,
-----------------------------
2002 2001
-------------- --------------
($ million)
Cash inflow from operating activities..................................................... 300.0 243.3
Cash outflow from investing activities.................................................... (34.2) (0.7)
Cash outflow from financing activities.................................................... (201.0) (208.0)
-------------- --------------
Increase in cash and cash equivalents..................................................... 64.8 34.6
Effect of foreign exchange rate changes................................................... 4.1 (3.4)
Cash and cash equivalents at beginning of period.......................................... 124.1 87.8
-------------- --------------
Cash and cash equivalents at end of period................................................ 193.0 119.0
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8
WILLIS GROUP LIMITED AND SUBSIDIARIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
Summary
Total revenues increased by 20% to $389.9 million in the third quarter of
2002 from $324.9 million in the third quarter of 2001. Excluding the effects of
foreign currency exchange rate movements, acquisitions and disposals, total
revenues were 17% higher in the third quarter of 2002 than in the corresponding
quarter of 2001. For the nine months to September 30, 2002, total revenues were
$1,251.9 million, 21% higher than a year ago and 17% higher on a constant
currency basis excluding the effect of acquisitions and disposals. The increase
in revenues in both the third quarter and the nine-month period was due, in
approximately equal measure, to both new business growth and the impact of
higher premium rates prevailing in the market.
Operating income increased by $24.7 million (46%) to $78.7 million in the
third quarter of 2002 from $54.0 million in the third quarter of 2001. For the
nine months, operating income was $327.1 million, an increase of $112.6 million
(52%) compared to the corresponding period in 2001.
As a result of the profit on disposal of Willis National in the third
quarter of 2001, net income in the third quarter of 2002 of $44.9 million ($0.09
per share) was $8.9 million (17%) lower than the net income of $53.8 million
($0.11 per share) in the third quarter of 2001. For the nine months, net income
was $202.6 million ($0.42 per share) compared with $157.5 million ($0.33 per
share) a year ago.
Revenues
Commissions and fees increased by $62.2 million (20%) to $370.8 million in
the third quarter of 2002 from $308.6 million in the third quarter of 2001.
Interest income was higher at $19.1 million when compared to $16.3 million in
the corresponding period of 2001.
Global: Revenues generated by our Global business increased by $33.8
million (21%) to $196.6 million in the third quarter of 2002 from $162.8 million
in the third quarter of 2001. Adjusting for the disposal of Willis National in
July 2001, revenues increased by 20% in constant currency terms. Global's
specialty businesses, aerospace, marine and reinsurance, continued to benefit
from a pronounced increase in the premium rates prevailing in these markets and
from new business successes.
North America: Revenues generated by our North America business increased
by $14.3 million (11%) to $141.0 million in the third quarter of 2002 from
$126.7 million in the third quarter of 2001. Adjusting for the acquisition of
Richard N. Goldman & Co., effective December 31, 2001, revenues increased by
12%. The U.S. middle market experienced significant premium rate increases
across all lines.
International: Revenues generated by our International business increased
by $16.9 million (48%) to $52.3 million in the third quarter of 2002 from $35.4
million in the third quarter of 2001. Adjusting for the effect on revenues of
our increased investment in Jaspers Wuppesahl, which resulted in an accounting
change from the equity method to full consolidation, International revenues
increased by 17% in constant currency terms led by good performance in
Continental Europe, Eastern Hemisphere (especially Australia) and Latin America.
Expenses
Operating expenses increased by $40.3 million (15%) to $311.2 million from
$270.9 million in the third quarter of 2001. Excluding the effect of foreign
currency exchange rate movements and the effect of acquisitions and disposals,
operating expenses grew by 11% in the third quarter of 2002 compared with the
third quarter of 2001. Much of the increase related to increased incentive
compensation due to positive results and the impact of hiring production and
sales executives. We also continued to invest in systems and information
technology to enhance our customer service and management information
capabilities. For the nine months, operating expenses were 12% higher than a
year ago but 9% higher on a constant currency basis adjusting for acquisitions
and disposals.
Profit/(loss) on disposal of operations
During the second quarter of 2002, the Company disposed of Willis Safety
Solutions. The loss on disposal amounted to $11.8 million which included a
non-cash charge of $11.1 million, representing the write-off of goodwill
previously eliminated against reserves. In the first quarter of 2001, the
Company disposed of the PENCO programs division recording a non-cash charge for
goodwill of $11.1 million. During the third quarter of 2001, 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 $18.6 million after
writing off goodwill of $3.4 million.
Associates
Our share of profit of associates was $3.4 million in the third quarter of
2002 and $15.3 million in the nine months, compared with $1.5 million and $15.3
million, respectively, for the corresponding periods of 2001. Most of our
associates reported increased earnings in 2002. For the three and nine months
ended September 30, 2001, our share of profit of associates included our share
of earnings from Jaspers Wuppesahl, our former associate in Germany, which
became a subsidiary from January 1, 2002.
9
WILLIS GROUP LIMITED AND SUBSIDIARIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS (continued)
Interest
Interest income of $15.3 million in the third quarter of 2002 was $5.6
million lower than in the third quarter of 2001, reflecting lower principal
amounts outstanding on loans advanced to our indirect parent company, Trinity
Acquisition Limited.
Interest expense of $15.3 million in the third quarter of 2002 was $6.3
million lower than in the third quarter of 2001, reflecting lower principal
amounts of debt outstanding following the early repayment of debt. Interest
expense represents interest payable on long-term debt consisting of the senior
credit facilities and the 9% senior subordinated notes due 2009.
Minority interest
Minority interests for the nine months ended September 30, 2002 were $(6.9)
million compared with $(1.9) million for the corresponding period of 2001. The
increase was largely due to the consolidation of Jaspers Wuppesahl (in which we
now own a 78% interest) as a subsidiary from January 1, 2002.
Income taxes
The tax charge for the nine months ended September 2002 amounted to $122.2
million. Excluding the loss on disposal of operations (including goodwill
written off) of $11.8 million, the effective tax rate was 36%. For the
corresponding period of 2001, the tax charge of $80.1 million included a U.S.
tax refund in respect of prior years of $2.6 million. Excluding this refund and
the goodwill write off on the PENCO disposal for which no tax relief was
available, the effective tax rate for the nine months of 2001 was 35%.
Liquidity and capital resources
Net cash inflow from operating activities increased by $59.3 million to
$509.2 million in the nine months from $449.9 million in the corresponding
period of 2001. This increase was due primarily to the improved operating
results.
On January 1, 2002, and September 30, 2002, the Company acquired a further
22% and 11% interest, respectively, in addition to the 45% already owned, in
Jaspers Wuppesahl, Germany's third largest insurance broker. Accordingly,
Jaspers Wuppesahl (since renamed Willis GmbH & Co. K.G.) has been accounted for
as a subsidiary from January 1, 2002. The aggregate purchase price was $22
million, of which $5 million was deferred to 2003.
During the nine months ended September 30, 2002, we repaid $105.4 million
of our term loans ahead of the repayment schedule. $24.0 million of 9% Senior
Subordinated Notes have also been redeemed in this period.
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 $150.0 million revolving credit facility.
Differences between U.K. GAAP and U.S. GAAP
Net income for the third quarter of 2002 of $44.9 million and for the nine
months of $202.6 million under U.K. GAAP, compare with net income of $55.9
million and $127.6 million, respectively, under U.S. GAAP.
In the third quarter of 2001, management of Willis Group Holdings Limited
determined that it was probable that the outstanding performance-based stock
options would be earned and become exercisable in full. Accordingly, further
compensation expense of $114.4 million was recognised in the nine months ended
September 30, 2002. The total charge to-date represents approximately 81% of the
ultimate charge (assuming an unchanged stock price) that will be recognized over
the remaining vesting period to the end of 2004.
For the purpose of reconciliation to U.S. GAAP, the Company adopted
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets ("SFAS 142"), effective from January 1, 2002. In accordance
with SFAS 142, the Company no longer amortizes goodwill and intangible assets
but rather tests such assets at least annually for impairment. No impairment
charges resulted from the implementation of SFAS 142. Amortization of goodwill
in the nine months ended September 30, 2001 amounted to $24.0 million.
Other differences arise principally from the differing accounting treatment
for goodwill, derivative instruments, 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, 2001.
10
WILLIS GROUP LIMITED AND SUBSIDIARIES
OPERATING AND FINANCIAL REVIEW AND PROSPECTS (continued)
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.
11
WILLIS GROUP LIMITED AND SUBSIDIARIES
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, 2002