SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section13 or 15(d) of the securities exchange act of 1934
Date of Report (date of earliest event reported): FEBRUARY 5, 2003
WILLIS GROUP HOLDINGS LIMITED
(Exact name of Registrant as specified in its charter)
BERMUDA 001-16503 13-5160382 (IRS Employer
(Jurisdiction of incorporation (Commission File Identification No.)
or organization) Number)
Ten Trinity Square
London EC3P 3AX, England
(Address of principal executive offices)
Registrant's telephone number, including area code: +44 20 7488 8111
Not Applicable
(Former name or former address, if changed since last report.)
( BW)(NY-WILLIS-GROUP-HOLDINGS)(WSH) Willis Group Reports Record
Fourth Quarter and 2002 Operating Results; Declares Initial Quarterly
Dividend; Provides Outlook
Business Editors
NEW YORK--(BUSINESS WIRE)--Feb. 5, 2003--Willis Group Holdings
Limited (NYSE: WSH):
Highlights:
-- Twelve consecutive quarters of record revenue and operating
earnings
-- Strong balance sheet and cash flow supports initiation of
quarterly cash dividend
-- Well-positioned for continued growth
Willis Group Holdings Limited (NYSE: WSH), the global insurance
broker, today reports record revenue and operating cash earnings
growth for the quarter and year ended December 31, 2002.
In recognition of the Company's strong balance sheet and cash
flow, the Board of Directors declared an initial quarterly cash
dividend of $0.125 per common share on the Company's common stock, or
$0.50 per share per annum. The dividend will be paid April 15, 2003 to
shareholders of record March 31, 2003.
Operating cash earnings for the fourth quarter of 2002 rose 69% to
$83 million, or $0.49 per diluted share, compared to $49 million, or
$0.30 per diluted share, a year ago. Operating cash earnings
represents net income excluding non-cash compensation for
performance-based stock options, amortization of goodwill and other
intangibles, and gain or loss on disposal of operations.
Total reported revenues increased 25% to $483 million in the
fourth quarter of 2002 compared to a year ago. Organic revenue growth,
excluding the effects of foreign exchange, acquisitions and disposals,
was 19% for the quarter ended December 31, 2002. Operating margin, or
operating income excluding non-cash compensation for performance-based
stock options and gain or loss on disposal of operations to total
revenues, rose to 31% in the fourth quarter 2002 compared to 26% a
year ago. EBITDA margin, or revenues less general and administrative
expenses (excluding non-cash compensation) to total revenues, rose to
33% for the fourth quarter 2002, from 30% last year.
For the year ended December 31, 2002, operating cash earnings rose
84% to $271 million, or $1.62 per diluted share, compared to $147
million, or $0.99 per diluted share, a year ago. Total reported
revenues were $1,735 million, up 22% from last year. Organic revenue
growth was 18% for the year ended December 31, 2002. Operating margin
for the full year 2002 expanded to 28% from 21% in 2001. EBITDA margin
rose to 30% for the full year 2002, from 26% a year ago.
Joe Plumeri, Chairman and Chief Executive Officer said, "Our
results in 2002 further validated our model as a global broker
specializing in providing risk management services. We are focused on
our core brokerage business, where we can be responsive, creative
problem solvers for our clients. Growing within this framework, while
maintaining disciplined expense management and a strong balance sheet
has enabled us to deliver 12 consecutive quarters of record operating
results.
"We are proving every day that a global company can provide local,
client-focused delivery and service," Plumeri continued. "With this
approach supported by a strong sales culture defined by teamwork,
training and incentive compensation, Willis will continue to build on
the platform we have in place."
The Company generated substantial free cash flow in 2002, which
was in part used to repay $220 million of long-term debt during the
past year. At December 31, 2002, total long-term debt was $567
million, down 28%, from a year ago. Total stockholders' equity at
year-end was approximately $850 million, resulting in a total
long-term debt to capital ratio of 40%. There was approximately $120
million of unrestricted cash at December 31, 2002, providing
significant financial flexibility to support the cash needs of the
company.
"It has been less than two years since the Company's initial
public offering," Plumeri noted. "During that time, we have seen
steady improvement in operating performance. We have financial
flexibility supported by a strong balance sheet and cash flow, and
believe the initiation of a cash dividend at this time is an
appropriate return to our shareholders."
Willis recently completed several transactions consistent with its
strategy. During the fourth quarter, the Company acquired Special Risk
Advisors, a sports and entertainment insurance brokerage firm, and
disposed of a life and health third party administration business
unit. Subsequent to year-end, the Company acquired Sunaro, an employee
benefits technology company and increased its ownership position in
two subsidiaries. Willis acquired the remaining 22% interest in
subsidiary, Willis GmbH & Co., KG, Germany's third largest broker. The
Company and its associate, Gras Savoye, increased their ownership to
100% of Willis Iberia, with Willis owning 77% and Gras Savoye owning
23%.
Commenting on the current insurance marketplace, Plumeri said, "We
anticipate that insurance premium rates will continue to rise at least
through 2003. The rate of increase varies by line and geography. We
continue to see greater risk awareness and demand for our risk
management services, including alternative risk transfer solutions."
Plumeri concluded, "This Company is managed for growth and, in
this current environment, intends to grow operating cash earnings per
share by 25% or better in 2003 over the $1.62 reported for the year
ended December 31, 2002. Beyond 2003, the Company expects to grow
operating cash earnings per share by 15% or better each year, in all
market environments."
As a result of non-cash performance option compensation recorded
in 2002 and 2001, the Company reported net income for the quarter
ended December 31, 2002 of $118 million, or $0.70 per diluted share,
compared with $27 million, or $0.16 per diluted share, for the same
quarter last year. Reported net income for the year ended December 31,
2002 was $210 million, or $1.28 per diluted share, compared to $2
million, or $0.01 per diluted share, a year ago.
The Company adopted Statement of Financial Accounting Standards
No. 142, "Goodwill and Other Intangible Assets" (SFAS 142), effective
January 1, 2002. On implementing SFAS 142, amortization of goodwill
ceased, leading to an increase in diluted earnings per share of
approximately $0.05 compared to the fourth quarter of 2001, and $0.21
per diluted share compared to the year ended December 31, 2001, while
no impairment charges resulted from its implementation.
As of December 31, 2002, a majority of the Company's shares were
for the first time held by U.S. residents and, accordingly, the
Company ceased to be treated as a foreign private issuer and became a
domestic private issuer for U.S. securities law purposes. As a
domestic private issuer, the Company will cease filing Form 20-F
annual reports and Form 6-K quarterly reports with the Securities and
Exchange Commission and will file Form 10-K annual reports and Form
10-Q quarterly reports commencing with the annual report to be filed
for the year ended December 31, 2002.
Willis Group Holdings is a leading global insurance broker,
developing and delivering professional insurance, reinsurance, risk
management, financial and human resource consulting and actuarial
services to corporations, public entities and institutions around the
world. With over 300 offices in about 80 countries, its global team of
13,000 associates serves clients in 180 countries. Willis has
particular expertise in serving the needs of clients in such major
industries as construction, aerospace, marine and energy. In June 2001
the Group returned to public ownership. Additional information on
Willis may be found on its web site www.willis.com.
This press release may contain 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, fluctuations in global equity and fixed income
markets, 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.
WILLIS GROUP HOLDINGS LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(in millions, except per share data)
(unaudited)
Three months ended Year ended
December 31, December 31,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Revenues:
Commissions and fees $ 461 $ 370 $1,661 $1,357
Interest income 22 17 74 67
------- ------- ------- -------
Total Revenues 483 387 1,735 1,424
------- ------- ------- -------
Expenses:
General and
administrative expenses
(excluding non-cash
compensation) 324 270 1,214 1,054
Non-cash compensation -
performance options
(Note 1) (34) 13 80 158
Depreciation expense 9 8 34 33
Amortization of goodwill
and other intangibles 1 9 1 35
(Gain) loss on disposal
of operations (14) 5 (13) (17)
------- ------- ------- -------
Total Expenses 286 305 1,316 1,263
------- ------- ------- -------
Operating Income 197 82 419 161
Interest Expense 15 19 65 82
------- ------- ------- -------
Income before Income
Taxes, Equity in Net
Income of Associates and
Minority Interest 182 63 354 79
Income Tax Expense 58 26 141 62
------- ------- ------- -------
Income before Equity in
Net Income of Associates
and Minority Interest 124 37 213 17
Equity in Net Income of
Associates (1) (5) 9 4
Minority Interest
(including preferred
dividends $nil, $nil,
$nil, $12) (5) (5) (12) (19)
------- ------- ------- -------
Net Income $ 118 $ 27 $ 210 $ 2
======= ======= ======= =======
Net Income per Share
- Basic $ 0.80 $ 0.18 $ 1.43 $ 0.01
- Diluted $ 0.70 $ 0.16 $ 1.28 $ 0.01
======= ======= ======= =======
Average Number of Shares
Outstanding
- Basic 147 146 147 136
- Diluted 168 165 164 148
======= ======= ======= =======
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
Operating Cash Earnings
(Note 2) $ 83 $ 49 $ 271 $ 147
Operating Cash Earnings
per Diluted Share (Notes
2 and 3) $ 0.49 $ 0.30 $ 1.62 $ 0.99
Average Number of Diluted
Shares, Operating Basis
(Note 3) 168 165 167 148
======= ======= ======= =======
WILLIS GROUP HOLDINGS LIMITED
SUPPLEMENTAL FINANCIAL INFORMATION
(in millions, except per share data)
(unaudited)
Three months ended Year ended
December 31, December 31,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Operating Income and
EBITDA:
Total revenues $ 483 $ 387 $1,735 $1,424
General and administrative
expenses (excluding non-
cash compensation) 324 270 1,214 1,054
------- ------- ------- -------
EBITDA 159 117 521 370
Depreciation expense 9 8 34 33
Amortization of goodwill
and other intangibles 1 9 1 35
------- ------- ------- -------
Operating Income,
excluding non-cash
compensation -
performance options and
gain or loss on disposal
of operations $ 149 $ 100 $ 486 $ 302
======= ======= ======= =======
EBITDA Margin 33% 30% 30% 26%
Operating Margin 31% 26% 28% 21%
Organic Revenue Growth,
excluding the effects of
foreign exchange,
acquisitions and
disposals 19% 14% 18% 12%
Note 1: Non-Cash Compensation - Performance Options
A non-cash compensation credit for performance-based stock options
was recorded in the amount of $34 million in the fourth quarter of
2002 compared to a charge of $13 million in the same quarter a year
ago. The charges recorded in the years ended December 31, 2002 and
2001 were $80 million and $158 million, respectively. These charges,
which the Company began to take in the third quarter 2001, recognize
performance-based stock options granted to management by the Board of
Directors as part of the 1998 buyout arrangement with KKR, for meeting
or exceeding 2001 and 2002 targets. In accordance with U.S. GAAP, a
quarterly charge is recognized, on a cumulative basis, calculated in
accordance with the vesting schedule and the period-end stock price
until the end of the performance period, when the stock price becomes
fixed. The performance period ended on December 31, 2002 when the
stock price was $28.67. On a cumulative basis at December 31, 2002,
the Company has recognized $238 million, or approximately 85% of the
total estimated charge. The remaining estimated charge of $44 million
will be recognized quarterly through 2004 in accordance with the
vesting schedule.
Note 2: Operating Cash Earnings
The Company believes that Operating Cash Earnings is a measure
helpful to investors because it shows the results of the Company's
trading and finance costs without the impact of non-cash and
non-recurring items. The derivation of Operating Cash Earnings from
Net Income under U.S. GAAP is shown below:
Three months ended Year ended
December 31, December 31,
------------------ ------------------
2002 2001 2002 2001
------- ------- ------- -------
Net income, as reported $ 118 $ 27 $ 210 $ 2
Non-cash compensation -
performance options (net
of tax expense (benefit)
$(6), $2, $13, $26) (28) 11 67 132
Amortization of goodwill
and other intangibles 1 9 1 35
(Gain) loss on disposal of
operations (net of tax
expense (benefit) $(6),
$nil, $(6), $(6)) (8) 5 (7) (11)
Non-recurring tax credit - (3) - (11)
------- ------- ------- -------
Operating Cash Earnings $ 83 $ 49 $ 271 $ 147
======= ======= ======= =======
Note 3: Average Number of Diluted Shares, Operating Basis
In accordance with SFAS 128, "Earnings per Share", potentially
issuable shares are not included in the Average Number of Diluted
Shares Outstanding until the period in which the actual results meet
or exceed the performance criteria. The actual results exceeded the
performance criteria in the third quarter of 2002. Accordingly,
outstanding performance options have been included from the beginning
of the third quarter 2002 in calculating the 164 million Diluted
Shares Outstanding at December 31, 2002. Management believes it is
helpful to investors to present for each period the average number of
diluted shares on the assumption that the performance options would
ultimately be earned in full. Accordingly, outstanding performance
options have been included from the beginning of 2002 in calculating
the 167 million Diluted Shares, Operating Basis at December 31, 2002.
Note 4: Pension Plans
The Company is in the process of completing its annual year-end
review of its U.S. and U.K. pension plans. As a result of declining
investment returns and a decrease in the value of securities held in
the plans, the Company recorded an increase in the minimum pension
liability of approximately $170 million, net of tax, with a
commensurate reduction in shareholders' equity. There were no
supplemental cash contributions required to be made to the plans in
2002, and they continue to be funded in accordance with actuarial
recommendations. For 2003, the Company has maintained its expected
long-term rate of return on assets for the U.S. plan at 8.5% and for
the U.K. plan at 7.25%.
--30--KB/ny*
CONTACT: Willis Group Holdings Limited, New York
Investors:
Kerry K. Calaiaro, 212/837-0880
calaiaro_ke@willis.com
Media:
Nicholas Jones, +44 20 7488-8190
jonesnr@willis.com
Dan Prince, 212/837-0806
prince_da@willis.com
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 HOLDINGS LIMITED
By: ____/s/ Mary E. Caiazzo_________
Mary E. Caiazzo
Assistant General Counsel
Date: FEBRUARY 5, 2003