WATSON WYATT & CO HOLDINGS - 10-Q Quarterly Report

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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549

FORM 10-Q

(Mark One)

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

For the quarterly period ended September 30, 2002

TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from _____ to _____

Commission File Number: 001-16159

WATSON WYATT & COMPANY HOLDINGS
(Exact name of registrant as specified in its charter)

Delaware

52-2211537

(State or other jurisdiction of incorporation or organization)

(I.R.S. Employer Identification No.)

1717 H Street NW
Washington, DC 20006-3900
(Address of principal executive offices, including zip code)
(202) 715-7000
(Registrant's telephone number, including area code)

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

Indicate the number of shares outstanding of each of the issuer's classes of common stock, as of November 1, 2002.

Class

Number of Shares

Class A Common Stock, $.01 par value

32,899,538

WATSON WYATT & COMPANY HOLDINGS
INDEX TO FORM 10-Q

For the Three Months Ended September 30, 2002

PART I.

FINANCIAL INFORMATION

Item 1.

Financial Statements (Unaudited)

1 - 4

Consolidated Statements of Operations--Three months ended    September 30, 2002 and 2001

1

Consolidated Balance Sheets--September 30, 2002 and June 30, 2002

2

Consolidated Statements of Cash Flows--Three months ended    September 30, 2002 and 2001

3

Consolidated Statement of Changes in Stockholders' Equity--Three    months ended September 30, 2002

4

Notes to the Consolidated Financial Statements

5

Item 2.

Management's Discussion and Analysis of Financial Condition and    Results of Operations

11

Item 3.

Quantitative and Qualitative Disclosures About Market Risk

19

Item 4.

Controls and Procedures

19

PART II.

OTHER INFORMATION

Item 1.

Legal Proceedings

20

Item 2.

Changes in Securities and Use of Proceeds

21

Item 3.

Defaults Upon Senior Securities

22

Item 4.

Submission of Matters to a Vote of Security Holders

22

Item 5.

Other Information

22

Item 6.

Exhibits and Reports on Form 8-K

23

Signatures

24

Certifications

25

Table of Contents

WATSON WYATT & COMPANY HOLDINGS

Consolidated Statements of Operations

(Thousands of U.S. Dollars, Except Per Share Data)

Three months ended September 30,

2002 2001

(Unaudited)

Revenue $ 178,958 $ 172,456

Costs of providing services:

   Salaries and employee benefits 101,513 94,720

   Professional and subcontracted services 10,818 10,100

   Occupancy, communications and other 26,628 28,728

   General and administrative expenses 14,390 13,175

   Depreciation and amortization 5,079 5,388

158,428 152,111

Income from operations 20,530 20,345

Interest income, net 242 442

Other non-operating income 520 1,000

Income from affiliates 849 692

Income before income taxes 22,141 22,479

Provision for income taxes 9,078 8,991

Net income $ 13,063 $ 13,488

Basic earnings per share $ 0.40 $ 0.41

Diluted earnings per share $ 0.39 $ 0.40

Weighted average shares of common stock,

   basic (000) 32,945 33,033

Weighted average shares of common stock,

   diluted (000) 33,291 33,525

See accompanying notes

Table of Contents

WATSON WYATT & COMPANY HOLDINGS

Consolidated Balance Sheets

(Thousands of U.S. Dollars, Except Per Share Data)

September 30, June 30,

2002 2002

(Unaudited)

Assets

Cash and cash equivalents $ 64,156 $ 95,974

Receivables from clients:

   Billed, net of allowances of $2,759 and $1,405 88,645 83,311

   Unbilled, net of allowances of $795 and $431 66,211 68,301

154,856 151,612

Deferred income taxes 7,904 7,904

Other current assets 15,454 17,268

   Total current assets 242,370 272,758

Investment in affiliates 22,351 20,086

Fixed assets, net 62,830 62,552

Deferred income taxes 54,758 54,758

Goodwill and intangible assets
18,454

18,430

Other assets 7,881 8,233

Total Assets $ 408,644 $ 436,817

Liabilities

Accounts payable and accrued liabilities, including

   discretionary compensation $ 88,565 $ 134,998

Income taxes payable 13,596 14,589

   Total current liabilities 102,161 149,587

Accrued retirement benefits 91,103 84,148

Deferred rent and accrued lease losses 3,739 3,660

Other noncurrent liabilities 40,466 40,201

Total Liabilities 237,469 277,596

Commitments and contingencies

Stockholders' Equity

Preferred Stock - No par value:

   1,000,000 shares authorized;

   none issued and outstanding - -

Class A Common Stock - $.01 par value:

   69,000,000 shares authorized;

   20,340,014 and 20,212,449 issued and

   20,151,431 and 20,029,115 outstanding 203 202

Class B-1 Common Stock - $.01 par value:

   15,000,000 shares authorized;

   none issued and outstanding - -

Class B-2 Common Stock - $.01 par value:

   15,000,000 shares authorized;

   12,745,015 and 12,868,030 issued and

    outstanding 127 129

Additional paid-in capital 146,693 147,034

Treasury stock, at cost - 188,556 and

   183,334 shares (3,157
)
(3,076
)

Retained earnings 33,414 20,351

Cumulative translation adjustment (accumulated

   other comprehensive loss) (6,105
)
(5,419
)

Total Stockholders' Equity 171,175 159,221

Delaware		52-2211537
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

Class		Number of Shares
Class A Common Stock, $.01 par value		32,899,538

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1 - 4
	Consolidated Statements of Operations--Three months ended September 30, 2002 and 2001	1
	Consolidated Balance Sheets--September 30, 2002 and June 30, 2002	2
	Consolidated Statements of Cash Flows--Three months ended September 30, 2002 and 2001	3
	Consolidated Statement of Changes in Stockholders' Equity--Three months ended September 30, 2002	4
	Notes to the Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	11
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	19
Item 4.	Controls and Procedures		19

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings		20
Item 2.	Changes in Securities and Use of Proceeds		21
Item 3.	Defaults Upon Senior Securities		22
Item 4.	Submission of Matters to a Vote of Security Holders		22
Item 5.	Other Information		22
Item 6.	Exhibits and Reports on Form 8-K		23
Signatures			24
Certifications			25

WATSON WYATT & COMPANY HOLDINGS
Consolidated Statements of Operations
(Thousands of U.S. Dollars, Except Per Share Data)

	Three months ended September 30,

	2002	2001

	(Unaudited)

Revenue	$ 178,958	$ 172,456


Costs of providing services:
Salaries and employee benefits	101,513	94,720
Professional and subcontracted services	10,818	10,100
Occupancy, communications and other	26,628	28,728
General and administrative expenses	14,390	13,175
Depreciation and amortization	5,079	5,388

	158,428	152,111


Income from operations	20,530	20,345

Interest income, net	242	442
Other non-operating income	520	1,000
Income from affiliates	849	692


Income before income taxes	22,141	22,479

Provision for income taxes	9,078	8,991


Net income	$ 13,063	$ 13,488


Basic earnings per share	$ 0.40	$ 0.41


Diluted earnings per share	$ 0.39	$ 0.40


Weighted average shares of common stock,
basic (000)	32,945	33,033

Weighted average shares of common stock,
diluted (000)	33,291	33,525

WATSON WYATT & COMPANY HOLDINGS
Consolidated Balance Sheets
(Thousands of U.S. Dollars, Except Per Share Data)

	September 30,		June 30,
	2002		2002

	(Unaudited)

Assets
Cash and cash equivalents	$ 64,156		$ 95,974
Receivables from clients:
Billed, net of allowances of $2,759 and $1,405	88,645		83,311
Unbilled, net of allowances of $795 and $431	66,211		68,301

	154,856		151,612

Deferred income taxes	7,904		7,904
Other current assets	15,454		17,268

Total current assets	242,370		272,758

Investment in affiliates	22,351		20,086
Fixed assets, net	62,830		62,552
Deferred income taxes	54,758		54,758
Goodwill and intangible assets	18,454		18,430
Other assets	7,881		8,233


Total Assets	$ 408,644		$ 436,817


Liabilities
Accounts payable and accrued liabilities, including
discretionary compensation	$ 88,565		$ 134,998
Income taxes payable	13,596		14,589

Total current liabilities	102,161		149,587

Accrued retirement benefits	91,103		84,148
Deferred rent and accrued lease losses	3,739		3,660
Other noncurrent liabilities	40,466		40,201


Total Liabilities	237,469		277,596


Commitments and contingencies

Stockholders' Equity
Preferred Stock - No par value:
1,000,000 shares authorized;
none issued and outstanding	-		-
Class A Common Stock - $.01 par value:
69,000,000 shares authorized;
20,340,014 and 20,212,449 issued and
20,151,431 and 20,029,115 outstanding	203		202
Class B-1 Common Stock - $.01 par value:
15,000,000 shares authorized;
none issued and outstanding	-		-
Class B-2 Common Stock - $.01 par value:
15,000,000 shares authorized;
12,745,015 and 12,868,030 issued and
outstanding	127		129
Additional paid-in capital	146,693		147,034
Treasury stock, at cost - 188,556 and
183,334 shares	(3,157	)	(3,076	)
Retained earnings	33,414		20,351
Cumulative translation adjustment (accumulated
other comprehensive loss)	(6,105	)	(5,419	)

Total Stockholders' Equity	171,175		159,221