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 March 31, 2003

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, D.C. 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 April 28, 2003.

Class		Number of Shares
Class A Common Stock, $.01 par value		32,942,153

WATSON WYATT & COMPANY HOLDINGS
INDEX TO FORM 10-Q

For the Three and Nine Months Ended March 31, 2003

PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)	1 - 4
	Consolidated Statements of Operations--Three and nine months ended March 31, 2003 and 2002	1
	Consolidated Balance Sheets--March 31, 2003 and June 30, 2002	2
	Consolidated Statements of Cash Flows--Nine months ended March 31, 2003 and 2002	3
	Consolidated Statement of Changes in Stockholders' Equity--Nine months ended March 31, 2003	4
	Notes to the Consolidated Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	15
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	27

PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	27
Item 2.	Changes in Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	28
Item 4.	Submission of Matters to a Vote of Security Holders	28
Item 5.	Other Information	28
Item 6.	Exhibits and Reports on Form 8-K	29
Signatures		30
Certifications		31

WATSON WYATT & COMPANY HOLDINGS

Consolidated Statements of Operations

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

Three Months Ended March 31, Nine Months Ended March 31,

2003 2002 2003 2002

(Unaudited) (Unaudited)

Revenue $    177,596 $    180,382 $    531,178 $     527,735

Costs of providing services:

   Salaries and employee benefits
100,584 105,432 299,935 300,646

   Professional and subcontracted services 11,564 11,270 35,424 35,829

   Occupancy, communications and other 27,295
27,303

79,408

81,518

   General and administrative expenses 13,690 14,043 42,895 41,250

   Depreciation and amortization 4,854 4,922 15,199 15,552

157,987 162,970 472,861 474,795

Income from operations 19,609 17,412 58,317 52,940

Interest income, net 150 302 617 988

Other non-operating income -- -- 641 1,000

Income from affiliates 1,322 793 4,229 2,888

Income from continuing operations

   before income taxes
21,081 18,507 63,804 57,816

Provision for income taxes 8,640 7,400 26,156 23,125

Income from continuing operations 12,441 11,107 37,648 34,691

Discontinued operations:

Adjustment to reduce estimated loss on

disposal of discontinued operations

[see Note 8] [less applicable income tax

expense of $4,692 for the three and nine

months ended March 31, 2003]
6,752 -- 6,752 --

Net income $       19,193 $    11,107 $      44,400 $       34,691

Basic earnings per share

   Income from continuing operations $          0.37 $          0.34 $          1.14 $           1.05

   Income from discontinued operations           0.21                - --           0.21                - --

   Net income $          0.58 $          0.34 $          1.35 $           1.05

Diluted earnings per share

   Income from continuing operations $          0.37 $          0.33 $          1.13 $           1.04

   Income from discontinued operations           0.21                - --           0.21                - --

   Net income $          0.58 $          0.33 $          1.34 $           1.04

Weighted average shares of common

stock, basic (000)
32,942 32,959 32,944 32,995

Weighted average shares of common

stock, diluted (000)
33,242 33,401 33,277 33,420

See accompanying notes

1

WATSON WYATT & COMPANY HOLDINGS

Consolidated Balance Sheets

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

March 31, June 30,

2003 2002

(Unaudited)

Assets

Cash and cash equivalents $          119,795 $            95,974

Receivables from clients:

Billed, net of allowances of $1,556 and $1,405 85,034 83,311

Unbilled, net of allowances of $479 and $431 62,401 68,301

147,435 151,612

Deferred income taxes 5,073 7,904

Other current assets 11,261 17,268

Total current assets 283,564 272,758

Investment in affiliates 23,550 20,086

Fixed assets, net 60,920 62,552

Deferred income taxes 60,542 54,758

Goodwill and intangible assets
18,597

18,430

Other assets 6,311 8,233

Total Assets $          453,484 $          436,817

Liabilities

Accounts payable and accrued liabilities, including discretionary compensation $          101,711 $          134,998

Income taxes payable 22,281 14,589

Total current liabilities 123,992 149,587

Accrued retirement benefits 89,527 84,148

Deferred rent and accrued lease losses 4,633 3,660

Other noncurrent liabilities 30,759 40,201

Total Liabilities 248,911 277,596

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;

33,087,880 and 20,212,449 issued and

32,935,240 and 20,029,115 outstanding 331 202

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;

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

	Three Months Ended March 31,		Nine Months Ended March 31,

	2003	2002	2003	2002

	(Unaudited)		(Unaudited)

Revenue	$ 177,596	$ 180,382	$ 531,178	$ 527,735

Costs of providing services:
Salaries and employee benefits	100,584	105,432	299,935	300,646
Professional and subcontracted services	11,564	11,270	35,424	35,829
Occupancy, communications and other	27,295	27,303	79,408	81,518
General and administrative expenses	13,690	14,043	42,895	41,250
Depreciation and amortization	4,854	4,922	15,199	15,552

	157,987	162,970	472,861	474,795

Income from operations	19,609	17,412	58,317	52,940

Interest income, net	150	302	617	988
Other non-operating income	--	--	641	1,000
Income from affiliates	1,322	793	4,229	2,888

Income from continuing operations before income taxes	21,081	18,507	63,804	57,816

Provision for income taxes	8,640	7,400	26,156	23,125


Income from continuing operations	12,441	11,107	37,648	34,691

Discontinued operations:

Adjustment to reduce estimated loss on disposal of discontinued operations [see Note 8] [less applicable income tax expense of $4,692 for the three and nine months ended March 31, 2003]	6,752	--	6,752	--


Net income	$ 19,193	$ 11,107	$ 44,400	$ 34,691


Basic earnings per share
Income from continuing operations	$ 0.37	$ 0.34	$ 1.14	$ 1.05
Income from discontinued operations	0.21	- --	0.21	- --

Net income	$ 0.58	$ 0.34	$ 1.35	$ 1.05

Diluted earnings per share
Income from continuing operations	$ 0.37	$ 0.33	$ 1.13	$ 1.04
Income from discontinued operations	0.21	- --	0.21	- --

Net income	$ 0.58	$ 0.33	$ 1.34	$ 1.04

Weighted average shares of common stock, basic (000)	32,942	32,959	32,944	32,995

Weighted average shares of common stock, diluted (000)	33,242	33,401	33,277	33,420

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

		March 31,	June 30,
		2003	2002

		(Unaudited)
Assets
Cash and cash equivalents		$ 119,795	$ 95,974
Receivables from clients:
	Billed, net of allowances of $1,556 and $1,405	85,034	83,311
	Unbilled, net of allowances of $479 and $431	62,401	68,301

		147,435	151,612
Deferred income taxes		5,073	7,904
Other current assets		11,261	17,268

	Total current assets	283,564	272,758

Investment in affiliates		23,550	20,086
Fixed assets, net		60,920	62,552
Deferred income taxes		60,542	54,758
Goodwill and intangible assets		18,597	18,430
Other assets		6,311	8,233

Total Assets		$ 453,484	$ 436,817

Liabilities
Accounts payable and accrued liabilities, including discretionary compensation		$ 101,711	$ 134,998
Income taxes payable		22,281	14,589

	Total current liabilities	123,992	149,587
Accrued retirement benefits		89,527	84,148
Deferred rent and accrued lease losses		4,633	3,660
Other noncurrent liabilities		30,759	40,201

Total Liabilities		248,911	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;
	33,087,880 and 20,212,449 issued and
	32,935,240 and 20,029,115 outstanding	331	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;