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Management has determined that there is not a large concentration of leases that will expire in any one fiscal year. Consequently, management anticipates that any increase in future expenses will be mainly market driven. The Company currently has excess capacity in several markets and is actively marketing certain space for sublease. The recent economic downturn has generally caused current lease rates to decline since the time such leases were signed, which may cause the Company to recognize losses to the extent that the Company enters into sublease agreements and future minimum lease payments exceed future sublease income.
The Company continues to guarantee certain leases for office premises and equipment for Wellspring. At June 30, 2002, minimum remaining payments guaranteed under these leases, which expire at various dates through 2007, total $30.8 million, excluding sublease income. These leases are also jointly and severally guaranteed by the Company’s former partner in Wellspring, State Street Bank and Trust Company. The estimated loss from the potential exercise of these guarantees was included in the fiscal year 1998 loss on disposal of the benefits administration outsourcing business. The Company has been making cash payments of $0.3 to $1.0 million per year related to Wellspring.
In connection with the establishment of our alliance with Watson Wyatt LLP in 1995, the Company agreed to guarantee Watson Wyatt LLP’s performance under a lease for office space in London that expires in 2015. Payments by Watson Wyatt LLP under the lease total approximately $2.1 million per year. We also granted Watson Wyatt LLP an option to return the leased space to our UK subsidiary in 2009. If Watson Wyatt LLP exercises this option, the Company would attempt to sublease the space at the then-current market rates.
The Company entered into a new credit agreement with a syndicate
of banks effective June 25, 2002. As a result of this agreement,
we have a $100.0 million revolving credit facility at an interest
rate that varies with LIBOR and/or the prime rate, and is
based on our leverage ratio, as defined by the agreement.
We are charged a quarterly commitment fee, currently 0.25%
of the facility that varies with our financial leverage and
is paid on the unused portion of the credit facility. No amounts
were outstanding under the Company’s revolving credit
facility as of June 30, 2002, nor under its predecessor facility
at June 30, 2001. Credit under the facility is available upon
demand, although the credit facility requires us to observe
certain covenants (requirements for minimum net worth, which
acts to restrict dividends, and other financial and restrictive
covenants) and is collateralized with a pledge of stock of
material subsidiaries. At June 30, 2002 and at each quarter
end during the fiscal year, we were in compliance with all
covenants under the credit facility. A portion of the revolving
facility is used to support required letters of credit issued
under the credit line. As a result, $5.8 million of the facility
is currently unavailable for operating needs. We are also
charged a fee for outstanding letters of credit that also
fluctuates based on our leverage ratio. The credit facility
is scheduled to mature on June 25, 2005.
Additionally, the Company guarantees a credit facility which provides loans to associates for stock purchased under our former Stock Purchase Program. This program was discontinued in conjunction with our initial public offering in October 2000. As a result, the facility permanently decreases as the loans are repaid. The maximum available borrowings and aggregate outstanding balances under this facility were $2.9 million and $8.5 million at June 30, 2002, and June 30, 2001, respectively. A total of 2,731,000 and 4,598,000 Watson Wyatt & Company Holdings shares were pledged by stockholders to collateralize these loans at June 30, 2002, and June 30, 2001, respectively.
Anticipated commitments of funds for capital expenditures are estimated at $32.0 million for fiscal year 2003, mainly for computer hardware purchases, office relocations and renovations, development and upgrade of financial and knowledge management systems, and acquisition-related payments. Capital expenditures will be required in conjunction with office lease renewals and relocations required to support our growth strategy. Additionally, our consultants require access to hardware and software that will support servicing our clients. In a rapidly changing technological environment, management anticipates we will need to make continued investments in our knowledge sharing and financial systems infrastructure. We expect cash from operations to adequately provide for these cash needs.
Our foreign operations do not materially impact liquidity or capital resources. At June 30, 2002, a total of $21.5 million of the total cash balance of $96.0 million was held outside of North America, which we have the ability to readily utilize, if necessary. There are no significant repatriation restrictions other than local or U.S. taxes associated with repatriation. Our foreign operations in total are substantially self-sufficient for their working capital needs.
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