Towers Watson Investor Relations

Watson Wyatt Worldwide Reports Third Quarter EPS of $0.95

ARLINGTON, Va.--(BUSINESS WIRE)--May. 7, 2009-- Watson Wyatt Worldwide, Inc. (NYSE, NASDAQ: WW), a leading international human capital and financial management consulting firm, today announced financial results for the third quarter of fiscal year 2009, which ended March 31, 2009.

Revenues were $417.0 million for the quarter, a decrease of 9% (an increase of 3% on a constant currency basis) from third quarter of fiscal 2008 revenues of $457.5 million. Net income for the third quarter of fiscal 2009 was $40.6 million, or $0.95 per diluted share, a decrease from $42.5 million or $0.96 per diluted share in the prior-year third quarter. When compared to the prior-year third quarter, exchange rates had a negative impact of $0.14 on diluted net income per share.

“We had a good quarter in light of economic conditions, with positive constant currency growth and solid profitability,” said John Haley, president and chief executive officer. “But there are two forces at play here. Practices like our large Benefits segment where projects are more directly tied to helping clients manage costs, mitigate risks or meet regulatory requirements are doing quite well. However, practice areas that rely on shorter-term, more discretionary engagements have been more negatively affected by the downturn.”

Operating Highlights

Benefits Group revenues (representing 59% of third-quarter revenues) were $248 million for the third quarter of fiscal 2009, a decrease of 7% (increase of 3% constant currency) from $268 million in the prior-year third quarter. The reported decrease in revenues was due primarily to the strengthening of the U.S. dollar against the British pound and the Euro. The constant currency increase in revenues was largely due to increased demand for retirement consulting services.
Technology and Administration Solutions Group revenues (representing 11% of third-quarter revenues) were $45 million for the third quarter of fiscal 2009, a decrease of 1% (increase of 13% constant currency) from $45 million in the prior-year third quarter. The reported decrease in revenues was due to the strengthening of the U.S. dollar against the British pound. Constant currency revenues increased in both North America and Europe. In North America, revenues increased due to an increase in projects in on-going service delivery. In Europe, revenues increased due to new clients.
Human Capital Group revenues (representing 9% of third-quarter revenues) were $37 million for the third quarter of fiscal 2009, a decrease of 25% (decrease of 18% constant currency) from $49 million in the prior-year third quarter. The decrease in revenues was due to the strengthening of the U.S. dollar and to a decrease in demand in all geographic regions. The significant decrease in demand reflects the cyclicality of the segment.
Insurance & Financial Services Group revenues (representing 8% of third-quarter revenues) were $31 million for the third quarter of fiscal 2009, an increase of 2% (23% constant currency) from $31 million in the prior-year third quarter. On a constant currency basis, revenues increased in all geographic regions primarily due to additional project work.
Investment Consulting Group revenues (representing 9% of third-quarter revenues) were $39 million for the third quarter of fiscal 2009, a decrease of 10% (increase of 12% constant currency) from $43 million in the prior-year third quarter. The reported decrease in revenues was due primarily to the strengthening of the U.S. dollar against the British pound and the Euro. The constant currency increase in revenues was largely due to increased demand for implemented consulting services and investment strategy advice.

Outlook for Fiscal Year 2009

After consideration of the current economic environment, the company is reducing its outlook and expects fiscal 2009 revenues in the range of $1.65 billion to $1.67 billion and earnings per diluted share in the range of $3.35 to $3.40. This guidance includes up to $0.35 of foreign currency translation losses from the strengthening of the U.S. dollar. This guidance also anticipates that in the fourth quarter of fiscal 2009 £1.00 maintains a minimum average value of approximately $1.40 and €1.00 maintains a minimum average value of approximately $1.30.

For the fourth quarter of fiscal 2009, the company expects to report revenues in the range of $370 million to $390 million and earnings per diluted share in the range of $0.65 to $0.70. This guidance includes up to $0.10 of foreign currency translation losses from the strengthening of the U.S. dollar. As noted above, this guidance anticipates that in the fourth quarter of fiscal 2009 £1.00 maintains a minimum average value of approximately $1.40 and €1.00 maintains a minimum average value of approximately $1.30.

Conference Call

The company will host a live webcast and conference call to discuss the financial results for the third quarter of fiscal 2009. It will be held on Thursday, May 7, 2009, beginning at 9:00 a.m. Eastern Time, and can be accessed via the Internet by going to the Investor Relations section of www.watsonwyatt.com. The replay of the webcast will be available two hours after the live call for a period of three months. The replay also will be available for one week after the call by dialing 617-801-6888 and using confirmation number 13854491.

Forward-Looking Statements

Statements in this press release regarding projections and expectations of future earnings, revenues, operations, business trends and other such items are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements are based on management’s beliefs, as well as assumptions made by, and information currently available to management. Because such statements are based on expectations and are not statements of fact, actual events and results may differ materially from those projected. A number of risks and uncertainties exist which could cause actual results to differ materially from the results reflected in these forward-looking statements. Such factors include but are not limited to foreign currency exchange and interest rate fluctuations; general economic and business conditions that adversely affect us or our clients; a significant decrease in the demand for the consulting, actuarial and other services we offer as a result of changing economic conditions or other factors; the company’s ability to integrate the operations of acquired businesses into our own business, processes and systems, and achieve the anticipated results; our continued ability to recruit and retain qualified associates; the success of our marketing, client development and sales programs; our ability to maintain client relationships and to attract new clients; declines in demand for our services; outcomes of pending or future litigation and the availability and capacity of professional liability insurance to fund pending or future judgments or settlements; the ability of the company to obtain professional liability insurance; actions by competitors offering human resources consulting services, including public accounting and consulting firms, technology consulting firms and internet/intranet development firms; our continued ability to achieve cost reductions; exposure to liabilities of acquired businesses that have not been expressly assumed; the level of capital resources required for future acquisitions and business opportunities; regulatory developments abroad and domestically that impact our business practices; legislative and technological developments that may affect the demand for or costs of our services; and other factors discussed under "Risk Factors" in the company’s Annual Report on Form 10-K for the year ended June 30, 2008 and filed on August 15, 2008, with the Securities and Exchange Commission. These statements are based on assumptions that may not come true. All forward-looking disclosure is speculative by its nature. The company undertakes no obligation to update any of the forward-looking information included in this report, whether as a result of new information, future events, changed expectations or otherwise.

About Watson Wyatt Worldwide

Watson Wyatt (NYSE, NASDAQ: WW) is the trusted business partner to the world's leading organizations on people and financial issues. The firm’s global services include: managing the cost and effectiveness of employee benefit programs; developing attraction, retention and reward strategies; advising pension plan sponsors and other institutions on optimal investment strategies; providing strategic and financial advice to insurance and financial services companies; and delivering related technology, outsourcing and data services. Watson Wyatt has 7,700 associates in 33 countries and is located on the Web at www.watsonwyatt.com.


WATSON WYATT WORLDWIDE, INC.
Condensed Consolidated Statements of Operations
(Thousands of U.S. Dollars, Except Per Share Data)
(Unaudited)


	Three months ended March 31,						Nine months ended March 31,
	2009			2008			2009			2008


Revenue	$	416,994		$	457,525		$	1,279,509		$	1,306,244

Costs of providing services:
Salaries and employee benefits		237,208			254,147			719,735			722,583
Professional and subcontracted services		23,835			20,334			75,714			75,154
Occupancy, communications and other		40,941			54,955			137,254			148,187
General and administrative expenses		45,689			45,390			132,782			131,486
Depreciation and amortization		17,531			18,265			55,265			53,225
		365,204			393,091			1,120,750			1,130,635

Income from operations		51,790			64,434			158,759			175,609

Income (Loss) from affiliates		3,201			(29	)		5,966			(603	)
Interest expense		(553	)		(1,353	)		(2,181	)		(5,580	)
Interest income		294			1,585			1,647			4,356
Other non-operating income		1,786			179			3,466			454

Income before income taxes		56,518			64,816			167,657			174,236

Provision for income taxes		15,927			22,270			52,355			60,465

Net income	$	40,591		$	42,546		$	115,302		$	113,771

Earnings per share:
Net income - Basic	$	0.95		$	1.01		$	2.70		$	2.69
Net income - Diluted	$	0.95		$	0.96		$	2.69		$	2.56

Weighted average shares of common stock, basic (000)		42,609			42,064			42,705			42,230
Weighted average shares of common stock, diluted (000)		42,773			44,333			42,869			44,515


WATSON WYATT WORLDWIDE, INC.
Supplemental Segment Data
(Thousands of U.S. Dollars)


	Three Months Ended March 31,						Nine Months Ended March 31,
	2009			2008			2009			2008
	(Unaudited)						(Unaudited)

Revenue (net of reimbursable expenses)
Benefits Group	$	248,051		$	267,940		$	725,848		$	738,605
Technology and Administration Solutions Group		44,602			45,008			143,503			135,055
Human Capital Group		36,844			49,058			137,900			145,222
Insurance & Financial Services Group		31,442			30,799			93,735			89,131
Investment Consulting Group		39,214			43,457			118,813			125,763
Total segment revenue		400,153			436,262			1,219,799			1,233,776
Other, including reimbursable expenses		16,841			21,263			59,710			72,468
Consolidated revenue	$	416,994		$	457,525		$	1,279,509		$	1,306,244

Net operating income
Benefits Group	$	81,693		$	89,135		$	216,489		$	210,068
Technology and Administration Solutions Group		9,112			10,180			36,392			34,990
Human Capital Group		(630	)		9,460			16,321			27,585
Insurance & Financial Services Group		8,991			1,411			19,890			2,565
Investment Consulting Group		10,648			15,947			31,597			44,681
Total segment net operating income		109,814			126,133			320,689			319,889
Discretionary compensation		(45,779	)		(50,483	)		(144,452	)		(144,363	)
Other income (expense), net		(7,517	)		(10,834	)		(8,580	)		(1,290	)
Income before income taxes	$	56,518		$	64,816		$	167,657		$	174,236



	March 31,
	2009			2008
	(Unaudited)
Associates (full-time equivalents)
Benefits Group		3,370			3,190
Technology and Administration Solutions Group		895			820
Human Capital Group		865			830
Insurance & Financial Services Group		415			425
Investment Consulting Group		560			440
Other (including Communication)		460			430
Business Services (includes Corporate and Field Support)		1,120			1,055
Total		7,685			7,190


WATSON WYATT WORLDWIDE, INC.
Condensed Consolidated Balance Sheets
(Thousands of U.S. Dollars, Except Share Data)
(Unaudited)


	March 31,			June 30,
	2009			2008

Assets
Cash and cash equivalents	$	118,292		$	124,632
Receivables from clients:

Billed, net of allowances of $7,045 and $8,544		210,699			239,593
Unbilled, at estimated net realizable value		116,097			126,163
		326,796			365,756

Deferred income taxes		21,113			18,576
Other current assets		55,870			48,523
Total current assets		522,071			557,487

Investment in affiliates		20,488			8,526
Fixed assets, net		173,646			184,684
Deferred income taxes		62,589			72,572
Goodwill		490,618			634,176
Intangible assets, net		169,195			236,767
Other assets		14,972			21,764

Total Assets	$	1,453,579		$	1,715,976

Liabilities
Accounts payable and accrued liabilities, including discretionary compensation	$	307,028		$	381,784
Income taxes payable and deferred		929			3,462
Total current liabilities		307,957			385,246

Revolving credit facility		40,223			-
Accrued retirement benefits		168,379			209,168
Deferred rent and accrued lease losses		28,769			29,239
Deferred income taxes and other long term tax liabilities		11,158			13,430
Other noncurrent liabilities		74,672			94,498


Total Liabilities		631,158			731,581

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:
99,000,000 shares authorized; 43,813,451 and 43,813,451 issued and 42,621,505 and 43,578,268 outstanding		438			438
Additional paid-in capital		452,887			456,681
Treasury stock, at cost - 1,191,946 and 235,183 shares		(65,266	)		(13,222	)
Retained earnings		580,677			474,961
Accumulated other comprehensive (loss)/income		(146,315	)		65,537
Total Stockholders' Equity		822,421			984,395

Total Liabilities and Stockholders' Equity	$	1,453,579		$	1,715,976


WATSON WYATT WORLDWIDE, INC.
Condensed Consolidated Statements of Cash Flows
(Thousands of U.S. Dollars)
(Unaudited)


	Nine months ended March 31,
	2009			2008

Cash flows from operating activities:
Net income	$	115,302		$	113,771
Adjustments to reconcile net income to net cash (used in)/from operating activities:
Provision for doubtful receivables from clients		(7,110	)		11,295
Depreciation		44,598			40,943
Amortization of intangible assets		10,668			12,282
Provision for (benefit from) deferred income taxes		7,446			9,453
(Income)/loss from affiliates		(5,966	)		603
Other, net		710			6,729
Changes in operating assets and liabilities, net of business acquisitions
Receivables from clients		46,070			(43,785	)
Other current assets		(7,348	)		(19,818	)
Other assets		3,603			(3,689	)
Accounts payable and accrued liabilities		(58,119	)		27,242
Income taxes payable		(2,397	)		(478	)
Accrued retirement benefits		(40,789	)		(8,118	)
Deferred rent and accrued lease losses		(470	)		(3,379	)
Other noncurrent liabilities		(22,531	)		(5,244	)
Cash flows from operating activities:		83,667			137,807

Cash flows used in investing activities:
Business acquisitions and contingent consideration payments		(518	)		(134,934	)
Purchases of fixed assets		(29,772	)		(24,698	)
Capitalized software costs		(14,503	)		(16,903	)
Investment in affiliates		(2,007	)		(3,316	)
Distribution from affiliates		227			-
Increase in restricted cash		-			(2,265	)
Contingent proceeds from divestitures		3,466			454
Cash flows used in investing activities:		(43,107	)		(181,662	)

Cash flows used in financing activities:
Borrowings under credit facility		40,223			5,500
Dividends paid		(9,586	)		(9,498	)
Repurchases of common stock		(77,443	)		(53,980	)
Issuances of common stock and excess tax benefit		4,949			9,445
Cash flows used in financing activities:		(41,857	)		(48,533	)

Effect of exchange rates on cash		(5,043	)		2,018

Decrease in cash and cash equivalents		(6,340	)		(90,370	)

Cash and cash equivalents at beginning of period		124,632			248,186

Cash and cash equivalents at end of period	$	118,292		$	157,816

Supplemental disclosures:
Cash paid for interest	$	2,091		$	5,498
Cash paid for income taxes, net of refunds	$	46,889		$	55,191

Source: Watson Wyatt Worldwide, Inc.

Watson Wyatt Worldwide, Inc.
Mary Malone
Investor Relations
(703) 258-7841

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