Watson Wyatt Worldwide Caps Fiscal 2007 with Strong Growth in Revenue And EPS

Watson Wyatt Worldwide, Inc. (NYSE:WW), a leading international human capital and financial management consulting firm, today announced financial results for the fourth quarter and fiscal year 2007, which ended June 30, 2007. Revenues were $388.5 million for the quarter, an increase of 12% (8% constant currency) from the fourth quarter of fiscal 2006 revenues of $347.1 million. Income from continuing operations for the fourth quarter of fiscal 2007 was $31.6 million, or $0.71 per diluted share, an increase from $25.7 million or $0.58 per diluted share in the prior-year fourth quarter. When compared to prior-year fourth quarter, exchange rates had a positive impact of $0.02 per diluted share on net income. For the fiscal year, revenues were $1.49 billion, an increase of 17% from $1.27 billion in fiscal 2006. Income from continuing operations for the year was $116.3 million, or $2.60 per diluted share, an increase of over 30% from prior-year income from continuing operations of $86.1 million, or $1.99 per diluted share. The prior-year results only include eleven months of Watson Wyatt LLP, our U.K. headquartered partner that was acquired in August 2005. On a pro forma basis, including twelve months of Watson Wyatt LLP, our revenues increased 14% (10% constant currency) and our diluted earnings per share increased 28%. "We culminated fiscal 2007 with the same impressive performance we showed all year,” said John Haley, president and chief executive officer. "All of our segments continue to grow well, and we are seeing the positive results of our geographic expansion strategies. For fiscal 2008, we are optimistic about our growth and performance opportunities.” Operating Highlights Benefits Group revenues (representing 56% of fourth-quarter revenues) were $218 million for the fourth quarter of fiscal 2007, an increase of 12% (10% constant currency) from $194 million in the prior-year fourth quarter. The increase was largely due to our acquisition in the Netherlands as well as increased demand for valuation and design work in North America. Technology and Administration Solutions Group revenues (representing 10% of fourth-quarter revenues) were $39 million for the fourth quarter of fiscal 2007, an increase of 16% (12% constant currency) from $34 million in the prior-year fourth quarter. The increase resulted from an increase in the number of projects in service in North America. At June 30, 2007, 84 projects were in service, compared to 51 at June 30, 2006. We have an additional 67 projects in the implementation phase, compared to 58 at June 30, 2006. Human Capital Group revenues (representing 11% of fourth-quarter revenues) were $44 million for the fourth quarter of fiscal 2007, an increase of 8% (6% constant currency) from $40 million in the prior-year fourth quarter. Demand was strong, particularly in the U.S., across all of our compensation service lines, including executive compensation, sales effectiveness and strategic rewards, as well as in data services. Insurance & Financial Services Group revenues (representing 8% of fourth-quarter revenues) were $30 million for the fourth quarter of fiscal 2007, an increase of 15% (7% constant currency) from $26 million in the prior-year fourth quarter. The revenue increase was largely driven by an increase in life insurance consulting projects. Investment Consulting Group revenues (representing 9% of fourth-quarter revenues) were $35 million for the fourth quarter of fiscal 2007, an increase of 38% (32% constant currency) from $25 million in the prior-year fourth quarter. The revenue increase was due to strong demand for all of our services, particularly advice on investment strategy and investment manager selection. Outlook for Fiscal Year 2008 For fiscal year 2008, the company expects revenues to be in the range of $1.68 billion to $1.72 billion and earnings per diluted share for the year are expected to be in the range of $2.90 to $2.95. This guidance assumes an average exchange rate of 2.00 U.S. dollars to the British pound for fiscal year 2008. For the first quarter of fiscal 2008, the company expects revenues to be in the range of $394 million to $404 million and earnings per diluted share for the quarter are expected to be in the range of $0.61 to $0.63. This guidance assumes an average exchange rate of 2.00 U.S. dollars to the British pound for the first quarter of fiscal 2008. Conference Call The company will host a live webcast and conference call to discuss the financial results for the fourth quarter of fiscal 2007. It will be held on Thursday, August 16, 2007, beginning at 9:00 a.m. Eastern Time, and can be accessed via the Internet by going to 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 16631627. 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 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 after the business combination; 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; 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; 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; foreign currency exchange and interest rate fluctuations; exposure to liabilities of acquired businesses that have not been expressly assumed; general economic and business conditions that adversely affect us or our clients after the business combination; 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, 2006 and filed on September 1, 2006, 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. Pro Forma Information Effective July 31, 2005, the company acquired the U.K.-headquartered consulting operations of Watson Wyatt LLP, its long-time strategic alliance partner. The company has provided pro forma revenue and earnings per share growth rates. The pro forma amounts assume that the company’s acquisition of Watson Wyatt LLP had occurred on July 1, 2005. Therefore, twelve months of operations of Watson Wyatt LLP in fiscal 2006 are included in the calculation of pro forma growth rates. The company’s management uses the pro forma information internally to focus on period-to-period changes in the company’s business and believes this information is helpful to shareholders. About Watson Wyatt Worldwide Watson Wyatt (NYSE: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 6,700 associates in 31 countries and is located on the Web at www.watsonwyatt.com.   WATSON WYATT WORLDWIDE, INC. Consolidated Statements of Operations (Thousands of U.S. Dollars, Except Per Share Data)   Three Months Ended June 30, Year Ended June 30, 2007 2006 2007 2006 (Unaudited) (Unaudited)   Revenue $ 388,496   $ 347,089   $ 1,486,523   $ 1,271,811     Costs of providing services: Salaries and employee benefits 207,124 184,710 805,571 699,049 Professional and subcontracted services 27,284 27,675 99,943 84,165 Occupancy, communications and other 48,824 45,911 184,832 164,140 General and administrative expenses 41,632 39,227 159,637 147,122 Depreciation and amortization   15,438     12,599     57,235     44,918     340,302     310,122     1,307,218     1,139,394     Income from operations 48,194 36,967 179,305 132,417     (Loss)/income from affiliates (143 ) (597 ) (5,500 ) 1,135 Interest expense (245 ) (390 ) (1,581 ) (4,093 ) Interest income 965 1,981 4,066 4,325 Other non-operating income/(loss)   37     25     178     (2,081 )     Income from continuing operations before income taxes 48,808 37,986 176,468 131,703 Provision for income taxes   17,175     12,271     60,193     45,585       Income from continuing operations 31,633 25,715 116,275 86,118   Discontinued operations:   Adjustment to reduce estimated loss on disposal of discontinued operations, less applicable income tax expense for the three and twelve months ended June 30, 2006 - (7 ) - 1,028   Sublease income from discontinued operations, less applicable income tax expense for the three and twelve months ended June 30, 2006   -     18     -     45     Net income $ 31,633   $ 25,726   $ 116,275   $ 87,191         Basic earnings per share: Income from continuing operations $ 0.71 $ 0.61 $ 2.74 $ 2.08 Income from discontinued operations   -     -     -     0.03   Net income $ 0.71   $ 0.61   $ 2.74   $ 2.11     Diluted earnings per share: Income from continuing operations $ 0.71 $ 0.58 $ 2.60 $ 1.99 Income from discontinued operations   -     -     -     0.02   Net income $ 0.71   $ 0.58   $ 2.60   $ 2.01     Weighted average shares of common stock, basic (000)   44,313     42,351     42,413     41,393   Weighted average shares of common stock, diluted (000)   44,581     44,350     44,684     43,297       WATSON WYATT WORLDWIDE, INC. Supplemental Segment Data (Thousands of U.S. Dollars)     Three Months Ended June 30, Year Ended June 30, 2007 2006 2007 2006 (Unaudited) (Unaudited)   Revenue (net of reimbursable expenses) Benefits Group $ 218,034 $ 194,121 $ 820,806 $ 725,630 Technology and Administration Solutions Group 39,482 34,168 157,516 132,805 Human Capital Group 43,576 40,201 169,845 146,111 Insurance & Financial Services Group 30,020 26,069 113,676 91,987 Investment Consulting Group   34,501     25,072     128,720     86,462   Total segment revenue 365,613 319,631 1,390,563 1,182,995 Other, including reimbursable expenses   22,883     27,458     95,960     88,816   Consolidated revenue $ 388,496   $ 347,089   $ 1,486,523   $ 1,271,811     Net operating income Benefits Group $ 62,480 $ 50,653 $ 222,021 $ 186,463 Technology and Administration Solutions Group 9,349 6,602 36,663 31,539 Human Capital Group 4,747 3,544 24,052 12,796 Insurance & Financial Services Group 4,255 4,352 18,985 18,161 Investment Consulting Group   10,905     4,165     39,269     12,622   Total segment net operating income 91,736 69,316 340,990 261,581 Discretionary compensation (33,449 ) (28,366 ) (139,433 ) (108,671 ) Other income (expense), net   (9,479 )   (2,964 )   (25,089 )   (21,207 ) Income before income taxes $ 48,808   $ 37,986   $ 176,468   $ 131,703         June 30, 2007 2006 (Unaudited) Associates (fiscal year end full-time equivalents) Benefits Group 2,900 2,665 Technology and Administration Solutions Group 735 735 Human Capital Group 885 800 Insurance & Financial Services Group 390 335 Investment Consulting Group 325 335 Other (including Communication) 785 775 Corporate   580     590   Total   6,600     6,235       WATSON WYATT WORLDWIDE, INC. Consolidated Balance Sheets (Thousands of U.S. Dollars)     June 30, June 30, 2007 2006 (Unaudited) Assets Cash and cash equivalents $ 248,186 $ 165,345 Receivables from clients: Billed, net of allowances of $6,216 and $3,678 227,130 180,533 Unbilled, at estimated net realizable value   109,697     123,044   336,827 303,577   Deferred income taxes 17,016 567 Other current assets   34,733     24,158   Total current assets 636,762 493,647   Investment in affiliates 3,058 8,564 Fixed assets, net 172,147 147,738 Deferred income taxes 66,751 70,417 Goodwill 382,460 324,041 Intangible assets 212,191 187,075 Other assets   56,340     8,877     Total Assets $ 1,529,709   $ 1,240,359     Liabilities   Accounts payable and accrued liabilities $ 307,546 $ 288,396 Deferred income taxes 2,972 168 Income taxes payable   4,090     7,771   Total current liabilities 314,608 296,335   Note payable 105,000 30,000 Accrued retirement benefits 198,677 162,505 Deferred rent and accrued lease losses 32,686 28,982 Deferred income taxes 2,663 480 Other noncurrent liabilities   88,556     73,296     Total Liabilities 742,190 591,598   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; 42,763,451 and 42,463,451 issued and 42,299,792 and 42,385,513 outstanding 428 425 Additional paid-in capital 395,521 386,392 Treasury stock, at cost - 463,659 and 77,938 shares (22,251 ) (2,134 ) Retained earnings 336,101 242,599 Accumulated other comprehensive income   77,720     21,479   Total Stockholders' Equity   787,519     648,761     Total Liabilities and Stockholders' Equity $ 1,529,709   $ 1,240,359       WATSON WYATT WORLDWIDE, INC. Consolidated Statements of Cash Flows (Thousands of U.S. Dollars)     Year Ended June 30, 2007 2006 (Unaudited) Cash flows from operating activities: Net income $ 116,275 $ 87,191 Adjustments to reconcile net income to net cash from operating activities: Loss on foreign currency forward contract - 3,602 Income from discontinued operations, net of income tax expense - (1,028 ) Provision for doubtful receivables from clients 8,551 5,687 Depreciation 47,090 36,763 Amortization of intangible assets 10,145 8,155 Provision for (benefit from) deferred income taxes (4,104 ) 33,692 Loss/(Income) from affiliates 5,500 (1,136 ) Distributions from affiliates - 1,614 Other, net 977 449 Changes in operating assets and liabilities, net of business combination Receivables from clients (43,464 ) (27,917 ) Other current assets (7,211 ) 7,181 Other assets 1,324 (2,000 ) Accounts payable and accrued liabilities 24,046 5,238 Income taxes payable 564 760 Accrued retirement benefits (2,831 ) 4,148 Deferred rent and accrued lease losses 54 1,561 Other noncurrent liabilities   9,737     5,163   Net cash from operating activities   166,653     169,123     Cash flows used in investing activities: Acquisitions and contingent consideration payments (48,099 ) (137,784 ) Purchases of fixed assets (44,589 ) (38,060 ) Capitalized software costs (22,295 ) (27,743 ) Proceeds from divestitures   178     1,296   Net cash used in investing activities   (114,805 )   (202,291 )   Cash flows from financing activities: Borrowings 149,600 102,000 Repayments (74,600 ) (72,000 ) Foreign currency forward contract - (8,405 ) Dividends paid (12,717 ) (12,667 ) Repurchases of common stock (48,303 ) (4,272 ) Tax benefit on exercise of stock options and employee stock purchase plan 3,349 2,034 Issuances of common stock - exercise of options 3,714 3,911 Issuances of common stock - employee stock purchase plan   6,182     6,255   Net cash from financing activities   27,225     16,856     Effect of exchange rates on cash   3,768     13,581     Increase (decrease) in cash and cash equivalents 82,841 (2,731 )   Cash and cash equivalents at beginning of period   165,345     168,076     Cash and cash equivalents at end of period $ 248,186   $ 165,345