Watson Wyatt Worldwide, Inc. (NYSE, NASDAQ: WW), a
leading international human capital and financial management
consulting firm, today announced financial results for the first
quarter of fiscal year 2010, which ended September 30, 2009.
Revenues were $401.3 million for the quarter, a decrease of 6%
(decrease of 1% constant currency) from the first quarter of fiscal
2009 revenues of $426.1 million. Net income for the first quarter
of fiscal 2010 was $29.8 million, or $0.69 per diluted share. Net
income for the quarter includes $8.4 million pretax, or $0.12 per
diluted share, of transaction costs related to our pending merger
with Towers Perrin, and $1.9 million pretax, or $0.03 per diluted
share, of severance costs. Adjusted net income was $36.2 million,
or $0.84 per diluted share. In the prior-year first quarter, net
income was $35.2 million, or $0.82 per diluted share. When compared
to prior-year first quarter exchange rates, the strengthening of
the U.S. dollar had a negative impact of $0.05 on diluted earnings
per share.
“These results demonstrate our sound underlying business
fundamentals and strong client relationships. All of our segments
were profitable, with particularly strong growth in our Investment
Consulting and Technology and Administration Solutions segments,”
said John Haley, president and chief executive officer.
“We continue to provide our clients with practical solutions for
today’s toughest challenges,” said Mr. Haley. “With our anticipated
merger with Towers Perrin, we look forward to serving clients
around the world with an even broader range of services and deeper
pool of talent.”
Operating
Highlights
- Benefits Group revenues
(representing 56% of first-quarter revenues) were $224 million for
the first quarter of fiscal 2010, a decrease of 4% (increase of 1%
constant currency) from $233 million in the prior-year first
quarter. On a constant currency basis, revenues increased modestly
in both retirement and health care consulting.
- Technology and Administration
Solutions Group revenues (representing 14% of
first-quarter revenues) were $55 million for the first quarter of
fiscal 2010, an increase of 4% (increase of 11% constant currency)
from $53 million in the prior-year first quarter. Revenues
increased in both the U.K. and the U.S. due primarily to additional
revenues from several large clients.
- Human Capital
Group revenues (representing 9% of first-quarter revenues)
were $38 million for the first quarter of fiscal 2010, a decrease
of 24% (decrease of 22% constant currency) from $50 million in the
prior-year first quarter. There was less demand for our services in
all geographic regions.
- Insurance & Financial
Services Group revenues (representing 6% of first-quarter
revenues) were $24 million for the first quarter of fiscal 2010, a
decrease of 13% (decrease of 4% constant currency) from $28 million
in the prior-year first quarter. The revenue decrease was due to
less project work in Europe.
- Investment Consulting
Group revenues (representing 11% of first-quarter revenues)
were $45 million for the first quarter of fiscal 2010, an increase
of 6% (increase of 17% constant currency) from $42 million in the
prior-year first quarter. The revenue increase was due to increases
in implemented consulting activities and strategy projects.
Outlook for Fiscal Year 2010
For fiscal year 2010, the company is maintaining its previous
guidance and expects revenues to be in the range of $1.63 billion
to $1.70 billion and adjusted diluted earnings per share to be in
the range of $3.50 to $3.60. Adjusted diluted earnings per share
exclude severance and merger costs. Our foreign currency exchange
rate assumptions also remain unchanged. This guidance assumes an
average exchange rate of 1.65 U.S. dollars to the British pound for
fiscal year 2010 and an average rate of 1.40 U.S. dollars to the
Euro for fiscal year 2010. This guidance does not include the
impact of the pending merger with Towers Perrin which is expected
to close during fiscal year 2010.
For the second quarter of fiscal 2010, the company expects
revenues to be in the range of $405 million to $420 million and
adjusted diluted earnings per share for the quarter are expected to
be in the range of $0.81 to $0.86. Adjusted diluted earnings per
share exclude severance and merger costs. This guidance assumes an
average exchange rate of 1.65 U.S. dollars to the British pound for
the second quarter of fiscal 2010 and an average rate of 1.40 U.S.
dollars to the Euro for the second quarter of fiscal 2010. This
guidance does not include the impact of the pending merger with
Towers Perrin which is expected to close during fiscal year
2010.
The forecasted adjusted diluted earnings per share are based on
management’s estimates for fiscal year 2010 and the second quarter
of fiscal 2010. The company expects to incur charges for severance
and merger costs during those periods, and the amounts are
dependent upon future events. The company will use adjusted diluted
earnings per share to evaluate its performance and believes this
information is helpful to shareholders.
Conference Call
The company will host a live webcast and conference call to
discuss the financial results for the first quarter of fiscal 2010.
It will be held on Thursday, November 5, 2009, 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
shortly after the live call for a period of three months. The
replay will also be available for one week after the call by
dialing 617-801-6888 and using confirmation number 34420570.
Non-GAAP Measures
The company prepared its condensed consolidated financial
statements in conformity with accounting principles generally
accepted in the United States (U.S. GAAP) and pursuant to
accounting requirements of the Securities and Exchange Commission
applicable to quarterly reports on Form 10-Q. In an effort to
provide investors with additional information regarding the
company’s results and to provide a meaningful period-over-period
comparison of financial performance, the company sometimes uses
non-GAAP financial measures as defined by the Securities and
Exchange Commission. The differences between the U.S. GAAP and
non-GAAP financial measures are reconciled in an attached schedule.
In presenting comparable results, the company discloses non-GAAP
financial measures when it believes such measures will be useful to
investors in evaluating underlying business performance. The
company uses the non-GAAP financial measures to evaluate its
financial performance against internal budgets and targets. In
addition, the Company reviews its results excluding the impact of
certain items, as it believes that these non-GAAP financial
measures are useful for evaluating core operating results and
facilitating comparison across reporting periods. The company
believes non-GAAP financial measures should be considered in
addition to, and not in lieu of, U.S. GAAP financial measures. The
company’s non-GAAP financial measures may be different from
non-GAAP financial measures used by other companies.
Where You Can Find Additional Information
This communication was released on November 5, 2009. Towers
Perrin and Watson Wyatt have formed a company, Jupiter Saturn
Holding Company (the “Holding Company”), which has filed a
registration statement on Form S-4 with the Securities and Exchange
Commission (the “Commission”) that contains a joint proxy
statement/prospectus and other relevant documents concerning the
proposed transaction. YOU ARE URGED TO READ THE JOINT PROXY
STATEMENT/PROSPECTUS AND THE OTHER RELEVANT DOCUMENTS FILED WITH
THE COMMISSION BECAUSE THEY CONTAIN IMPORTANT INFORMATION ABOUT
TOWERS PERRIN, WATSON WYATT, THE HOLDING COMPANY AND THE PROPOSED
TRANSACTION.
You may obtain the joint proxy statement/prospectus and the
other documents filed with the Commission free of charge at the
Commission’s website, www.sec.gov. In addition, you may obtain free
copies of the joint proxy statement/prospectus and the other
documents filed by Towers Perrin, Watson Wyatt and the Holding
Company with the Commission by requesting them in writing from
Towers Perrin, One Stamford Plaza, 263 Tresser Boulevard, Stamford,
CT. 06901-3225, Attention: Marketing, or by telephone at
203-326-5400, or from Watson Wyatt, 901 N. Glebe Rd., Arlington,
VA. 22203, Attention: Investor Relations, or by telephone at
703-258-8000.
Towers Perrin, Watson Wyatt, the Holding Company and their
respective directors and executive officers may be deemed under the
rules of the Commission to be participants in the solicitation of
proxies from the stockholders of Watson Wyatt. A list of the names
of those directors and executive officers and descriptions of their
interests in Towers Perrin, Watson Wyatt and the Holding Company is
contained in the joint proxy statement/prospectus filed by the
Holding Company with the Commission. Stockholders may obtain
additional information about the interests of the directors and
executive officers in the proposed transaction by reading the joint
proxy statement/prospectus when it becomes available.
Forward-Looking Statements
Statements in this press release regarding projections and
expectations of future earnings, revenues, operations, business
trends, timing and potential benefits of the proposed merger
between Watson Wyatt and Towers Perrin and other statements that
are not historical facts and other such items are forward-looking
statements within the meaning of the Private Securities Litigation
Reform Act of 1995. You can identify these forward-looking
statements by their use of words such as "anticipate," "believe,"
"could," "estimate," "expect," "forecast," "project," "intend,"
"plan," "potential," "will," and other similar words and terms.
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 ability
of Watson Wyatt and Towers Perrin to obtain governmental and
regulatory approvals of the merger on the proposed terms and
schedule; failure to complete the merger with Towers Perrin in
certain circumstances could require us to pay a termination fee or
reimburse Towers Perrin’s expenses; failure to complete the merger
with Towers Perrin could negatively impact Watson Wyatt and its
future operations; 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. A variety of factors could cause actual results to differ
from those set forth in the forward-looking statements, including
the risks and factors identified under “Risk Factors” in the joint
proxy statement/prospectus included in the initial registration
statement on Form S-4 filed by Jupiter Saturn Holding Company on
September 3, 2009 with the Commission, as amended from time to
time, and under “Risk Factors” in Watson Wyatt’s Annual Report on
Form 10-K filed on August 14, 2009 with the Commission. You should
not rely upon forward-looking statements as predictions of future
events because these statements are based on assumptions that may
not come true and are speculative by their nature.
These statements are based on assumptions that may not come
true. All forward-looking disclosure is speculative by its nature.
None of Jupiter Saturn Holding Company, Towers Perrin or Watson
Wyatt undertake an 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 7,500 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 September 30, 2009 2008 Revenue $ 401,345
$ 426,126 Costs of providing services:
Salaries and employee benefits 236,081 235,879 Professional and
subcontracted services 16,159 26,315 Occupancy, communications and
other 39,872 49,997 General and administrative expenses 39,770
43,887 Depreciation and amortization 17,934 18,864 Transaction and
integration expenses 8,388 -
358,204 374,942 Income from operations
43,141 51,184 Income from affiliates 947 1,695 Interest
income 350 1,031 Interest expense (449 ) (569 ) Other non-operating
(expense) / income 1,142 (19 ) Income
before income taxes 45,131 53,322 Provision for income taxes
15,350 18,162 Net income $
29,781 $ 35,160 Earnings per share: Net income
- Basic $ 0.70 $ 0.82 Net income - Diluted $ 0.69
$ 0.82
Weighted average shares of common
stock, basic (000)
42,673 42,935
Weighted average shares of common
stock, diluted (000)
42,888 43,085
WATSON WYATT WORLDWIDE, INC. Supplemental Segment
Data (Thousands of U.S. Dollars) (Unaudited)
Three
Months Ended September 30, 2009
2008
Revenue (net of reimbursable
expenses)
Benefits Group $ 223,670 $ 232,705 Technology and Administration
Solutions Group 55,457 53,218 Human Capital Group 37,680 49,602
Insurance & Financial Services Group 24,182 27,806 Investment
Consulting Group
44,729
42,107 Total segment revenue 385,718 405,438
Other, including reimbursable expenses
15,627
20,688 Consolidated revenue
$ 401,345 $
426,126
Net
operating income
Benefits Group $ 63,417 $ 61,523 Technology and Administration
Solutions Group 17,083 14,461 Human Capital Group 2,684 6,842
Insurance & Financial Services Group 292 834 Investment
Consulting Group
15,123
12,527 Total segment net operating income
98,599 96,187 Discretionary compensation (47,963 ) (42,258 ) Other
income (expense), net
(5,505 )
(607 ) Income before income taxes
$ 45,131 $
53,322 September
30, 2009 2008
Associates (full-time equivalents)
Benefits Group 3,320 3,260 Technology and Administration Solutions
Group 1,040 1,030 Human Capital Group 750 930 Insurance &
Financial Services Group 395 415 Investment Consulting Group 570
555 Other (includes Communication) 415 455 Business Services
(includes Corporate and Field Support)
1,040
1,025 Total
7,530 7,670
WATSON WYATT WORLDWIDE, INC. Condensed
Consolidated Balance Sheets (Thousands of U.S. Dollars, Except
Share Data) (Unaudited) September 30, June 30, 2009 2009
Assets Cash and cash equivalents $ 111,389 $ 209,832
Receivables from clients: Billed, net of allowances of $5,207 and
$4,452 185,148 190,991 Unbilled, at estimated net realizable value
130,786 111,419 315,934 302,410
Deferred income taxes 10,666 13,739 Other current assets
60,151 39,619 Total current assets 498,140
565,600 Investment in affiliates 24,235 23,361 Fixed assets,
net 168,855 174,857 Deferred income taxes 109,539 111,912 Goodwill
540,896 542,754 Intangible assets, net 180,492 186,233 Other assets
21,865 21,602
Total
Assets $ 1,544,022 $ 1,626,319
Liabilities Accounts payable and accrued liabilities $
144,081 $ 123,073 Discretionary compensation 55,798 162,351 Other
current liabilities 46,483 51,716 Total
current liabilities 246,362 337,140 Revolving credit
facility 10,000 - Accrued retirement benefits 272,599 292,555
Deferred rent and accrued lease losses 27,516 28,434 Other
noncurrent liabilities 114,350 113,554
Total Liabilities 670,827
771,683 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 42,647,702 and 42,657,431 outstanding
438 438 Additional paid-in capital 447,350 452,938 Treasury stock,
at cost - 1,165,749 and 1,156,020 shares (61,079 ) (63,299 )
Retained earnings 635,216 608,634 Accumulated other comprehensive
loss (149,676 ) (145,073 )
Total Stockholders'
Equity 872,249 853,638
Non-controlling Interest 946 998
Total Equity 873,195 854,636
Total Liabilities and Total Equity $ 1,544,022
$ 1,626,319
WATSON WYATT WORLDWIDE,
INC. Condensed Consolidated Statements of Cash Flows
(Thousands of U.S. Dollars) (Unaudited) Three months ended
September 30, 2009 2008 Cash flows used in operating
activities: Net income $ 29,781 $ 35,160
Adjustments to reconcile net
income to net cash from operating activities:
Provision for doubtful receivables from clients 1,407 3,615
Depreciation 14,538 14,827 Amortization of intangible assets 3,396
4,037 Provision for (benefit from) deferred income taxes 6,080
(7,946 ) Income from affiliates (947 ) (1,695 ) Distribution from
affiliates 146 144 Other, net (1,578 ) 1,663 Changes in operating
assets and liabilities (net of business acquisitions) Receivables
from clients (14,931 ) 1,492 Other current assets (20,532 ) (7,503
) Other assets (263 ) 2,162 Accounts payable and accrued
liabilities (83,125 ) (100,646 ) Income taxes payable and deferred
483 (3,190 ) Accrued retirement benefits (19,956 ) (2,409 )
Deferred rent and accrued lease losses (918 ) (968 ) Other
noncurrent liabilities 3,733 (12,328 ) Cash
flows used in operating activities: (82,686 ) (73,585
) Cash flows used in investing activities: Business
acquisitions and contingent consideration payments - (538 )
Purchases of fixed assets (6,166 ) (10,013 ) Capitalized software
costs (5,079 ) (5,594 ) Contingent proceeds from divestitures
1,142 (19 ) Cash flows used in investing
activities: (10,103 ) (16,164 ) Cash flows
from financing activities: Borrowings under Credit Facility 10,000
105,000 Dividends paid (3,199 ) (3,195 ) Repurchases of common
stock (13,328 ) (73,613 ) Issuances of common stock and excess tax
benefit 1,516 1,535 Cash flows (used
in) from financing activities: (5,011 ) 29,727
Effect of exchange rates on cash (643 ) 2,865
Decrease in cash and cash equivalents (98,443 )
(57,157 ) Cash and cash equivalents at beginning of period
209,832 124,632 Cash and cash
equivalents at end of period $ 111,389 $ 67,475
WATSON WYATT WORLDWIDE, INC. Supplemental
Information (Thousands of U.S. Dollars)
The company's management uses
adjusted diluted earnings per share to evaluate its performance.
The company has announced its intention to merge with Towers
Perrin, and therefore is incurring significant transaction costs.
The company has also incurred significant amounts of severance in
recent quarters due to economic conditions. A reconciliation of net
income and diluted earnings per share to adjusted net income and
adjusted diluted earnings per share is as follows.
Three Months Ended Sep. 2009 Sep. 2008
Net income as reported $ 29.8 $ 35.2 Transaction costs, net of tax
5.2 - Severance, net of tax 1.3 0.0 Adjusted
net income $ 36.2 $ 35.2 Diluted earnings per share
as reported $ 0.69 $ 0.82 Transaction costs per diluted share 0.12
- Severance per diluted share 0.03 - Adjusted
diluted earnings per share $ 0.84 $ 0.82
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