Watson Wyatt & Company Holdings Reports Results for Second Quarter of Fiscal 2005.WASHINGTON Washington, town, EnglandWashington, town (1991 pop. 48,856), Sunderland metropolitan district, NE England. Washington was designated one of the new towns in 1964 to alleviate overpopulation in the Tyneside-Wearside area. -- Watson Wyatt & Company Holdings (NYSE NYSE See: New York Stock Exchange :WW), a leading international human capital consulting firm Noun 1. consulting firm - a firm of experts providing professional advice to an organization for a fee consulting company business firm, firm, house - the members of a business organization that owns or operates one or more establishments; "he worked for a , today announced financial results for the second quarter of fiscal year 2005, which ended on December December: see month. 31, 2004. Revenues were $175.8 million for the quarter, compared to $170.4 million for the second quarter of fiscal year 2004. The increase was driven by steady growth in the retirement business and double-digit dou·ble-dig·it adj. Being between 10 and 99 percent: double-digit inflation. growth in the human capital consulting and international segments. Second-quarter income from continuing operations continuing operations Parts of a business that are expected to be maintained as an ongoing segment of an overall business operation. Income and losses from continuing operations are reported separately if any segments have been discontinued during the was $11.1 million or $0.34 per diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. share, compared to $10.8 million or $0.32 per diluted share in the second quarter of last year. "We are in an exciting period, as we finalize fi·nal·ize tr.v. fi·nal·ized, fi·nal·iz·ing, fi·nal·iz·es To put into final form; complete or conclude: "They have jointly agreed ... our proposed business combination with Watson Wyatt LLP LLP - Lower Layer Protocol ," said John Haley John Haley former Little Rock lawyer, former attorney for Jim Guy Tucker and Jim Guy Tucker's co-defendant. On February 20, 1998, John Haley pleaded guilty to one misdemeanor count tax fraud to the Internal Revenue Service. , president and chief executive officer. "The company's strong results this quarter tell us we have a powerful business model, and we look forward to leveraging our combined resources even more effectively across the globe." As of December 31, 2004, the company had cash and cash equivalents of $135.1 million. During the quarter, the company generated $28.0 million in cash after making a $2.4 million dividend payment. Second-Quarter Fiscal Year 2005 Operating Highlights --Benefits Group revenues (representing 57% of total second-quarter revenues) were $99.8 million, up 1% from $98.4 million in the prior-year second quarter. Revenue growth was largely due to retirement work for new clients. --Technology Solutions Group revenues (representing 11% of total second-quarter revenues) were $19.6 million, versus prior-year second-quarter revenues of $21.9 million. Second-quarter 2005 revenues do not include approximately ap·prox·i·mate adj. 1. Almost exact or correct: the approximate time of the accident. 2. $1.7 million in consulting time that was spent customizing administration systems for new clients. Related revenues will be recognized as these systems go into service. Results for the group continue to be better than anticipated due to more strategic consulting work and faster implementation periods than planned. Fourth-quarter revenue growth is still expected. --Human Capital Group revenues (representing 8% of total second-quarter revenues) totaled $14.3 million in the second quarter, growing by 23% over the prior-year second quarter. The increase was driven by strong demand for executive compensation work related to corporate governance Corporate Governance The relationship between all the stakeholders in a company. This includes the shareholders, directors, and management of a company, as defined by the corporate charter, bylaws, formal policy, and rule of law. and Sarbanes-Oxley issues. --International segment revenues (representing 13% of total second-quarter revenues) of $22.2 million were up 15% over prior-year second-quarter revenues, or 11% in local currencies. Results were strong in Japan and Taiwan Taiwan (tī`wän`), Portuguese Formosa, officially Republic of China, island nation (2005 est. pop. 22,894,000), 13,885 sq mi (35,961 sq km), in the Pacific Ocean, separated from the mainland of S China by the 100-mi-wide (161-km) Taiwan , largely due to improving economic conditions and legislative changes that are driving special project work. Outlook for Fiscal Year 2005 For the third quarter of fiscal year 2005, the company expects revenue to be up 1% to 2%, largely due to modest growth in retirement revenues and stronger growth in human capital consulting, to be offset by a decline in the Technology Solutions Group. Consulting input time in the Technology Solutions Group is expected to increase over the prior-year third quarter, but revenues are expected to be lower due to the change in the business model that occurred in the fourth quarter of fiscal 2004, whereby no revenue is recognized related to the customization of administration systems. Related revenue is recognized once these systems go into service. The company expects fully diluted earnings per share diluted earnings per share An earnings measure calculated by dividing net income less preferred stock dividends for a period by the average number of shares of common stock that would be outstanding if all convertible securities were converted into shares of to be in the range of $0.39 to $0.41 for the third quarter of fiscal year 2005. For fiscal year 2005, the company is maintaining its previously issued guidance of 2% to 4% revenue growth overall. Management is maintaining the full-year guidance previously issued of fully diluted earnings per share in the range of $1.63 to $1.65. Conference Call The company will host a live webcast and conference call that can be accessed via the Internet Internet Publicly accessible computer network connecting many smaller networks from around the world. It grew out of a U.S. Defense Department program called ARPANET (Advanced Research Projects Agency Network), established in 1969 with connections between computers at the on Thursday Thursday: see week. , February February: see month. 3, 2005, to discuss the financial results for the second quarter of fiscal year 2005. It will begin at 9:00 a.m. Eastern Time. A replay of the webcast will be available two hours after the live call for a period of one year. To access the live webcast or replay, visit www.watsonwyatt.com, www.streetevents.com, or www.fulldisclosure.com. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. Statements in this press release regarding projections and expectations of future earnings, revenues, operations, business trends and other such items are forward-looking statements. 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 our ability to complete the acquisition of Watson Wyatt LLP, integrate its operations into our own and achieve the anticipated results; our continued ability to recruit RECRUIT. A newly made soldier. and retain qualified associates; outcomes of litigation An action brought in court to enforce a particular right. The act or process of bringing a lawsuit in and of itself; a judicial contest; any dispute. When a person begins a civil lawsuit, the person enters into a process called litigation. ; the ability of the company to obtain professional liability insurance; a significant decrease in the demand for the consulting services Noun 1. consulting service - service provided by a professional advisor (e.g., a lawyer or doctor or CPA etc.) service - work done by one person or group that benefits another; "budget separately for goods and services" we offer as a result of changing economic conditions or other factors; actions by competitors COMPETITORS, French law. Persons who compete or aspire to the same office, rank or employment. As an English word in common use, it has a much wider application. Ferriere, Dict. de Dr. h.t. offering human resources The fancy word for "people." The human resources department within an organization, years ago known as the "personnel department," manages the administrative aspects of the employees. consulting services, including public accounting and consulting firms, technology consulting firms and Internet/intranet development firms; regulatory reg·u·late tr.v. reg·u·lat·ed, reg·u·lat·ing, reg·u·lates 1. To control or direct according to rule, principle, or law. 2. , 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 Form 10-K A report required by the SEC from exchange-listed companies that provides for annual disclosure of certain financial information. Form 10-K See 10-K. dated August 17, 2004, which is on file with the Securities and Exchange Commission. These statements are based on assumptions that may not come true. All forward-looking for·ward-look·ing adj. Concerned with or making provision for the future: forward-looking educators; a forward-looking corporate plan. Adj. 1. disclosure is speculative Speculative Securities that involve a high level of risk. speculative Of or relating to an asset or a group of assets with uncertain returns. The greater the degree of uncertainty the more speculative the asset. 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 Watson Wyatt is an international human capital consulting firm that provides services in the areas of employee benefits, human capital strategies and related technology solutions. The firm is headquartered in Washington, D.C., and has 3,700 associates in 60 offices in the Americas A·mer·i·cas , the See America. and Asia-Pacific The term Asia-Pacific generally applies to littoral East Asia, Southeast Asia and Australasia near the Pacific Ocean, plus the states in the ocean itself (Oceania). . Together with Watson Wyatt LLP, a leading Europe-based consulting partnership, the firm operates globally as Watson Wyatt Worldwide. Watson Wyatt Worldwide has approximately 5,900 associates in 88 offices in 30 countries.
WATSON WYATT & COMPANY HOLDINGS
Consolidated Statements of Operations
(Thousands of U.S. Dollars, Except Per Share Data)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenue $175,849 $170,353 $351,240 $341,336
--------- --------- --------- ---------
Costs of providing services:
Salaries and employee
benefits 95,194 94,374 192,270 199,447
Professional and
subcontracted services 11,544 12,613 23,523 21,699
Occupancy, communications
and other 27,901 25,921 52,001 49,439
General and administrative
expenses 19,481 14,990 36,369 30,591
Depreciation and
amortization 4,810 5,395 9,493 10,047
--------- --------- --------- ---------
158,930 153,293 313,656 311,223
--------- --------- --------- ---------
Income from operations 16,919 17,060 37,584 30,113
Income from affiliates 2,724 1,048 4,930 2,838
Interest income, net 407 170 862 384
Other non-operating income (56) 27 (28) 6,152
--------- --------- --------- ---------
Income from continuing
operations before income
taxes 19,994 18,305 43,348 39,487
Provision for income taxes 8,939 7,503 18,542 16,188
--------- --------- --------- ---------
Income from continuing
operations 11,055 10,802 24,806 23,299
Discontinued operations:
Sublease income from discontinued
operations, less applicable
income tax expense for the
three and six months ended
December 31, 2004 6 16 8 26
--------- --------- --------- ---------
Net income $ 11,061 $ 10,818 $ 24,814 $ 23,325
========= ========= ========= =========
Basic earnings per share:
Income from continuing
operations $ 0.34 $ 0.33 $ 0.76 $ 0.70
Income from discontinued
operations - - - -
--------- --------- --------- ---------
Net income $ 0.34 $ 0.33 $ 0.76 $ 0.70
========= ========= ========= =========
Diluted earnings per share:
Income from continuing
operations $ 0.34 $ 0.32 $ 0.76 $ 0.70
Income from discontinued
operations - - - -
--------- --------- --------- ---------
Net income $ 0.34 $ 0.32 $ 0.76 $ 0.70
========= ========= ========= =========
Weighted average shares of
common stock, basic (000) 32,516 33,143 32,437 33,111
========= ========= ========= =========
Weighted average shares of
common stock, diluted
(000) 32,809 33,474 32,739 33,453
========= ========= ========= =========
WATSON WYATT & COMPANY HOLDINGS
Supplemental Segment Data
(Thousands of U.S. Dollars)
Three Months Ended Six Months Ended
December 31, December 31,
------------------------------------------
2004 2003 2004 2003
---- ---- ---- ----
(Unaudited) (Unaudited)
Revenue (net of reimbursable
expenses)
----------------------------
Benefits Group $ 99,810 $ 98,428 $204,721 $202,296
Technology Solutions Group 19,573 21,871 36,755 42,140
Human Capital Group 14,303 11,622 27,365 21,788
International 22,244 19,387 43,297 38,332
Other 11,219 10,942 22,728 22,635
-------- -------- -------- --------
Total segment revenue 167,148 162,250 334,866 327,191
Reimbursable expenses and
other 8,701 8,103 16,375 14,145
-------- -------- -------- --------
Consolidated revenue $175,849 $170,353 $351,240 $341,336
======== ======== ======== ========
Net operating income
----------------------------
Benefits Group $ 15,786 $ 16,722 $ 39,077 $ 38,763
Technology Solutions Group 5,376 4,042 8,102 5,455
Human Capital Group 4,000 2,144 6,967 1,888
International 1,193 (1,181) 1,811 (1,247)
Other 1,114 (53) 3,513 634
-------- -------- -------- --------
Total segment net operating
income 27,468 21,674 59,469 45,493
Discretionary compensation (9,413) (5,970) (20,413) (19,470)
Other income (expense), net 1,939 2,601 4,292 13,464
-------- -------- -------- --------
Income before income taxes $ 19,994 $ 18,305 $ 43,348 $ 39,487
======== ======== ======== ========
December 31,
------------
2004 2003
---- ----
(Unaudited)
Associates (fiscal year end
full-time equivalents)
----------------------------
Benefits Group 1,615 1,630
Technology Solutions Group 290 350
Human Capital Group 165 155
International 900 950
Other 500 590
-------- --------
Total segment associates 3,470 3,675
Corporate 230 215
-------- --------
Total 3,700 3,890
======== ========
WATSON WYATT & COMPANY HOLDINGS
Consolidated Balance Sheets
(Thousands of U.S. Dollars, Except Per Share Data)
December 31, June 30,
------------ ---------
2004 2004
---- ----
(Unaudited)
------------
Assets
------
Cash and cash equivalents $ 135,082 $ 156,940
Receivables from clients:
Billed, net of allowances of $2,523 and $1,241 90,678 86,726
Unbilled, net of allowances of $1,037 and $456 53,880 63,108
----------- ---------
144,558 149,834
Deferred income taxes 11,224 15,052
Other current assets 36,407 11,388
----------- ---------
Total current assets 327,271 333,214
Investment in affiliates 33,386 30,235
Fixed assets, net 75,343 65,438
Deferred income taxes 55,098 55,240
Goodwill and intangible assets 22,054 20,909
Other assets 6,148 7,132
----------- ---------
Total Assets $ 519,300 $ 512,168
=========== =========
Liabilities
-----------
Accounts payable and accrued liabilities $ 90,098 $ 113,233
Income taxes payable 10,232 12,526
----------- ---------
Total current liabilities 100,330 125,759
Accrued retirement benefits 102,403 97,984
Deferred rent and accrued lease losses 10,402 10,199
Deferred income taxes 347 628
Other noncurrent liabilities 31,512 32,414
----------- ---------
Total Liabilities 244,994 266,984
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;
33,372,880 and 33,372,880 issued and
32,562,318 and 32,317,156 outstanding 334 334
Additional paid-in capital 148,780 149,508
Treasury stock, at cost - 810,562 and 1,055,724
shares (20,148) (26,149)
Retained earnings 145,626 125,669
Accumulated other comprehensive loss (286) (4,178)
----------- ---------
Total Stockholders' Equity 274,306 245,184
----------- ---------
Total Liabilities and Stockholders' Equity $ 519,300 $ 512,168
=========== =========
WATSON WYATT & COMPANY HOLDINGS
Consolidated Statements of Cash Flows
(Thousands of U.S. Dollars)
Six months ended
December 31
-------------------
2004 2003
---- ----
Cash flows from (used in) operating activities:
Net income $ 24,814 $ 23,325
Adjustments to reconcile net income to net cash
from (used in) operating activities:
Other non-operating gain related to PCIC - (5,600)
Provision for doubtful receivables from
clients 3,841 3,741
Depreciation 9,344 9,883
Amortization of intangible assets 149 164
Provision for deferred income taxes 3,689 5,451
Income from affiliates (4,945) (2,838)
Distributions from affiliates 3,069 2,285
Other, net 200 (536)
Changes in operating assets and liabilities (net of
discontinued operations)
Receivables from clients 1,435 (1,749)
Other current assets (11,598) (4,209)
Other assets 984 1,100
Accounts payable and accrued liabilities (18,566) (21,330)
Income taxes payable (15,715) (15,156)
Accrued retirement benefits 4,419 1,764
Deferred rent and accrued lease losses 203 1,535
Other noncurrent liabilities (887) (1,266)
--------- --------
Net cash from (used in) operating activities 436 (3,436)
--------- --------
Cash flows used in investing activities:
Purchases of fixed assets (12,057) (7,806)
Capitalized software costs (6,727) -
Proceeds from divestitures (28) 552
Acquisitions and contingent consideration
payments (517) (113)
--------- --------
Net cash used in investing activities (19,329) (7,367)
--------- --------
Cash flows used in financing activities:
Issuances of common stock - exercise of
options 1,148 1,179
Issuances of common stock - employee stock
purchase plan 3,632 3,278
Dividends paid (4,857) -
Repurchases of common stock (4,188) (9,776)
--------- --------
Net cash used in financing activities (4,265) (5,319)
--------- --------
Effect of exchange rates on cash 1,300 3,361
--------- --------
Decrease in cash and cash equivalents (21,858) (12,761)
Cash and cash equivalents at beginning of period 156,940 144,374
--------- --------
Cash and cash equivalents at end of period $ 135,082 $131,613
========= ========
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