Watson Wyatt Worldwide Reports First Quarter EPS of $0.56 on Strong Revenue Growth.

Raises Fiscal 2007 Guidance

ARLINGTON, Va. -- Watson Wyatt Worldwide, Inc. (NYSE:WW), a leading international human capital and financial management consulting firm, today announced financial results for the first quarter of fiscal year 2007, which ended September 30, 2006.

Revenues were $336.0 million for the quarter, an increase from $265.9 million for the first quarter of fiscal 2006. Income from continuing operations for the first quarter of fiscal 2007 was $24.8 million, or $0.56 per diluted share, an increase from $13.9 million or $0.36 per diluted share in the prior-year first quarter. First quarter of fiscal 2006 included only two months of our Europe-based consulting operations due to the July 31, 2005 acquisition date. All of our business segments reported increased revenues and income as compared to prior-year first quarter. Comparable-period revenues were up 11% and diluted earnings per share were up 56%, as explained below. Our results for the quarter also include the dilutive effect of the 1.95 million contingent shares that we expect to issue related to the European acquisition. The contingent shares are not included in prior-year first quarter diluted earnings per share.

"These results highlight our growing strength in the marketplace," said John Haley, president and chief executive officer. "After an impressive fiscal 2006, we continue to build momentum. Our results and our brand have never been stronger."

"Once again, we saw consistently positive results across all of our segments. In particular, our Investment Consulting and Technology and Administration Solutions segments - two areas we've targeted for growth - delivered truly outstanding results."

Comparable Period Results

Effective July 31, 2005, the company acquired the Europe-based consulting operations of Watson Wyatt LLP, its long-time strategic alliance partner. To provide comparability with prior-year first quarter, the company provides pro-forma results for the first quarter of fiscal 2006. The prior-year, pro-forma results have been prepared assuming that the company's acquisition of the European consulting business of Watson Wyatt LLP had occurred on July 1, 2005. Therefore, three months of the operations of Watson Wyatt LLP are included in the first quarter of both fiscal years. The company's management uses these prior-year pro-forma results internally to focus on period-to-period changes in the company's business and believes this information is helpful to shareholders. The prior-year, pro-forma numbers could also assist shareholders in assessing the impact of the acquisition of the European business by providing comparable prior-year information as a basis for comparison.

Revenues for the first quarter of fiscal 2007 were $336.0 million, an increase of 11% from prior-year, pro-forma revenues of $302.3 million. Earnings per diluted share of $0.56 for the first quarter increased 56% from $0.36 in the prior-year, pro-forma first quarter. For the quarter, exchange rates had a favorable impact on comparable period revenues of approximately 2 percentage points and a positive impact of $0.01 per diluted share on comparable period net income.

Operating Highlights

Operating highlights are discussed on a GAAP and a comparable period basis.

* Benefits Group revenues (representing 55% of first-quarter revenues) were $185.4 million for the first quarter of fiscal 2007, up from $157.0 million in the prior-year first quarter. Revenues increased 5% from prior-year, pro-forma revenues of $175.8 million. The increase in revenues for the quarter was largely due to increased demand for valuation and design work.

* Technology and Administration Solutions Group revenues (representing 11% of first-quarter revenues) were $37.2 million for the first quarter of fiscal 2007, up from $25.2 million in the prior-year first quarter. Revenues increased 25% from prior-year, pro-forma revenues of $29.8 million. The increase in revenues for the quarter was due primarily to an increase in the number of projects in service, on which revenues are recognized. At September 30, 2006, 58 projects were in service, as compared to 18 at September 30, 2005. The pipeline continues to be strong, with 65 projects in the implementation phase compared to 48 at September 30, 2005. Our European business also continues to perform well due to excellent client retention as well as new client wins.

* Human Capital Group revenues (representing 12% of total revenues for the quarter) were $39.6 million for the first quarter of fiscal 2007, up from $31.5 million in the prior-year first quarter. Revenues increased 17% from prior-year, pro-forma revenues of $33.7 million. Revenue growth continued to be driven primarily by demand for executive compensation consulting and data services.

* Insurance & Financial Services Group revenues (representing 8% of total revenues for the quarter) were $26.4 million for the first quarter of fiscal 2007, up from $15.4 million in the prior-year first quarter. Revenues increased 15% from prior- year, pro-forma revenues of $22.9 million. Our growth was due to significant project work and an expansion of our operations in Amsterdam.

* Investment Consulting Group revenues (representing 8% of total revenues for the quarter) were $27.4 million for the first quarter of fiscal 2007, up from $16.3 million in the prior-year first quarter. Revenues increased 36% from prior-year, pro-forma revenues of $20.1 million. Revenues increased during the quarter due to a strong demand for all of our services, particularly investment strategy advice.

Outlook for Fiscal Year 2007

For fiscal year 2007, the company expects revenues to be in the range of $1.40 billion to $1.43 billion, an increase from previous guidance of $1.38 billion to $1.40 billion. Earnings per diluted share for the year are expected to be in the range of $2.26 to $2.29, an increase from previous guidance of $2.15 to $2.20. The increase in guidance is based on the company's strong first quarter performance.

For the second quarter of fiscal 2007, the company expects revenue to be in the range of $345 million to $350 million. In addition, the company expects second quarter earnings per diluted share to be in the range of $0.44 to $0.46.

Conference Call

The company will host a live webcast and conference call to discuss the financial results for the first quarter of fiscal 2007. It will be held on Wednesday, November 8, 2006, 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 80481898.

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. 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 business of Watson Wyatt LLP 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 after the business combination; 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 ability to achieve cost reductions after the business combination; foreign currency exchange and interest rate fluctuations; exposure to Watson Wyatt LLP liabilities 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, on file 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: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 6,360 associates in 30 countries and is located on the Web at www.watsonwyatt.com.

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