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Watson Wyatt Worldwide Reports Strong Third Quarter on Better Than Expected Revenues; Raises Fiscal 2006 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 third quarter of fiscal 2006, which ended March 31, 2006.

Revenues were $343.1 million for the quarter, an increase from $187.6 million for the third quarter of fiscal 2005. Income from continuing operations for the third quarter of fiscal 2006 was $29.3 million, or $0.69 per diluted share, an increase from $14.3 million or $0.44 per diluted share in the prior-year third quarter. All business segments performed well this quarter, and the increase in revenue and earnings was mainly driven by the acquisition of the European-based consulting operations from Watson Wyatt LLP effective July 31, 2005.

"We had outstanding results this quarter, with solid growth across all segments," said John Haley, president and chief executive officer. "Our revenues exceeded guidance primarily due to better than expected growth in our European benefits business, as well as in Insurance and Financial Services and Investment Consulting. While some of our growth was driven by regulatory change, the market is clearly embracing our messages and services. We are intensely focused on our target market, and our people are doing a superb job serving our clients."

"Given our better than expected performance this quarter, we are increasing our revenue and EPS guidance for fiscal 2006," Haley said. "We continue to see significant demand for our services as companies consider various alternatives for the best way to handle employee benefit and retirement programs."

Pro forma Results

Effective July 31, 2005, the Company acquired the European-based consulting operations of Watson Wyatt LLP, its long-time strategic alliance partner. To provide comparability with previous quarters, the Company provides pro forma results. 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, 2004. The Company's management uses these pro forma results internally to focus on period-to-period changes in the Company's business and believes this information is helpful to investors. The 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 third quarter of fiscal 2006 were $343.1 million, an increase of 12% from pro forma revenues of $306.7 million. Earnings per diluted share of $0.69 for the third quarter are nearly double the $0.35 pro forma earnings per diluted share in the prior-year third quarter. Exchange rates had an unfavorable impact on pro forma revenues of approximately 2 percentage points and a negative impact of $0.02 per diluted share on pro forma net income.

Operating Highlights

Operating highlights are discussed on a GAAP and a pro forma basis.

--Benefits group revenues (representing 55% of third-quarter revenues) were $188.6 million for the third quarter of fiscal 2006, up from $109.5 million in the prior-year third quarter. Revenues increased 13% over pro forma revenues of $167.5 million in the prior-year third quarter. Our European Benefits group achieved an impressive 21% revenue growth, primarily due to the impact of regulatory changes in the U.K. Our U.S. Benefits group also had a strong quarter with 8% revenue growth, largely due to plan design and administration for new and existing clients.

--Technology and administration solutions group revenues (representing 10% of third-quarter revenues) were $35.4 million for the third quarter of fiscal 2006, compared to prior-year third-quarter revenues of $17.0 million. Revenues increased 12% from prior-year pro forma revenues of $31.8 million primarily due to a number of projects that went into service during the quarter and for which the Company was able to begin recognizing revenues. The pipeline continues to be strong with 44 projects in the implementation phase and 39 projects in service delivery.

--Human capital group revenues (representing 8% of total revenues for the quarter) were $27.6 million in the third quarter of fiscal 2006, an increase from prior-year third quarter revenues of $14.6 million. Pro forma revenues for the third quarter of fiscal 2005 were $22.7 million. Third quarter fiscal 2006 revenues reflect the reclassification of $3.0 million in revenues related to Watson Wyatt Data Services from the "Other segment" into the human capital group. Excluding the reclassification, revenue growth over the pro forma revenues for the prior-year third quarter was 8%. Revenue growth continued to be driven primarily by demand for data services and executive compensation consulting.

--Insurance & financial services group revenues (representing 8% of total revenues for the quarter) were $27.8 million for the third quarter of fiscal 2006. Third quarter fiscal 2006 revenues increased 18% over pro forma revenues of $23.7 million for the prior-year third quarter. Our growth compared to prior-year third quarter is particularly strong due to significant project work and an expansion of our operations in Amsterdam.

--Investment consulting group revenues (representing 6% of total revenues for the quarter) were $20.7 million for the third quarter of fiscal 2006 as compared to $5.0 million in the prior-year third quarter. Revenues increased 15% over pro forma revenues of $18.0 million in the third quarter of fiscal 2005, due to an increase in demand for investment strategy and fund manager selection services.

--International revenues, comprising Asia Pacific and Latin America (representing 7% of total revenues for the quarter), were $23.8 million for the third quarter of fiscal 2006, an increase of 7% over prior-year third quarter fiscal 2005 revenues of $22.2 million. Results were strong in Australia, Taiwan, Mexico and Brazil, and were partially offset by the Company's divestiture of its New Zealand operations in the first quarter of fiscal 2006.

Outlook for Fourth Quarter and Fiscal Year 2006

For the fourth quarter of fiscal 2006, the Company expects revenue to be in the range of $320 million to $330 million. In addition, the Company expects fourth quarter earnings per diluted share to be in the range of $0.41 to $0.43.

For fiscal year 2006, the Company is increasing previous revenue and earnings guidance, with revenues expected to be in the range of $1.24 billion to $1.26 billion and earnings per diluted share expected to be in the range of $1.86 to $1.90.

Conference Call

The Company will host a live webcast and conference call to discuss the financial results for the third quarter of fiscal 2006. It will be held on Tuesday, May 9, 2006, beginning at 9:00 a.m. Eastern Time, and can be accessed via the Internet by going to www.watsonwyatt.com or www.earnings.com. The replay of the webcast will be available two hours after the live call for a period of one year. The replay is also available for one week after the call by dialing 719-457-0820, confirmation number 4981194. The conference call will include a presentation of slides that are available on the websites.

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 its own business, processes and systems, and achieve the anticipated results; its continued ability to recruit and retain qualified associates; the success of its marketing, client development and sales programs after the acquisition; its ability to maintain client relationships and to attract new clients after the acquisition; declines in demand for the Company's services; outcomes of litigation; the ability of the Company to obtain professional liability insurance; a significant decrease in the demand for the consulting, actuarial and other services the Company offers 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; the Company's ability to achieve cost reductions after the acquisition; 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 the Company or its clients after the acquisition; 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 the Company's services; and other factors discussed under "Risk Factors" in the Company's Annual Report on Form 10-K dated August 24, 2005, and the proxy statement/prospectus filed on June 23, 2005, both of which are 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 Worldwide is a leading global human capital and financial management consulting firm. The firm specializes in employee benefits, human capital strategies, technology solutions, and insurance and financial services with over 6,000 associates in 30 countries.
WATSON WYATT WORLDWIDE, INC.
 Consolidated Statements of Operations
 (Thousands of U.S. Dollars, Except Per Share Data)


 Three Months Ended Nine Months Ended
 March 31, March 31,
 ----------------------------------------
 2006 2005 2006 2005
 -------- -------- -------- --------
 (Unaudited) (Unaudited)


Revenue $343,072 $187,560 $924,722 $538,800
 -------- -------- -------- --------

Costs of providing
 services:
 Salaries and employee
 benefits 191,582 101,730 514,339 294,000
 Professional and
 subcontracted services 17,884 13,795 56,490 37,318
 Occupancy,
 communications and
 other 41,689 27,110 118,229 79,111
 General and
 administrative expenses 39,300 18,764 107,895 55,133
 Depreciation and
 amortization 11,510 5,161 32,319 14,654
 -------- -------- -------- --------
 301,965 166,560 829,272 480,216
 -------- -------- -------- --------

Income from operations 41,107 21,000 95,450 58,584


 Income (loss) from
 affiliates 310 889 1,732 5,819
 Interest income 1,047 761 2,344 1,914
 Interest expense (1,344) (144) (3,703) (435)
 Other non-operating
 income (loss) 44 (1,181) (2,106) (1,209)
 -------- -------- -------- --------


Income from continuing
 operations before income
 taxes 41,164 21,325 93,717 64,673
Provision for income taxes 11,828 6,985 33,314 25,527
 -------- -------- -------- --------


Income from continuing
 operations 29,336 14,340 60,403 39,146

Discontinued operations:

Adjustment to reduce
 estimated loss on
 disposal of discontinued
 operations,less applicable
 income tax expense for the
 three months and nine
 months ended March 31, 2006
 and 2005 1,035 739 1,035 739

Sublease income from
 discontinued operations,
 less applicable income tax
 expense for the three
 months and nine months
 ended March 31, 2006
 and 2005 10 9 27 17
 -------- -------- -------- --------

Net income $ 30,381 $ 15,088 $ 61,465 $ 39,902
 ======== ======== ======== ========


Basic earnings per share:
Income from continuing
 operations $ 0.69 $ 0.44 $ 1.47 $ 1.20
Income from discontinued
 operations 0.02 0.02 0.03 0.02
 -------- -------- -------- --------
Net income $ 0.71 $ 0.46 $ 1.50 $ 1.22
 ======== ======== ======== ========

Diluted earnings per
 share:
Income from continuing
 operations $ 0.69 $ 0.44 $ 1.46 $ 1.19
Income from discontinued
 operations 0.02 0.02 0.03 0.02
 -------- -------- -------- --------
Net income $ 0.71 $ 0.46 $ 1.49 $ 1.21
 ======== ======== ======== ========

Weighted average shares of
 common stock, basic (000) 42,234 32,647 41,074 32,507
 ======== ======== ======== ========
Weighted average shares of
 common stock,
 diluted (000) 42,466 32,936 41,341 32,814
 ======== ======== ======== ========



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


 Three Months Ended Nine Months Ended
 March 31, March 31,
 ---------------------------------------
 2006 2005 2006 2005
 -------- -------- -------- ---------
 (Unaudited) (Unaudited)


Revenue $343,072 $306,661 $961,641 $891,233
 -------- -------- -------- ---------
Costs of providing services:
 Salaries and employee
 benefits 191,582 176,762 535,675 505,098
 Professional and
 subcontracted services 17,884 17,804 57,681 50,340
 Occupancy, communications
 and other 41,689 39,618 121,419 114,442
 General and administrative
 expenses 39,300 35,934 114,493 109,808
 Depreciation and
 amortization 11,510 10,081 33,743 28,646
 -------- -------- -------- ---------
 301,965 280,199 863,011 808,334
 -------- -------- -------- ---------

Income from operations 41,107 26,462 98,630 82,899


 Income from affiliates 310 (1,306) 1,244 (261)
 Interest expense, net (297) (865) (1,772) (2,519)
 Other non-operating income 44 (1,198) 1,496 (1,226)
 -------- -------- -------- ---------


Income from continuing
 operations before income
 taxes 41,164 23,093 99,598 78,893
Provision for income taxes 11,828 8,263 34,309 27,989
 -------- -------- -------- ---------


Income from continuing
 operations 29,336 14,830 65,289 50,904


Basic earnings per share: $ 0.69 $ 0.36 $ 1.59 $ 1.22
Diluted earnings per share: $ 0.69 $ 0.35 $ 1.58 $ 1.21

Weighted average shares of
 common stock, basic (000) 42,234 41,737 41,074 41,597
 ======== ======== ======== =========
Weighted average shares of
 common stock, diluted (000) 42,466 42,026 41,341 41,904
 ======== ======== ======== =========



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


 Three Months Ended Nine Months Ended
 March 31, March 31,
 ----------------------------------------
 2006 2005 2006 2005
 -------- -------- -------- ---------
 (Unaudited) (Unaudited)


Revenue
(net of reimbursable expenses)
------------------------------
Benefits Group $188,573 $109,482 $504,966 $305,503
Technology and Administration
 Solutions Group 35,449 17,030 96,296 53,785
Human Capital Group 27,568 14,633 80,414 41,998
Insurance & Financial Services
 Group 27,847 - 65,449 -
Investment Consulting Group 20,735 5,005 52,626 13,705
International - Comprising
 Asia Pacific and Latin
 America 23,828 22,190 68,251 65,487
Other 8,058 9,082 26,324 31,811
 -------- -------- -------- ---------
Total segment revenue 332,058 177,422 894,326 512,289
Reimbursable expenses and
 other 11,014 10,138 30,396 26,511
 -------- -------- -------- ---------
Consolidated revenue $343,072 $187,560 $924,722 $538,800
 ======== ======== ======== =========

Net operating income
------------------------------
Benefits Group $ 55,051 $ 24,693 $130,157 $ 63,280
Technology and Administration
 Solutions Group 8,708 874 24,339 8,975
Human Capital Group 3,469 3,622 12,217 10,589
Insurance & Financial Services
 Group 8,075 - 13,599 -
Investment Consulting Group 4,581 136 8,319 626
International - Comprising
 Asia Pacific and Latin
 America 2,122 263 2,797 2,074
Other (1,056) (488) (2,272) 3,025
 -------- -------- -------- ---------
Total segment net operating
 income 80,950 29,100 189,156 88,569
Discretionary compensation (33,073) (11,400) (80,305) (31,813)
Other income (expense), net (6,713) 3,625 (15,134) 7,917
 -------- -------- -------- ---------
Income before income taxes $ 41,164 $ 21,325 $ 93,717 $ 64,673
 ======== ======== ======== =========


 March 31,
 ------------------
 2006 2005
 -------- --------
 (Unaudited)
Associates (fiscal year end
 full-time equivalents)
------------------------------
Benefits Group 2,330 1,530
Technology and Administration
 Solutions Group 720 300
Human Capital Group 410 165
Insurance & Financial Services
 Group 330 -
Investment Consulting Group 270 70
International - Comprising
 Asia Pacific and Latin
 America 830 900
Other 550 510
 -------- --------
Total segment associates 5,440 3,475
Corporate 560 225
 -------- --------
Total 6,000 3,700
 ======== ========



 WATSON WYATT WORLDWIDE, INC.
 Pro-forma Segment Data
 (Thousands of U.S. Dollars)


 Three months ended March 31, 2005
 ------------------------------------
 (Unaudited)
 Watson Wyatt Watson Pro forma
 Holdings Wyatt LLP Revenues
 ------------ --------- ---------
Revenue
(net of reimbursable expenses)
-------------------------------
Benefits Group $ 109,482 $ 58,038 $ 167,520
Technology and Administration
 Solutions Group 17,030 14,761 31,791
Human Capital Group 14,633 8,115 22,748
Insurance & Financial Services
 Group - 23,688 23,688
Investment Consulting Group 5,005 12,968 17,973
International - Comprising Asia
 Pacific and Latin America 22,190 - 22,190
Other 9,082 153 9,235
 ------------ --------- ---------
Total segment revenue 177,422 117,723 295,145
Reimbursable expenses and other 10,138 1,378(A) 11,516
 ------------ --------- ---------
Consolidated revenue $ 187,560 $ 119,101 $ 306,661
 ============ ========= =========


 Three Months Ended March 31,
 ------------------------------------
 2006 2005
 ------------ ---------
 (Unaudited) % change
Revenue (net of reimbursable
 expenses)
-------------------------------
Benefits Group $ 188,573 $ 167,520 12.6%
Technology and Administration
 Solutions Group 35,449 31,791 11.5%
Human Capital Group 27,568 22,748 21.2%
Insurance & Financial Services
 Group 27,847 23,688 17.6%
Investment Consulting Group 20,735 17,973 15.4%
International - Comprising Asia
 Pacific and Latin America 23,828 22,190 7.4%
Other 8,058 9,235 -12.7%
 ------------ --------- ---------
Total segment revenue 332,058 295,145 12.5%
Reimbursable expenses and other 11,014 11,516 -4.4%
 ------------ --------- ---------
Consolidated revenue $ 343,072 $ 306,661 11.9%
 ============ ========= =========

(A) Watson Wyatt LLP reimbursable expenses and other includes
 inter-company eliminations.



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


 March 31, June 30,
 ----------- ---------
 2006 2005
 ----------- ---------
 (Unaudited)
Assets
--------------------------------------------
 Cash and cash equivalents $ 92,674 $168,076
 Receivables from clients:
 Billed, net of allowances of $4,211 and
 $2,114 173,831 95,977
 Unbilled, net of allowances of $7,241 and
 $264 126,711 62,840
 ----------- ---------
 300,542 158,817

 Deferred income taxes 19,054 24,718
 Other current assets 34,249 12,599
 ----------- ---------
 Total current assets 446,519 364,210

 Investment in affiliates 10,045 30,857
 Fixed assets, net 135,832 94,033
 Deferred income taxes 114,885 92,915
 Goodwill 306,146 21,888
 Intangible assets 177,926 776
 Other assets 6,752 14,000
 ----------- ---------

 Total Assets $1,198,105 $618,679
 =========== =========

Liabilities
--------------------------------------------

 Accounts payable and accrued liabilities $ 238,250 $122,621
 Deferred income taxes - 283
 Income taxes payable 21,869 4,648
 ----------- ---------
 Total current liabilities 260,119 127,552

 Note payable 45,000 -
 Accrued retirement benefits 263,342 205,029
 Deferred rent and accrued lease losses 29,292 18,701
 Deferred income taxes 361 370
 Other noncurrent liabilities 69,960 32,824
 ----------- ---------


 Total Liabilities 668,074 384,476

 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;
 42,463,451 and 33,372,880 issued and
 42,271,095 and 32,627,226 outstanding 425 334
 Additional paid-in capital 386,535 147,948
 Treasury stock, at cost - 192,356 and
 745,654 shares (5,050) (18,705)
 Retained earnings 220,052 168,075
 Accumulated other comprehensive loss (71,931) (63,449)
 ----------- ---------
 Total Stockholders' Equity 530,031 234,203
 ----------- ---------

 Total Liabilities and Stockholders' Equity $1,198,105 $618,679
 =========== =========



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


 Nine months ended
 March 31,
 ---------------------
 2006 2005
 ---------- ----------
 (Unaudited)
 ---------------------
 Cash flows from operating activities:
 Net income $ 61,465 $ 39,902
 Adjustments to reconcile net income to net cash
 from (used in) operating activities:
 Loss on foreign currency forward contract 3,602 -
 Income from discontinued operations, net
 of income tax expense (1,035) (739)
 Provision for doubtful receivables from
 clients 6,089 5,967
 Depreciation 26,448 14,426
 Amortization of intangible assets 5,872 228
 Provision for deferred income taxes 9,876 7,029
 Income from affiliates (1,732) (5,819)
 Distributions from affiliates 1,614 4,624
 Other, net 326 755
 Changes in operating assets and liabilities
 (net of discontinued operations)
 Receivables from clients (33,731) (22,124)
 Other current assets (4,929) (9,996)
 Other assets (684) 1,091
 Accounts payable and accrued
 liabilities (31,278) (12,126)
 Income taxes payable 16,620 (20,824)
 Accrued retirement benefits 412 (261)
 Deferred rent and accrued lease losses 1,870 394
 Other noncurrent liabilities 4,205 (481)
 ---------- ----------
 Net cash from operating activities 65,010 2,046
 ---------- ----------

 Cash flows used in investing activities:
 Purchases of marketable securities - (469,400)
 Sales and maturities of marketable securities - 489,400
 Acquisitions (132,844) (517)
 Purchases of fixed assets (24,153) (20,129)
 Capitalized software costs (20,477) (8,840)
 Proceeds from divestitures 1,496 28
 ---------- ----------
 Net cash used in investing activities (175,978) (9,458)
 ---------- ----------

 Cash flows used in financing activities:
 Borrowings 102,000 -
 Repayments (57,000) -
 Foreign currency forward contract (8,405) -
 Dividends paid (9,487) (7,309)
 Repurchases of common stock (3,937) (4,188)
 Tax benefit of exercise of stock options and
 other 1,444 775
 Issuances of common stock - exercise of
 options 2,921 1,711
 Issuances of common stock - employee stock
 purchase plan 4,777 5,549
 ---------- ----------
 Net cash provided by (used in) investing
 activities 32,313 (3,462)
 ---------- ----------

Effect of exchange rates on cash 3,253 399
 ---------- ----------

Decrease in cash and cash equivalents (75,402) (10,475)

Cash and cash equivalents at beginning of period 168,076 136,940
 ---------- ----------

Cash and cash equivalents at end of period $ 92,674 $ 126,465
 ========== ==========
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