Towers Watson Reports Fourth Quarter Adjusted EPS of $0.90

Expect Fiscal 2011 Adjusted EPS of $3.95 to $4.10

NEW YORK--(BUSINESS WIRE)-- Towers Watson (NYSE, NASDAQ: TW), a leading global professional services company, today announced financial results for the fourth quarter of fiscal year 2010, which ended June 30, 2010.

Revenues were $750 million for the quarter, an increase from $397 million for the fourth quarter of fiscal 2009. The increase in revenues is driven by the merger between Towers Perrin and Watson Wyatt that became effective on January 1, 2010. Reported results for the fourth quarter of fiscal 2009 include only the financial results of Watson Wyatt. On a pro forma basis that includes Towers Perrin actual results in the fourth quarter of fiscal 2009, revenues declined 3% (-2% constant currency). The decline reflects the current economic environment. For the six months ended June 30, 2010, revenues were $1.55 billion.

EBITDA was $64 million, or 8.5% of revenues, for the quarter. In the fourth quarter of fiscal 2009, EBITDA was $72 million, or 18.2% of revenues. The decline in EBITDA as a percentage of revenues is due primarily to transaction and integration costs as well as non-cash stock-based compensation arising from the merger. Adjusted EBITDA was $118 million, or 15.8% of revenues, for the quarter. Adjusted EBITDA as a percentage of revenues is down from the prior year quarter due to a change in the mix of work and is consistent with merger expectations. For the six months ended June 30, 2010, adjusted EBITDA was $251 million, or 16.1% of revenues. Adjusted EBITDA excludes transaction and integration costs as well as non-cash stock-based compensation arising from the merger.

Net income was $58 million for the quarter, an increase from $31 million for the fourth quarter of fiscal 2009. The increase in net income was largely due to the income tax benefit, offset in part by transaction and integration costs, non-cash stock-based compensation arising from the merger and amortization of merger accounting intangible assets. Diluted earnings per share were $0.77 for the quarter, and adjusted diluted earnings per share were $0.90 for the quarter. For the six months ended June 30, 2010, adjusted diluted earnings per share were $1.82. Adjusted diluted earnings per share include a normalized income tax rate and exclude transaction and integration costs, non-cash stock-based compensation arising from the merger and amortization of merger accounting intangible assets.

“We have now operated as Towers Watson for six months, and overall the merger integration is going well,” said John Haley, chief executive officer. “We have accomplished a great deal and are laying the foundation to achieve our long-term growth and profitability goals.”

Fourth Quarter Business Segment Results

Since prior period reported results include only the financial results of Watson Wyatt and are not comparable, the company discusses pro forma segment revenues to provide comparability with the prior year. The pro forma revenues assume the merger between Towers Perrin and Watson Wyatt occurred on January 1, 2009. The company’s management uses the pro forma revenues internally to focus on period-to-period changes in the business and believes this information is helpful to stockholders.

Benefits

For the quarter, the Benefits segment had revenues of $441 million. On a pro forma, constant currency basis, revenues were down about 3% compared to the fourth quarter of fiscal 2009. Declines in revenues from Retirement, and Technology and Administration Solutions were offset in part by an increase in revenues from Health and Group Benefits. The Benefits segment had a net operating income (NOI) margin of 28% in the fourth quarter of fiscal 2010.

Risk and Financial Services

For the quarter, the Risk and Financial Services segment had revenues of $164 million. On a pro forma, constant currency basis, revenues were flat compared to the fourth quarter of fiscal 2009. Slight declines in revenues from Risk Consulting and Software, and Brokerage were offset by an increase in revenues from Investment Consulting. The Risk and Financial Services segment had an NOI margin of 17% in the fourth quarter of fiscal 2010.

Talent and Rewards

For the quarter, the Talent and Rewards segment had revenues of $122 million. On a pro forma, constant currency basis, revenues were flat compared to the fourth quarter of fiscal 2009. Constant currency declines in revenues from Rewards, Talent and Communication and Executive Compensation were offset by an increase in Data, Surveys and Technology. The Talent and Rewards segment had an NOI loss of $1 million in the fourth quarter of fiscal 2010.

Outlook for Fiscal 2011

For fiscal 2011, the company expects to report revenues in the range of $3.05 billion to $3.2 billion and adjusted diluted earnings per share in the range of $3.95 to $4.10. Adjusted diluted earnings per share exclude transaction and integration costs, stock-based compensation arising from the merger and amortization of merger accounting intangible assets. This guidance assumes an average exchange rate of $1.50 U.S. dollars to the British Pound for fiscal 2011 and $1.30 U.S. dollars to the Euro for fiscal 2011.

For the first quarter of fiscal 2011, the company expects to report revenues in the range of $750 million to $780 million and adjusted diluted earnings per share in the range of $0.86 to $0.89. Adjusted diluted earnings per share exclude transaction and integration costs, stock-based compensation arising from the merger and amortization of merger accounting intangible assets. This guidance assumes an average exchange rate of $1.50 U.S. dollars to the British Pound for the first quarter of fiscal 2011 and $1.30 U.S. dollars to the Euro for the first quarter of fiscal 2011.

Conference Call

The company will host a live webcast and conference call to discuss the financial results for the fourth quarter of fiscal 2010. It will be held on Thursday, August 19, 2010, beginning at 9:00 a.m. Eastern Time, and can be accessed via the Internet at www.towerswatson.com. The replay of the call will be available shortly after the live call for a period of three months. A telephonic replay will also be available for one week after the call by dialing 617-801-6888 and using confirmation number 80450994.

About Towers Watson

Towers Watson is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. With approximately 14,000 full-time and contract associates around the world, we offer solutions in the areas of employee benefits, talent management, rewards, and risk and capital management. Towers Watson was formed on January 1, 2010, from the merger of Towers Perrin and Watson Wyatt, two leading multi-service firms that provide a broad array of consulting services to organizations around the world.

Use of Non-GAAP Measures

The company defines EBITDA as net income adjusted for provision for income taxes, interest, depreciation and amortization. We use EBITDA in evaluating our financial performance. Although EBITDA is not a measure of financial condition or performance determined in accordance with U.S. generally accepted accounting principles (GAAP), we believe that it is a useful measure for evaluating our results of operations as compared from period to period. A reconciliation of EBITDA to Net Income is included in the accompanying tables to today’s press release. EBITDA is not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies unless the definition is the same.

The company also uses adjusted measures of income to evaluate its performance internally and separately evaluates its performance of transaction and integration activities as well as changes in tax law. Adjusted EBITDA and Adjusted diluted earnings per share are not determined in accordance with GAAP. However, we believe these measures are useful in evaluating our results of operations and in providing a baseline for the evaluation of future operating results. Reconciliations of Adjusted EBITDA to EBITDA (and from EBITDA to Net Income, the most comparable GAAP financial measure), and Adjusted diluted earnings per share to diluted earnings per share are included in the accompanying tables to today’s press release. Adjusted measures of income may not be defined in the same manner by all companies, and our adjusted measures of income may not be comparable to similarly titled measures of other companies.

Non-GAAP measures should be considered in addition to the information contained within our financial statements.

Forward-Looking Statements

This document contains “forward-looking statements” within the meaning of the Private Securities Litigation Reform Act of 1995. You can identify these statements and other forward-looking statements in this document by words such as “may,” “will,” “would,” “expect,” “anticipate,” “believe,” “estimate,” “plan,” “intend,” “continue,” or similar words, expressions or the negative of such terms or other comparable terminology. Such statements are based upon the current beliefs and expectations of Towers Watson's management and are subject to significant risks and uncertainties. Actual results may differ from those set forth in the forward-looking statements.

The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: the risk that the Towers Perrin and Watson Wyatt businesses will not be integrated successfully; the risk that anticipated cost savings and any other synergies from the merger of Towers Perrin and Watson Wyatt may not be fully realized or may take longer to realize than expected; the ability to successfully address issues surrounding the number of company shares that will become freely tradable on January 1, 2011; the ability to recruit and retain qualified employees and to retain client relationships, particularly in the executive compensation business, given recent Securities and Exchange Commission (SEC) and other regulatory actions; and the risk that a significant or prolonged economic downturn could have a material adverse effect on Towers Watson's business, financial condition and results of operations. Additional risks and factors are identified under “Risk Factors” in Towers Watson’s Registration Statement on Form S-1 filed with the SEC on July 19, 2010; and under “Risk Factors” in Watson Wyatt’s Annual Report on Form 10-K filed on August 14, 2009 with the SEC.

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. Towers Watson does not undertake an obligation to update any of the forward-looking information included in this document, whether as a result of new information, future events, changed expectations or otherwise.

CONTACT:

Investor Contact:
Towers Watson
Mary Malone, +1-703-258-7841
mary.malone@towerswatson.com

KEYWORDS:   United States  North America  New York

INDUSTRY KEYWORDS:   Professional Services  Finance  Insurance  Other Professional Services

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