Watson Wyatt Worldwide Reports Third Quarter EPS of $0.96, up 26 Percent from Prior Year

Watson Wyatt Worldwide, Inc. (NYSE, NASDAQ: WW), a leading international human capital and financial management consulting firm, today announced financial results for the third quarter of fiscal year 2008, which ended March 31, 2008. Revenues were $457.5 million for the quarter, an increase of 16% (14% constant currency) from the third quarter of fiscal 2007 revenues of $395.6 million. Excluding the impact of acquisitions and changes in foreign exchange rates, revenues increased 6% from the third quarter of fiscal 2007. Net income for the third quarter of fiscal 2008 was $42.5 million, or $0.96 per diluted share, an increase from $33.8 million or $0.76 per diluted share in the prior-year third quarter. When compared to prior-year third quarter, exchange rates had a positive impact of $0.01 per diluted share on net income. "The Company performed well this quarter, as we continued to benefit from our global, diversified platform,” said John Haley, president and chief executive officer. "We are quite pleased with our ongoing revenue growth and resulting margin improvements.” Operating Highlights Benefits Group revenues (representing 59% of third-quarter revenues) were $268 million for the third quarter of fiscal 2008, an increase of 21% (20% constant currency) from $221 million in the prior-year third quarter. Excluding the impact of acquisitions and changes in foreign exchange rates, revenues increased 6% from prior year. The increase in organic revenues was largely due to increased demand for valuation, plan design and pension administration services. Technology and Administration Solutions Group revenues (representing 10% of third-quarter revenues) were $45 million for the third quarter of fiscal 2008, an increase of 14% (14% constant currency) from $39 million in the prior-year third quarter. The increase in reported revenues resulted primarily from an increase in administration services in both North America and Europe. The number of projects in service in North America increased to 121 at March 31, 2008, as compared to 76 at March 31, 2007. We have an additional 56 projects in the implementation phase in North America. Human Capital Group revenues (representing 11% of third-quarter revenues) were $49 million for the third quarter of fiscal 2008, an increase of 19% (18% constant currency) from $41 million in the prior-year third quarter. Demand for our services was strong in all geographic regions. Insurance & Financial Services Group revenues (representing 7% of third-quarter revenues) were $31 million for the third quarter of fiscal 2008, an increase of 2% (1% constant currency) from $30 million in the prior-year third quarter. The increase was largely due to growth in Asia Pacific. Investment Consulting Group revenues (representing 10% of third-quarter revenues) were $43 million for the third quarter of fiscal 2008, an increase of 27% (25% constant currency) from $34 million in the prior-year third quarter. The revenue increase was due to strong demand for all services, particularly advice on investment strategy. Outlook for Fiscal Year 2008 For fiscal year 2008, the company expects revenues to be in the range of $1.72 billion to $1.73 billion and earnings per diluted share for the year are expected to be in the range of $3.29 to $3.32. This guidance assumes an average exchange rate of 1.95 U.S. dollars to the British pound for the fourth quarter of fiscal year 2008. For the fourth quarter of fiscal 2008, the company expects revenues to be in the range of $415 million to $425 million and earnings per diluted share for the quarter are expected to be in the range of $0.74 to $0.77. Conference Call The company will host a live webcast and conference call to discuss the financial results for the third quarter of fiscal 2008. It will be held on Thursday, May 8, 2008, 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 85045287. 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. 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 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; the successful exit of the multi-employer retirement business; 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; 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 continued ability to achieve cost reductions; foreign currency exchange and interest rate fluctuations; exposure to liabilities of acquired businesses that have not been expressly assumed; general economic and business conditions that adversely affect us or our clients; 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, 2007 and filed on August 24, 2007, 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, 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 7,000 associates in 32 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 March 31, Nine months ended March 31, 2008 2007 2008 2007     Revenue $ 457,525   $ 395,598   $ 1,306,244   $ 1,098,027     Costs of providing services: Salaries and employee benefits 254,147 211,807 722,583 598,447 Professional and subcontracted services 20,334 26,494 75,154 72,659 Occupancy, communications and other 54,955 49,375 148,187 136,008 General and administrative expenses 45,390 40,445 131,486 118,005 Depreciation and amortization   18,265     15,123     53,225     41,797     393,091     343,244     1,130,635     966,916     Income from operations 64,434 52,354 175,609 131,111   Loss from affiliates (29 ) (4,490 ) (603 ) (5,357 ) Interest expense (1,353 ) (304 ) (5,580 ) (1,336 ) Interest income 1,585 889 4,356 3,101 Other non-operating income   179     37     454     141     Income before income taxes 64,816 48,486 174,236 127,660   Provision for income taxes   22,270     14,652     60,465     43,018     Net income $ 42,546   $ 33,834   $ 113,771   $ 84,642     Earnings per share: Net income - Basic $ 1.01   $ 0.80   $ 2.69   $ 1.99   Net income - Diluted $ 0.96   $ 0.76   $ 2.56   $ 1.90     Weighted average shares of common stock, basic (000)   42,064     42,488     42,230     42,430   Weighted average shares of common stock, diluted (000)   44,333     44,586     44,515     44,562           WATSON WYATT WORLDWIDE, INC. Supplemental Segment Data (Thousands of U.S. Dollars)   Three Months Ended March 31, Nine Months Ended March 31,   2008     2007     2008     2007   (Unaudited) (Unaudited)   Revenue (net of reimbursable expenses) Benefits Group $ 267,940 $ 220,708 $ 738,605 $ 602,772 Technology and Administration Solutions Group 45,008 39,329 135,055 118,034 Human Capital Group 49,058 41,153 145,222 126,269 Insurance & Financial Services Group 30,799 30,288 89,131 83,656 Investment Consulting Group   43,457     34,294     125,763     94,219   Total segment revenue 436,262 365,772 1,233,776 1,024,950 Other, including reimbursable expenses   21,263     29,826     72,468     73,077   Consolidated revenue $ 457,525   $ 395,598   $ 1,306,244   $ 1,098,027     Net operating income Benefits Group $ 89,135 $ 66,696 $ 210,068 $ 159,541 Technology and Administration Solutions Group 10,180 8,229 34,990 27,314 Human Capital Group 9,460 5,929 27,585 19,305 Insurance & Financial Services Group 1,411 6,400 2,565 14,730 Investment Consulting Group   15,947     11,680     44,681     28,364   Total segment net operating income 126,133 98,934 319,889 249,254 Discretionary compensation (50,483 ) (39,604 ) (144,363 ) (105,984 ) Other income (expense), net   (10,834 )   (10,844 )   (1,290 )   (15,610 ) Income before income taxes $ 64,816   $ 48,486   $ 174,236   $ 127,660         March 31,   2008     2007   (Unaudited) Associates (fiscal year end full-time equivalents) Benefits Group 3,240 2,710 Technology and Administration Solutions Group 830 755 Human Capital Group 840 800 Insurance & Financial Services Group 425 370 Investment Consulting Group 440 365 Other (including Communication) 810 790 Corporate   605     580   Total   7,190     6,370       WATSON WYATT WORLDWIDE, INC. Condensed Consolidated Balance Sheets (Thousands of U.S. Dollars, Except Share Data) (Unaudited)   March 31, June 30, 2008 2007   Assets Cash and cash equivalents $ 157,816 $ 248,186 Receivables from clients:   Billed, net of allowances of $10,721 and $6,216 254,842 227,130 Unbilled, at estimated net realizable value   133,440     109,697   388,282 336,827   Other current assets   83,241     51,749   Total current assets 629,339 636,762   Fixed assets, net 178,123 172,147 Deferred income taxes 61,994 66,751 Goodwill 636,157 382,936 Intangible assets, net 231,877 211,715 Other assets   68,134     59,398     Total Assets $ 1,805,624   $ 1,529,709     Liabilities Accounts payable and accrued liabilities, including discretionary compensation $ 328,202 $ 303,346 Income taxes payable and deferred   5,796     7,062   Total current liabilities 333,998 310,408   Revolving credit facility 110,500 105,000 Accrued retirement benefits 214,815 198,677 Deferred rent and accrued lease losses 29,307 32,686 Contingency stock payable 110,329 - Other noncurrent liabilities   103,628     95,419     Total Liabilities   902,577     742,190     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; 42,763,451 and 42,763,451 issued and 41,864,101 and 42,299,792 outstanding 428 428 Additional paid-in capital 402,049 395,521 Treasury stock, at cost - 899,350 and 463,659 shares (44,488 ) (22,251 ) Retained earnings 436,561 336,101 Accumulated other comprehensive income   108,497     77,720   Total Stockholders' Equity   903,047     787,519     Total Liabilities and Stockholders' Equity $ 1,805,624   $ 1,529,709     WATSON WYATT WORLDWIDE, INC. Condensed Consolidated Statements of Cash Flows (Thousands of U.S. Dollars) (Unaudited)     Nine months ended March 31, 2008 2007   Cash flows from operating activities: Net income $ 113,771 $ 84,642 Adjustments to reconcile net income to net cash (used in)/from operating activities: Provision for doubtful receivables from clients 11,295 17,172 Depreciation 40,943 34,512 Amortization of intangible assets 12,282 7,285 Provision for deferred income taxes 9,453 2,145 Loss from affiliates 603 5,357 Other, net 6,730 454 Changes in operating assets and liabilities, net of business acquisitions Receivables from clients (43,785 ) (68,865 ) Other current assets (19,818 ) (13,362 ) Other assets (3,689 ) 599 Accounts payable and accrued liabilities 27,242 (9,198 ) Income taxes payable and deferred (478 ) (7,743 ) Accrued retirement benefits (8,118 ) (3,889 ) Deferred rent and accrued lease losses (3,379 ) 667 Other noncurrent liabilities   (5,244 )   6,045   Cash flows from operating activities:   137,808     55,821     Cash flows used in investing activities: Business acquisitions and contingent consideration payments (134,934 ) (46,534 ) Purchases of fixed assets (24,698 ) (29,244 ) Capitalized software costs (16,903 ) (16,010 ) Investment in affiliates (3,316 ) - Increase in restricted cash (2,265 ) - Contingent proceeds from divestitures   454     141   Cash flows used in investing activities:   (181,662 )   (91,647 )   Cash flows from/(used in) financing activities: Borrowings (repayments) under Credit Facility 5,500 (30,000 ) Dividends paid (9,499 ) (9,527 ) Repurchases of common stock (53,980 ) (33,420 ) Tax benefit on exercise of stock options and other 2,192 2,375 Issuances of common stock - exercise of stock options 2,546 2,896 Issuances of common stock - employee stock purchase plan   4,707     4,718   Cash flows used in financing activities:   (48,534 )   (62,958 )   Effect of exchange rates on cash   2,018     2,615     Decrease in cash and cash equivalents (90,370 ) (96,169 )   Cash and cash equivalents at beginning of period   248,186     165,345     Cash and cash equivalents at end of period $ 157,816   $ 69,176     Supplemental disclosures: Cash paid for interest $ 5,580 $ 1,336 Cash paid for income taxes, net of refunds $ 55,191 $ 45,928