Towers Watson & Co. 8-K Towers Watson Reports Strong Fourth Quarter Earnings

Exhibit 99.1

Towers Watson Reports Strong Fourth Quarter Earnings

• Revenues of $879 million, up 5% over prior year
• Adjusted Diluted EPS from continuing operations of $1.34, up 2% over prior year
• Diluted EPS from continuing operations of $1.17, up 4% over prior year

Fiscal Year 2014 Adjusted Diluted EPS from continuing operations of $5.76, up 10% over prior year

Fiscal Year 2014 Diluted EPS from continuing operations of $4.98 up 21% over prior year

ARLINGTON, Va.--(BUSINESS WIRE)--August 12, 2014--Towers Watson (NYSE, NASDAQ: TW), a leading global professional services company, today announced financial results for the fourth quarter of fiscal year 2014, which ended June 30, 2014.

Total revenues were $879 million for the quarter, an increase of 5% (4% increase constant currency) from $835 million for the fourth quarter of fiscal year 2013. On an organic basis, which excludes the impact of changes in foreign currency exchange rates, acquisitions and divestitures, revenues increased 3% from the prior year fourth quarter. For the fiscal year, revenues were $3.5 billion, an increase of 1% over the prior year.

Adjusted EBITDA for the fourth quarter of fiscal year 2014 was $169 million, or 19.2% of revenues, versus Adjusted EBITDA of $161 million, or 19.3% of revenues, for the prior year fourth quarter. For the fiscal year, Adjusted EBITDA was $670 million or 19.2% of revenues.

Income from continuing operations (attributable to common stockholders) for the fourth quarter of fiscal year 2014 was $82 million as compared to $80 million in the fourth quarter of fiscal year 2013. For the quarter, diluted earnings per share from continuing operations were $1.17, a 4% increase over the prior year, and adjusted diluted earnings per share from continuing operations were $1.34, a 2% increase over the prior year. The tax rate for continuing operations for the quarter was 34%.

“We were very pleased with the fourth quarter results and ending the fiscal year on such a strong note” said John Haley, chief executive officer. “We had three significant goals for fiscal year 2014: enhance the capabilities the OneExchange platform; re-align the Risk Consulting and Software business; and direct resources to long-term growth initiatives. While we experienced some pressure on revenues this past year, I’m pleased to say that we’ve accomplished our organizational goals in building the foundation for long-term growth. OneExchange is the only multi-carrier platform in the market today that can address all employee populations on a fully insured and self-insured basis, the Risk Consulting and Software business has returned to historical profitability, and the divestiture of the Brokerage business provided capital to refocus our resources for more strategic growth initiatives, particularly the enhancement of OneExchange through the acquisition of Liazon.”

Fourth Quarter Company Highlights

Benefits

For the quarter, the Benefits segment had revenues of $508 million, an increase of 3% (1% increase constant currency) from $494 million in the prior-year fourth quarter. Retirement revenues were roughly flat, as a moderate increase in de-risking activities in the Americas was offset by softness in the EMEA Region. Health and Group Benefits had mid-single digit constant currency revenue growth due to new consulting work. Technology and Administration Solutions had mid-single digit constant currency revenue growth due to new client work in the U.S. The Benefits segment had a Net Operating Income (“NOI”) margin of 31% in the fourth quarter of fiscal year 2014.

Risk and Financial Services

For the quarter, the Risk and Financial Services segment had revenues of $161 million, an increase of 10% (7% increase constant currency) from $146 million in the prior-year fourth quarter. Risk Consulting and Software had mid-single digit constant currency revenue growth, led by the EMEA region as a result of both increased consulting work and a significant increase in software-related revenues. Investment had low double digit constant currency revenue growth this quarter. The Risk and Financial Services segment had an NOI margin of 24% in the fourth quarter of fiscal year 2014.

Talent and Rewards

For the quarter, the Talent and Rewards segment had revenues of $131 million, a decrease of 1% (1% decrease constant currency) from $132 million in the prior-year fourth quarter. Executive Compensation had mid-single digit constant currency revenue growth and experienced growth in all regions. Rewards, Talent and Communication had a mid-single digit constant currency revenue decline, driven by a low double digit decline in the Americas. Data, Surveys and Technology had low single digit constant currency revenue growth. The Talent and Rewards segment had an NOI margin of 8% in the fourth quarter of fiscal year 2014. The second half of the year typically has lower margins due to the seasonality of the business.

Exchange Solutions

For the quarter, the Exchange Solutions segment had revenues of $51 million, an increase of 48% (48% increase constant currency) from $35 million in the prior year fourth quarter. OneExchange Retiree increased in the low 40% range. Liazon contributed approximately $2.5 million in revenues this quarter. The Exchange Solutions segment had an NOI margin of 37% in the fourth quarter of fiscal year 2014. The second half of the fiscal year is seasonally stronger due to the timing of enrollments.

Outlook for Fiscal Year 2015

For the first quarter of fiscal year 2015, the company expects to report revenues in the range of $840 million to $860 million, reflecting constant currency revenue growth in the range of 2% to 5%. The company expects adjusted diluted earnings per share in the range of $1.17 to $1.22. This guidance assumes an average exchange rate of 1.68 U.S. dollars to the British Pound and 1.34 U.S. dollars to the Euro for the first quarter of fiscal year 2015.

Full fiscal year 2015 guidance will be provided at Towers Watson’s Analyst Day on September 19, 2014.

Conference Call

The company will host a live webcast and conference call to discuss the financial results for the fourth quarter of fiscal year 2014. It will be held on Tuesday, August 12, 2014, 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 92596640.

About Towers Watson

Towers Watson (NYSE, NASDAQ: TW) is a leading global professional services company that helps organizations improve performance through effective people, risk and financial management. The company offers consulting, technology and solutions in the areas of benefits, talent management, rewards, and risk and capital management. Towers Watson has more than 14,000 associates around the world and is located on the web at www.towerswatson.com.

Use of Non-GAAP Measures

In order to assist readers of our financial statements in understanding the core operating results that the Company’s management uses to evaluate the business and for financial planning, we present (1) Adjusted EBITDA, (2) Adjusted income from continuing operations (attributable to common stockholders), and (3) Adjusted Diluted Earnings Per Share from continuing operations (which are all non-U.S. GAAP measures), to eliminate the effect of acquisition-related expenses from the financial results of our operations. We use Adjusted income from continuing operations (attributable to common stockholders), the numerator, for the purpose of calculating Adjusted Diluted Earnings Per Share from continuing operations. The Company believes that Adjusted EBITDA and Adjusted Diluted Earnings Per Share from continuing operations and Free Cash Flow are relevant and useful information widely used by analysts, investors and other interested parties in our industry to provide a baseline for evaluating and comparing our operating results.

Since the Merger in January 2010, we have incurred significant acquisition-related expenses related to our merger and integration activities necessary to combine Watson Wyatt and Towers Perrin. These acquisition-related expenses include transaction and integration costs, severance costs, non-cash charges for amortization of intangible assets and merger-related stock-based compensation costs from the issuance of merger-related restricted shares. Included in our acquisition-related transaction and integration costs are integration consultant fees and legal, accounting, marketing and information technology integration expenses. We consider Adjusted EBITDA and Adjusted Diluted Earnings Per Share from continuing operations to be important financial measures, which we use to internally evaluate and assess our core operations, and benchmark our operating results against our competitors. We use Adjusted EBITDA to evaluate and measure our performance-based compensation plans. Adjusted EBITDA and Adjusted Diluted Earnings Per Share are important in illustrating what our operating results would have been had we not incurred these acquisition-related expenses.

The Company’s non-U.S. GAAP measures and their accompanying definitions are presented as follows:

• Adjusted EBITDA – net income (attributable to common stockholders) adjusted for discontinued operations, net of tax, provision for income taxes, interest, net, depreciation and amortization, transaction and integration expenses, stock-based compensation, and other non-operating income excluding income from variable interest entity.
• Adjusted income from continuing operations (attributable to common stockholders) – net income (attributable to common stockholders) adjusted for discontinued operations, net of tax, and adjusted for certain tax effected merger and acquisition related items of transaction and integration expenses, non-cash stock-based compensation, and amortization of intangible assets.
• Adjusted Diluted Earnings Per Share from continuing operations – diluted earnings per share from continuing operations adjusted for discontinued operations, net of tax, and adjusted for certain tax effected merger and acquisition related items of transaction and integration expenses, non-cash stock-based compensation, and amortization of intangible assets.
• Free Cash Flow - Cash Flows from Operating Activities less cash flows used for Fixed Assets and Software for Internal Use, each of which is presented on the GAAP Consolidated Statements of Cash Flows.

These non-U.S. GAAP measures are not defined in the same manner by all companies and may not be comparable to other similarly titled measures of other companies. Non-U.S. GAAP measures should be considered in addition to, and not as a substitute for, the information contained within our financial statements.

Reconciliation of Adjusted EBITDA to net income (attributable to common stockholders), Adjusted income from continuing operations to net income (attributable to common stockholders), Adjusted Diluted Earnings Per Share from continuing operations to diluted earnings per share from continuing operations and Free Cash Flow are included in the accompanying tables to today’s press release.

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: a decline in client demand (for example, resulting from the reduced use of defined benefit plans); the risk of a disclosure breach of company or client data; the ability to successfully make suitable acquisitions and divestitures; the risk that the acquisitions of Extend Health and Liazon are not profitable or are not otherwise successfully integrated; our ability to protect client data and our information systems; the risk that potential changes in federal and state health care regulations, or future interpretation of existing regulations, may have a material adverse impact on our business; the risk that our Exchange Solutions or OneExchange businesses fail to maintain good relationships with insurance carriers, become dependent upon a limited number of insurance carriers or fail to develop new insurance carrier relationships; the risk that changes and developments in the health insurance system in the United States could harm our business; our ability to respond to rapid technological changes; the ability to recruit and retain qualified employees and to retain client relationships; 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 most recent Annual Report on Form 10-K filed 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.

TOWERS WATSON & CO.
Supplemental Segment Information
(In Thousands of U.S. Dollars)
	Segment Revenue
		Revenue for the Three
		Months Ended June 30,					% Change			Currency		Acquisitions			% Change
		2014		2013			GAAP			Impact		Divestitures			Organic
	Benefits	$	507,894	$	494,423			3	%	2	%		0	%		1	%
	Risk & Financial Services*		161,094		146,044			10	%	3	%		0	%		7	%
	Talent & Rewards		131,239		132,002			(1	)%	0	%		0	%		(1	)%
	Exchange Solutions		51,298		34,599			48	%	0	%		7	%		41	%
	Reportable Segments	$	851,525	$	807,068
		Revenue for the Year
		Ended June 30,					% Change			Currency		Acquisitions			% Change
		2014		2013			GAAP			Impact		Divestitures			Organic
	Benefits	$	1,979,674	$	1,994,458			(1	)%	0	%		0	%		(1	)%
	Risk & Financial Services*		638,437		645,345			(1	)%	1	%		0	%		(2	)%
	Talent & Rewards		582,703		573,336			2	%	0	%		0	%		2	%
	Exchange Solutions		169,975		94,858			79	%	0	%		6	%		73	%
	Reportable Segments	$	3,370,789	$	3,307,997
	*Risk and Financial Services excludes Brokerage line of business which has been reported as discontinued operations
	Reconciliation of Reportable Segment Revenues to Consolidated Revenues
				Three Months Ended June 30,								Year Ended June 30,
				2014			2013					2014			2013
	Reportable Segments			$	851,525		$	807,068				$	3,370,789		$	3,307,997
	Reimbursable Expenses and Other				27,460			28,214					111,123			124,518
	Consolidated Revenues			$	878,985		$	835,282				$	3,481,912		$	3,432,515
	Segment Net Operating Income
				Three Months Ended June 30,								Year Ended June 30,
				2014			2013					2014			2013
	Benefits			$	158,101		$	168,682				$	619,117		$	674,657
	Risk & Financial Services*				38,472			21,335					148,448			132,285
	Talent & Rewards				10,569			15,179					119,287			114,227
	Exchange Solutions				19,145			17,473					32,731			16,228
	Reportable Segments			$	226,287		$	222,669				$	919,583		$	937,397
	*Risk and Financial Services excludes Brokerage line of business which has been reported as discontinued operations
	Reconciliation of Reportable Segment Net Operating Income to Income from Operations
				Three Months Ended June 30,								Year Ended June 30,
				2014			2013					2014			2013
	Reportable Segments			$	226,287		$	222,669				$	919,583		$	937,397
	Differences in Allocation Methods				9,328			(13,816	)				19,298			(12,832	)
	Amortization of Intangible Assets				(18,249	)		(19,186	)				(75,212	)		(76,963	)
	Transaction and Integration Expenses				-			-					(1,049	)		(30,753	)
	Stock-Based Compensation				(3,578	)		(2,455	)				(11,285	)		(18,978	)
	Discretionary Compensation				(75,509	)		(58,129	)				(301,428	)		(324,370	)
	Payroll Tax on Discretionary Compensation				(3,506	)		(4,030	)				(17,484	)		(19,377	)
	Other, net				(9,535	)		(7,598	)				(37,915	)		(21,719	)
	Income from Operations			$	125,238		$	117,455				$	494,508		$	432,405

TOWERS WATSON & CO.
Reconciliation of Non-GAAP Measures
(In Thousands of U.S. Dollars, Except Per Share Data)
		Three Months Ended										Year Ended
		June 30, 2014					June 30, 2013					June 30, 2014					June 30, 2013
	Net Income (attributable to common stockholders)	$	82,392				$	82,879				$	359,300				$	318,812
	Less: Income from Discontinued Operations, net of tax		77					2,784					6,057					23,642
	Income from Continuing Operations (attributable to common stockholders)		82,315					80,095					353,243					295,170
	Adjusted for certain acquisition related items:
	Amortization of intangible assets		12,089					13,061					54,354					52,387
	Transaction and integration expenses including severance		-					-					758					20,933
	Stock-based compensation		-					850					-					6,079
	Adjusted Income from continuing operations	$	94,404				$	94,006				$	408,355				$	374,569
	Weighted average shares of common stock, diluted (000)		70,679					71,198					70,955					71,555
	Diluted EPS from continuing operations	$	1.17				$	1.12				$	4.98				$	4.13
	Adjusted for certain acquisition related items:
	Amortization of intangible assets		0.17					0.19					0.77					0.73
	Transaction and integration expenses including severance		-					-					0.01					0.29
	Stock-based compensation		-					0.01					-					0.08
	Adjusted Diluted EPS from continuing operations	$	1.34				$	1.32				$	5.76				$	5.23
		Three Months Ended										Year Ended
		June 30, 2014					June 30, 2013					June 30, 2014					June 30, 2013
	Net Income (attributable to common stockholders)	$	82,392				$	82,879				$	359,300				$	318,812
	Less: Income from Discontinued Operations, net of tax		77					2,784					6,057					23,642
	Income from Continuing Operations (attributable to common stockholders)		82,315					80,095					353,243					295,170
	Provision for Income Taxes		41,927					37,342					138,249					136,991
	Interest, net		1,522					2,351					6,228					10,276
	Depreciation and Amortization		43,887					42,070					174,818					173,040
	Other Non-Operating Income (a)		(483	)				(1,868	)				(3,929	)				(6,872	)
	Transaction and Integration Expenses		-					-					1,049					30,753
	Stock-Based Compensation		-					1,248					-					8,931
	Adjusted EBITDA and Adjusted EBITDA Margin	$	169,168		19.2	%	$	161,238		19.3	%	$	669,658		19.2	%	$	648,289		18.9	%
	(a) Other non-operating income includes income from affiliates and other non-operating income excluding income from variable interest entity

TOWERS WATSON & CO.
Consolidated Statements of Operations
(In Thousands of U.S. Dollars, Except Per Share Data)
		Three Months Ended June 30,						Year Ended June 30,
		2014			2013			2014			2013
Revenue		$	878,985		$	835,282		$	3,481,912		$	3,432,515
Costs of providing services:
	Salaries and employee benefits		531,896			494,658			2,106,431			2,085,188
	Professional and subcontracted services		61,572			77,964			249,775			267,715
	Occupancy		35,595			32,826			137,883			139,942
	General and administrative expenses		80,797			70,309			317,448			303,472
	Depreciation and amortization		43,887			42,070			174,818			173,040
	Transaction and integration expenses		-			-			1,049			30,753
			753,747			717,827			2,987,404			3,000,110
Income from operations			125,238			117,455			494,508			432,405
Loss from affiliates			-			-			-			(56	)
Interest income			956			282			2,803			2,400
Interest expense			(2,478	)		(2,633	)		(9,031	)		(12,676	)
Other non-operating income			483			1,868			10,226			6,928
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME TAXES			124,199			116,972			498,506			429,001
Provision for income taxes			41,927			37,342			138,249			136,991
INCOME FROM CONTINUING OPERATIONS			82,272			79,630			360,257			292,010
Income from discontinued operations, net of tax of ($1,810), $4,402, $39,202 and $15,561, respectively			77			2,784			6,057			23,642
NET INCOME BEFORE NON-CONTROLLING INTERESTS			82,349			82,414			366,314			315,652
Less: (Loss) / income attributable to non-controlling interests			(43	)		(465	)		7,014			(3,160	)
NET INCOME (attributable to common stockholders)		$	82,392		$	82,879		$	359,300		$	318,812
Basic earnings per share (attributable to common stockholders):
	Net income from continuing operations	$	1.17		$	1.13		$	5.00		$	4.15
	Net income from discontinued operations		0.00			0.04			0.09			0.33
	Net income - basic	$	1.17		$	1.17		$	5.09		$	4.48
Diluted earnings per share (attributable to common stockholders):
	Net income from continuing operations	$	1.17		$	1.12		$	4.98		$	4.13
	Net income from discontinued operations		0.00			0.04			0.08			0.33
	Net income - diluted	$	1.17		$	1.16		$	5.06		$	4.46
Weighted average shares of common stock, basic (000)			70,291			70,806			70,587			71,150
Weighted average shares of common stock, diluted (000)			70,679			71,198			70,955			71,555

TOWERS WATSON & CO.
Consolidated Balance Sheets
(In Thousands of U.S. Dollars, Except Share Data)
		June 30,			June 30,
		2014			2013
Assets
Cash and cash equivalents		$	727,849		$	532,805
Fiduciary Assets			12,010			148,414
Short-term investments			122,761			56,645
Receivables from clients:
	Billed, net of allowances of $8,075 and $12,768		507,213			519,580
	Unbilled, at estimated net realizable value		314,020			306,258
			821,233			825,838
Other current assets			124,645			148,519
	Total current assets		1,808,498			1,712,221
Fixed assets, net			374,444			346,915
Deferred income taxes			79,103			86,313
Goodwill			2,313,058			2,218,935
Intangible assets, net			657,293			687,758
Other assets			395,390			279,935
Total Assets		$	5,627,786		$	5,332,077
Liabilities
Accounts payable, accrued liabilities and deferred income		$	404,760		$	351,648
Employee-related liabilities			518,532			560,831
Fiduciary liabilities			12,010			148,414
Term loan - current			25,000			25,000
Other current liabilities			74,297			26,980
	Total current liabilities		1,034,599			1,112,873
Revolving credit facility			-			-
Term loan			200,000			225,000
Accrued retirement benefits and other employee-related liabilities			768,024			771,429
Professional liability claims reserve			225,959			251,191
Other noncurrent liabilities			288,255			226,750
Total Liabilities			2,516,837			2,587,243
Commitments and contingencies
Stockholders' Equity
Class A Common Stock - $0.01 par value: 300,000,000 shares authorized;
	74,552,661 and 69,178,097 issued, and 70,338,891 and 65,341,759 outstanding		746			692
Class B Common Stock - $0.01 par value: 93,500,000 shares authorized;
	0 and 5,374,070 issued and outstanding		-			54
Additional paid-in capital			1,849,119			1,850,448
Treasury stock, at cost - 4,213,770 and 3,836,338 shares			(286,182	)		(221,643	)
Retained earnings			1,722,927			1,394,407
Accumulated other comprehensive loss			(189,702	)		(299,464	)
Total Stockholders' Equity			3,096,908			2,724,494
Non-controlling interest			14,041			20,340
Total Equity			3,110,949			2,744,834
Total Liabilities and Total Equity		$	5,627,786		$	5,332,077

TOWERS WATSON & CO.
Consolidated Statements of Cash Flows
(In Thousands of U.S. Dollars)
		Year Ended June 30,
		2014			2013
Cash flows from operating activities:
	Net income before non-controlling interests	$	366,314		$	315,652
	Adjustments to reconcile net income to net cash from operating activities:
	Provision for doubtful receivables from clients		4,429			8,351
	Depreciation		99,606			96,811
	Amortization of intangible assets		75,932			78,910
	Gain on sale of discontinued operations, pretax		(23,950	)		-
	Provision for deferred income taxes		58,220			62,510
	Stock-based compensation		22,517			28,906
	Other, net		(3,704	)		(3,249	)
	Changes in operating assets and liabilities (net of business acquisitions)
	Receivables from clients		17,528			40,079
	Fiduciary assets		113,317			23,177
	Other current assets		14,722			(16,710	)
	Other noncurrent assets		(9,175	)		10,507
	Accounts payable, accrued liabilities and deferred income		16,000			31,144
	Employee-related liabilities		(46,766	)		33,642
	Fiduciary liabilities		(113,317	)		(23,177	)
	Accrued retirement benefits and other employee-related liabilities		(139,922	)		(141,895	)
	Professional liability claims reserves		(27,967	)		(13,575	)
	Other current liabilities		4,838			(1,800	)
	Other noncurrent liabilities		(26,095	)		(2,649	)
	Income tax related accounts		53,564			4,680
	Cash flows from operating activities		456,091			531,314
Cash flows used in investing activities:
	Cash paid for business acquisitions		(211,894	)		(5,678	)
	Cash transferred with discontinued operations		(25,066	)		-
	Proceeds from discontinued operations		259,677			7,371
	Cash acquired from business acquisitions		17,763			636
	Fixed assets and software for internal use		(64,825	)		(77,891	)
	Purchases of investments of consolidated variable interest entity		(109,510	)		-
	Capitalized software costs		(55,996	)		(50,081	)
	Purchases of held-to-maturity securities		(142,971	)		-
	Redemptions of held-to-maturity securities		37,161			-
	Purchases of available-for-sale securities		(30,143	)		(61,251	)
	Sales and redemptions of available-for-sale securities		57,742			49,128
	Cash flows used in investing activities		(268,062	)		(137,766	)
Cash flows used in financing activities:
	Borrowings under credit facility		220,600			422,600
	Repayments under credit facility		(220,600	)		(630,600	)
	Repayments of notes payable		(25,000	)		-
	Earn-out payments		(3,652	)		(3,556	)
	Cash received from consolidated variable interest entity		109,510			-
	Contingent retention liability		21,746			-
	Cash paid on retention liability		(1,939	)		-
	Dividends paid		(21,058	)		(48,153	)
	Repurchases of common stock		(92,823	)		(46,618	)
	Payroll tax payments on vested shares		(11,822	)		(25,010	)
	Excess tax benefits		9,794			4,657
	Cash flows used in financing activities		(15,244	)		(326,680	)
Effect of exchange rates on cash			22,259			(12,242	)
Increase in cash and cash equivalents			195,044			54,626
Cash and cash equivalents at beginning of period			532,805			478,179
Cash and cash equivalents at end of period		$	727,849		$	532,805

CONTACT:
Towers Watson
Investor Contact:
Aida Sukys, + 703-258-8033
Aida.Sukys@towerswatson.com