The Daily Magic Formula Stock for 10/06/2008 is Watson Wyatt Worldwide Inc. According to the Magic Formula Investing Web Site, the ebit yield is 10% and the EBIT ROIC is 75-100%.
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Watson Wyatt Worldwide, Inc. (referred herein as â€śWatson Wyattâ€ť, â€ścompanyâ€ť, â€śusâ€ť, â€śweâ€ť, or â€śWatson Wyatt & Company Holdingsâ€ť) is a global consulting firm focusing on providing human capital and financial management consulting services. Including predecessors, we have been in business since 1878. The Wyatt Company was incorporated in Delaware on February 17, 1958. We conducted business as The Wyatt Company from 1958 until changing our name to Watson Wyatt & Company in connection with the establishment of the Watson Wyatt Worldwide alliance in 1995 with R. Watson & Sons (referred herein as â€śWatson Wyatt LLPâ€ť or â€śWWLLPâ€ť), a leading United Kingdom-based actuarial, benefits and human resources consulting partnership founded in 1878. In 2000, we incorporated Watson Wyatt & Company Holdings to serve as a holding company with our operations conducted by our subsidiaries. To better serve the increasingly global needs of clients, on July 31, 2005 we acquired substantially all of the assets and assumed most liabilities of WWLLP (the â€śWWLLP business combinationâ€ť). The companyâ€™s name was changed to Watson Wyatt Worldwide, Inc. on January 1, 2006, to reflect the companyâ€™s global capabilities and identity in the marketplace.
We help our clients enhance business performance by improving their ability to attract, retain, and motivate qualified employees. We focus on delivering consulting services that help our clients anticipate, identify, and capitalize on emerging opportunities in human capital management. We also provide independent financial advice regarding all aspects of life assurance and general insurance, as well as investment advice to assist our clients in developing disciplined and efficient investment strategies to meet their investment goals. Our target market clients include those companies in the FORTUNE 1000, Pension & Investments (P&I) 1000, FTSE 100, and equivalent organizations in markets around the world. As of June 30, 2008, we provided these services through approximately 7,000 associates in 107 offices located in 32 countries.
Dr. Dr. Heissmann GmbH
On July 20, 2007, the company acquired the outstanding stock of Dr. Dr. Heissmann GmbH (â€śHeissmannâ€ť) for â‚¬99 million in cash. Heissmann was a leading actuarial, benefits, and human resources consulting firm based in Germany with subsidiaries in Ireland, Netherlands, Austria, and France. As of the date of the acquisition, Heissmann employed approximately 360 associates. Annual revenue, including subsidiaries, was approximately $70 million (â‚¬52 million) for their fiscal year ended March 31, 2007 . For more information regarding this business acquisition, see Note 2 of Notes to the Consolidated Financial Statements included in Item 15 of this report.
On July 2, 2007, the company acquired the net assets of WisdomNet for $6.9 million in cash and stock. WisdomNet is a Denver-based talent management solution and consulting firm that was founded in 2001. WisdomNet offers a proprietary line of business software products, including an end-to-end solution for managing organizationsâ€™ talent management processes. As of the date of the acquisition, WisdomNet employed 15 associates. For more information regarding this business acquisition, see Note 2 of Notes to the Consolidated Financial Statements included in Item 15 of this report.
Marcu & Asociados S.A.
On June 16, 2008, the company acquired the outstanding stock of Marcu & Asociados S.A. (Marcu) for $2.8 million in cash. Marcu is a leading human resource, risk and financial management consulting firm based in Buenos Aires, Argentina. As of the date of acquisition, Marcu employed 37 associates and had annual revenues of approximately $2.5 million.
Watson Wyatt Netherlands
On February 1, 2007, the company acquired the net assets of Watson Wyatt Brans & Co. (â€śWatson Wyatt Netherlandsâ€ť or â€śWWNâ€ť), its long-time alliance partner in the Netherlands. As of the date of the acquisition, WWN employed approximately 180 associates in five offices throughout the Netherlands. Revenues generated in calendar year 2006 were approximately $37 million (â‚¬28 million). WWN was established in 1945 as an actuarial firm and has extended its services from retirement consulting to incorporate legal aspects of employee benefits and investment consulting to a wide range of clients. The company and WWN had jointly offered services since 1999 pursuant to alliance agreements and as a result, have business segments that are very similar in nature. For more information regarding this business acquisition, see Note 2 of Notes to the Consolidated Financial Statements included in Item 15 of this report.
Watson Wyatt LLP
On July 31, 2005, the company consummated the WWLLP business combination. The company and WWLLP had jointly offered services since 1995 pursuant to alliance agreements and as a result, have business segments that are very similar in nature. The assets acquired from WWLLP are held by the companyâ€™s principal U.K. subsidiary, Watson Wyatt Limited (â€śWatson Wyatt Limitedâ€ť or the â€śEuropean businessâ€ť). Watson Wyatt Limitedâ€™s results of operations are included in the consolidated financial statements beginning August 1, 2005. Subsequent to the WWLLP business combination, the successor entity to WWLLP, Ringley House LLP (â€śRingley Houseâ€ť) maintains minimal business operations and assets. For more information regarding the WWLLP business combination, see Note 2 of Notes to the Consolidated Financial Statements included in Item 15 of this report.
Access to Public Filings, Code of Business Conduct and Ethics and Board Committee Charters
Our annual report on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports are available, without charge, on our web site (www.watsonwyatt.com) or the SEC web site (www.sec.gov), as soon as reasonably practicable after they are filed electronically with the SEC. We have also adopted a Code of Business Conduct and Ethics applicable to all associates, senior financial employees, the principal executive officer, other officers and members of senior management. The company also has a Code of Business Conduct and Ethics that applies to all of the companyâ€™s directors. Both codes are posted on our website. Watson Wyattâ€™s Audit Committee, Compensation Committee and Nominating and Governance Committee all operate pursuant to written charters adopted by the companyâ€™s board of directors. The company has also adopted a set of Corporate Governance Guidelines, copies of which are available on the companyâ€™s website. Copies of all these documents are also available, without charge, from our Investor Relations Department, located in our corporate headquarters at 901 N. Glebe Road, Arlington, VA 22203.
In November 2007, the company submitted to the New York Stock Exchange (NYSE) the required annual certification that our chief executive officer is unaware of any violation by Watson Wyatt of the NYSE corporate governance standards under section 303A.12(a) of the NYSE listed company manual. The company also filed with the SEC the CEO and CFO certifications required under section 302 of Sarbanes-Oxley Act of 2002 as an exhibit to this Form 10-K.
MANAGEMENT DISCUSSION FROM LATEST 10K
Watson Wyatt is a global consulting firm focusing on providing human capital and financial consulting services. We provide services in five principal practice areas: Benefits, Technology and Administration Solutions, Human Capital Consulting, Investment Consulting and Insurance and Financial Services, operating from 32 countries throughout North America, Europe, Asia Pacific, Latin America, Africa and the Middle East.
In the short term, our revenues are driven by many factors including the general state of the global economy and the resulting level of discretionary spending by our clients, the ability of our consultants to attract new clients or cross-sell to existing clients, and the impact of new regulations in the legal and accounting fields that most recently increased demand for our executive compensation and benefits practices. In the long term, we expect that the companyâ€™s financial results will depend in large part upon how well we succeed in deepening our existing client relationships through thought leadership and focus on cross-practice solutions, actively pursuing new clients in our target markets, cross selling and strategic acquisitions. We believe that the highly fragmented industry in which we operate represents tremendous growth opportunities for us, because we offer a unique business combination of benefits and human capital consulting as well as strategic technology solutions.
We design, develop and implement human resource strategies and programs through the following closely-interrelated practice areas:
Benefits Group â€“ The Benefits Group, accounting for 60 percent of our total fiscal year 2008 revenues, is the foundation of our business. Retirement, the core of our Benefits Group business, is less impacted by discretionary spending reductions than our other segments, mainly due to the recurring nature of client relationships. Our corporate client retention rate within our target market has remained very high. Revenue for our retirement practice is seasonal, with the second and third quarters of each fiscal year being the busier periods. Major revenue growth drivers in this practice include changes in regulations, particularly those affecting pension plans in the U.K., leverage from other practices, increased global demand and increased market share.
Technology and Administration Solutions Group â€“ Our Technology and Administration Solutions Group, accounting for 11 percent of our total fiscal year 2008 revenues, provides information technology services to our customers.
Human Capital Group â€“ Our Human Capital Group, accounting for 12 percent of our total fiscal year 2008 revenues, generally encompasses short-term projects. As a result, this segment is most sensitive to cyclical economic fluctuations.
Investment Consulting Group - Our Investment Consulting Group accounts for 10 percent of our total fiscal year 2008 revenues. This business, although relationship based, can be affected by volatility in investment returns, particularly as clients look to us for assistance in managing that volatility.
Insurance and Financial Services Group â€“ Our Insurance & Financial Services Group accounts for 7 percent of our total fiscal year 2008 revenues. This business is characterized by ongoing relationships with our clients who will typically use our skills on a number of different projects.
Financial Statement Overview
Watson Wyattâ€™s fiscal year ends June 30.
The company has acquired many entities over the past three fiscal years including, WWLLP, WWN and Heissmann. The WWLLP business combination was completed July 31, 2005 and as a result, our financial statements reflect the consolidation of the European operations through Watson Wyatt Limited beginning August 1, 2005. Prior to July 31, 2005, or for one month of the first quarter of fiscal year 2006, the company recorded its share of the results of WWLLP and WWHE using the equity method of accounting. This income is reflected in the â€śIncome from affiliatesâ€ť line on our income statement. Our share of the results of our affiliated captive insurance company, Professional Consultants Insurance Company, Inc. (PCIC), continues to be recorded using the equity method of accounting, and is also reflected in the â€śIncome from affiliatesâ€ť line. WWN and Heissmann were purchased on February 1, 2007 and July 20, 2007, respectively. Our financial statements reflect the consolidation of these two entities effective February 1, 2007 and July 1, 2007, respectively.
We derive substantially all of our revenue from fees for consulting services, which generally are billed based on time and materials or on a fixed-fee basis. Clients are typically invoiced on a monthly basis with revenue generally recognized as services are performed. For fiscal years 2008, 2007, and 2006, no single client accounted for more than 2 percent of our consolidated revenue for any of the most recent three fiscal years.
In delivering consulting services, our principal direct expenses relate to compensation of personnel. Salaries and employee benefits are comprised of wages paid to associates, related taxes, benefit expenses such as pension, medical and insurance costs, and fiscal year-end incentive bonuses.
Professional and subcontracted services represent fees paid to external service providers for employment, marketing and other services, including reserves for professional liability claims. For the last three fiscal years, approximately 60 to 70 percent of these professional and subcontracted services were directly incurred on behalf of our clients and were reimbursed by them, with such reimbursements being included in revenue.
Occupancy, communications and other expenses represent expenses for rent, utilities, supplies and telephone to operate office locations as well as non-client-reimbursed travel by associates, publications and professional development. This line item also includes miscellaneous expenses, including gains and losses on foreign currency transactions.
General and administrative expenses include the operational costs, professional fees and insurance premiums associated with corporate management, general counsel, marketing, human resources, finance, research and technology support.
Critical Accounting Policies and Estimates
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. The areas that we believe are critical accounting policies include revenue recognition, valuation of billed and unbilled receivables from clients, discretionary compensation, income taxes, pension assumptions, incurred but not reported claims, and goodwill and intangible assets. The critical accounting policies discussed below involves making difficult, subjective or complex accounting estimates that could have a material effect on our financial condition and results of operations. These critical accounting policies require us to make assumptions about matters that are highly uncertain at the time of the estimate or assumption and different estimates that we could have used or changes in the estimate that are reasonably likely to occur may have a material impact on our financial statements and results of operations.
Revenue includes fees primarily generated from consulting services provided. We recognize revenue from these consulting engagements when hours are worked, either on a time-and-materials basis or on a fixed-fee basis, depending on the terms and conditions defined at the inception of an engagement with a client. The terms of our contracts with clients are fixed and determinable and may change based upon agreement by both parties. Individual consultantsâ€™ billing rates are principally based on a multiple of salary and compensation costs.
Revenue for fixed-fee arrangements, which span multiple months, is based upon the percentage of completion method. The company typically has three types of fixed-fee arrangements: annual recurring projects, projects of a short duration, and non-recurring system projects. Annual recurring projects and the projects of short duration are typically straightforward and highly predictable in nature. As a result, the project manager and financial staff are able to identify, as the project status is reviewed and bills are prepared monthly, the occasions when cost overruns could lead to the recording of a loss accrual.
Our system projects are typically found in our Technology and Administration Solutions Group. They tend to be more complex projects that are longer in duration and subject to more changes in scope as the project progresses than projects undertaken in other segments. We evaluate at least quarterly, and more often as needed, project managersâ€™ estimates-to-complete to assure that the projectsâ€™ current status is accounted for properly. Our Technology and Administration Solutions Group contracts generally provide that if the client terminates a contract, the company is entitled to payment for services performed through termination.
Revenue recognition for fixed-fee engagements is affected by a number of factors that change the estimated amount of work required to complete the project such as changes in scope, the staffing on the engagement and/or the level of client participation. The periodic engagement evaluations require us to make judgments and estimates regarding the overall profitability and stage of project completion that, in turn, affect how we recognize revenue. The company recognizes a loss on an engagement when estimated revenue to be received for that engagement is less than the total estimated direct and indirect costs associated with the engagement. Losses are recognized in the period in which the loss becomes probable and the amount of the loss is reasonably estimable. The company has experienced certain costs in excess of estimates from time to time. Management believes that it is rare, however, for these excess costs to result in overall project losses.
The company has developed various software programs and technologies that we provide to clients in connection with consulting services. In most instances, such software is hosted and maintained by the company and ownership of the technology and rights to the related code remain with the company. Software developed to be utilized in providing services to a client, but for which the client does not have the contractual right to take possession, is capitalized in accordance with the AICPAâ€™s Statement of Position 98-1 â€śAccounting for the Costs of Computer Software Developed or Obtained for Internal Use.â€ť Revenue associated with the related contract, together with amortization of the related capitalized software, is recognized over the service period. As a result we do not recognize revenue during the implementation phase of an engagement.
Revenue recognized in excess of billings is recorded as unbilled accounts receivable. Cash collections and invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met. Client reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included in revenue, and an equivalent amount of reimbursable expenses are included in professional and subcontracted services as a cost of revenue.
Fiscal Year Ended June 30, 2008, Compared to Fiscal Year Ended June 30, 2007
Revenues for fiscal year 2008 were $1.76 billion, an increase of $274 million, or 18 percent, from $1.49 billion in fiscal 2007. We acquired Watson Wyatt Netherlands in February 2007 and Heissmann, our German business, in July 2007. Approximately $101 million of the increase in revenues is due to the additional seven months of Watson Wyatt Netherlands and the full year of Heissmann included in our fiscal 2008 results. The remainder of the increase in revenues is due to the growth of our business and the strengthening of currencies against the U.S. dollar. Excluding the impact of acquisitions and changes in foreign exchange rates, revenue growth was 8%.
The average exchange rate used to translate our revenues earned in British pounds sterling increased to 2.0114 for fiscal year 2008 from 1.9391 for fiscal year 2007, and the average exchange rate used to translate our revenues earned in Euros increased to 1.4736 for fiscal year 2008 from 1.3113 for fiscal year 2007. The appreciation of the British pound and the Euro resulted in $34 million of the increase in revenues in fiscal 2008. Changes in the value of other foreign currencies relative to the U.S. dollar resulted in $16 million of the increase in fiscal year 2008 revenues.
A comparison of segment revenues between fiscal year 2008 and fiscal year 2007 is provided below:
â€˘ The Benefits Group increased revenues $172.6 million, or 21 percent, over fiscal year 2007. Approximately $97.7 million of the increase is due to the acquisitions of Heissmann and Watson Wyatt Netherlands. The remainder of the increase is due to increased demand for our services, primarily in the U.S. and Europe, and changes in foreign exchange rates. The strengthening of the European and Canadian currencies accounted for 3 percentage points of the increase. Excluding the impact of acquisitions and changes in foreign exchange rates, the Benefits Group revenue growth was 6%.
â€˘ The Technology and Administration Solutions Group increased revenues $25.4 million, or 16 percent, over fiscal year 2007, largely due to an increase in administration services in both the U.S. and Europe as well as the result of system modifications made to pension administration systems as companies implemented provisions of the Pension Protection Act in the U.S. The number of projects in service delivery in the U.S. was 142 at June 30, 2008, an increase from 84 at June 30, 2007. The number of projects in implementation in the U.S. was 50 at June 30, 2008, a decrease from 67 at June 30, 2007. In accordance with EITF 00-3, â€śApplication of AICPA Statement of Position 97-2 to Arrangements that Include the Right to Use Software Stored on Another Entityâ€™s Hardwareâ€ť (EITF 00-3), the Company begins recognizing revenue after projects go into service. No revenues are recognized during project implementation. The strengthening of the European and Canadian currencies accounted for 2 percentage points of the increase.
â€˘ The Human Capital Group increased revenues $26.1 million, or 15 percent, over fiscal year 2007, primarily due to increased demand for our compensation consulting and our data services. The strengthening of the European and Canadian currencies accounted for 3 percentage points of the increase.
â€˘ The Investment Consulting Group increased revenues $40.5 million, or 31 percent, over fiscal year 2007 due to an increase in demand for our services, especially investment strategy advice. The strengthening of the European and Canadian currencies accounted for 4 percentage points of the increase.
â€˘ The Insurance and Financial Services Group increased revenues $4.9 million, or 4 percent, over fiscal year 2007 due to the strengthening of the European currencies. Revenues were flat on a constant currency basis. The increase in revenues in Asia Pacific was offset by a decline in revenues in Europe.
Salaries and Employee Benefits
Salaries and employee benefits expenses for fiscal year 2008 were $970.2 million, compared to $805.6 million in fiscal year 2007, an increase of $164.6 million or 20.4 percent. Of this increase, $68.5 million, or 8.5 percentage points, was attributable to the inclusion of recently acquired entities in our consolidated financials. An additional 3.0 percentage points was attributable to the strengthening of foreign currencies. The remaining increase, inclusive of the impact of foreign currencies, was principally due to higher salaries of $60.8 million, which is partially due to a 3.5 percent increase in headcount, a $33.4 million increase in discretionary compensation and increased benefits expense of $16.8 million. The increase was partially offset by a decrease in pension expense of $15.5 million. As a percentage of revenue, salaries and employee benefits increased to 55.2 percent from 54.2 percent.
Professional and Subcontracted Services
Professional and subcontracted services used in consulting operations for fiscal year 2008 were $105.9 million, compared to $99.9 million for fiscal year 2007, an increase of $6.0 million or 6.0 percent. This increase is primarily att ributable to the strengthening of foreign currencies. As a percentage of revenue, professional and subcontracted services decreased to 6.0 percent from 6.7 percent.
Occupancy, Communications and Other
Occupancy, communications and other expenses for fiscal year 2008 were $208.1 million, compared to $184.8 million for fiscal year 2007, an increase of $23.3 million or 12.6 percent. Of this increase, $10.0 million, or 5.4 percentage points, was attributable to the inclusion of recently acquired entities in our consolidated financials while 3.8 percentage points was attributable to the strengthening of foreign currencies. The remaining increase, inclusive of the impact on translation of foreign currencies, was attributable to an increase in rent of $6.3 million, travel of $5.3 million, telephone of $4.4 million and general increases in expenses such as promotion, business tax, office supplies, dues and development partially offset by recognized foreign currency gains of $13.3 million in fiscal year 2008 . As a percentage of revenue, occupancy, communications and other expenses decreased to 11.8 percent from 12.4 percent.
General and Administrative Expenses
General and administrative expenses were $176.7 million for fiscal year 2008, compared to $159.6 million for fiscal year 2007, an increase of $17.1 million or 10.7 percent. Of this increase, 2.1 percentage points was attributable to the strengthening of foreign currencies. The increase, inclusive of the impact of foreign currencies, was principally due to increases in base salaries of $9.1 million, professional services expense of $7.9 million, insurance expense of $2.4 million and repairs and maintenance expenses of $3.7 million, partially offset by decreases in rent, telephone and general office expenses. As a percentage of revenue, general and administrative expenses decreased to 10.0 percent from 10.7 percent.
Depreciation and Amortization
Depreciation and amortization for fiscal year 2008 was $72.4 million, compared to $57.2 million for fiscal year 2007, an increase of $15.2 million or 26.6 percent. Of this increase, $3.7 million, or 6.5 percentage points, was attributable to the inclusion of recently acquired entities in our consolidated financials. An additional 2.3 percentage points was attributed to the strengthening of foreign currencies.
The remaining increase was due to $5.4 million of amortization on internally developed software used to support our Benefits Group and Technology and Administration Solutions Group and $6.2 million higher depreciation expense on capital assets and amortization of intangibles. As a percentage of revenue, depreciation and amortization increased to 4.1 percent from 3.9 percent.
Income/(Loss) From Affiliates
Income from affiliates was $2.1 million for fiscal year 2008, compared to a loss of $5.5 million for fiscal year 2007. The income in fiscal year 2008 reflects our share of PCICâ€™s income compared to our share of PCICâ€™s losses in fiscal year 2007. PCICâ€™s losses in fiscal year 2007 are the result of a substantial increase in reserves in response to unusually rapid development of several claims against its three participating firms.
Interest income was $5.6 million for fiscal year 2008, an increase of $1.5 million from $4.1 million during fiscal year 2007. The increase was mainly due to higher short-term interest rates in Europe as well as higher average cash balances.
Interest expense was $6.0 million for fiscal year 2008, an increase of $4.3 million from $1.7 million during fiscal year 2007. The increase was due to a higher average debt balance in fiscal year 2008 resulting from borrowings required for the Heissmann acquisition in July 2007.
Other Non-Operating Income/(Loss)
Other non-operating income was $0.5 million for fiscal year 2008, an increase of $0.3 million from $0.2 million during fiscal year 2007. The increase was mainly due to additional payments on divestitures, including payments for the sales of $0.3 million of the financial planning practice in Australia and $0.2 million of the companyâ€™s multi-employer retirement consulting business.
Income From Continuing Operations Before Income Taxes
Income from continuing operations before income taxes for fiscal year 2008 was $228.9 million, an increase of 29.7 percent from $176.5 million during fiscal year 2007. As a percentage of revenue, income from continuing operations for fiscal year 2008 increased to 13.0 percent from 11.9 percent.
Provision for Income Taxes
Provision for income taxes for fiscal year 2008 was $73.5 million, compared to $60.2 million for fiscal year 2007. Our effective tax rate was 32.1 percent for fiscal year 2008 and 34.1 percent for fiscal year 2007. The tax rate decrease is due to the geographic mix of income and the release of tax reserves. The company has not provided U.S. deferred taxes on cumulative earnings of foreign subsidiaries that have been reinvested indefinitely, which also includes foreign subsidiaries affiliated with the WWLLP business combination. We record a tax benefit on foreign net operating loss carryovers and foreign deferred expenses only if it is more likely than not that a benefit will be realized.
MANAGEMENT DISCUSSION FOR LATEST QUARTER
Results of Operations
Three and Nine Months Ended March 31, 2008 Compared to the Three and Nine Months Ended March 31, 2007
Revenues for the third quarter of fiscal year 2008 were $457.5 million, an increase of $61.9 million, or 15.7 percent from $395.6 million in the third quarter of fiscal year 2007. We acquired WWN in February 2007 and Heissmann in July 2007. The increase in revenues from these acquisitions was $31 million during the third quarter of fiscal year 2008.
Mary Malone - Director of Investor Relations
Good morning. This is Mary Malone, Director of Investor Relations at Watson Wyatt Worldwide. Welcome to our conference call to discuss our results for the fourth quarter and full year of fiscal year 2008, as well as our guidance for fiscal year 2009. I am here today with John Haley, Watson Wyatt's President and Chief Executive Officer, Carl Mautz, our Chief Financial Officer, who is preparing for retirement and Roger Millay who will succeed Carl as our CFO. After some brief prepared remarks we will open the conference call for your questions.
Please refer to our website for this morning's press release. Today's call is being recorded and will be available for replay via telephone for the next week by dialing 617-801-6888 confirmation number 69831798. The replay will also be available for the next three months via the company's website at www.watsonwyatt.com. There are a few slides at the company... the financial section of our presentation and you may log on to our website to obtain those slides.
This conference call may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995 including statements among others regarding expected financial and operating performance. Any statements made during this call that are not statements of historical fact may be deemed to be forward-looking statements. You are cautioned that these statements may be affected by among others the important factors set forth in our filings with the Securities and Exchange Commission and in today's news release and that consequently actual operations and results may differ materially from the results discussed in the forward-looking statements.
The company undertakes no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise except as provided by the Federal Securities Laws.
At this time I'll turn the conference call over to John Haley.
John J. Haley - President and Chief Executive Officer
Thank you Mary. Good morning everyone and thank you for joining us today. I'm very pleased to share the results of another strong quarter capping an impressive fiscal year. Our revenues for the fiscal year increased to $1.76 billion, an 18% increase over prior year. On an organic basis excluding the impact of acquisitions and foreign currency movements, our revenues increased 8% over prior year. For the year we achieved $3.50 in diluted earnings per share, a 34% increase over the prior year. Our revenues for the quarter increased to $454 million, an increase of 17% over the prior year. On an organic basis our revenues increased 10% over prior year fourth quarter.
Our segment revenue growth on a constant currency basis was very strong in four of our segments during the quarter, 15% in benefits, 21% in Technology and Administration Solutions, 13% in Human Capital Group and 25% in Investment Consulting. Insurance and Financial Services declined 5% on a constant currency basis. For the quarter, diluted earnings per share were $0.95. This is a 34% increase over the prior period and $0.71 per share. Our EPS growth resulted from strong revenue growth, the increase in our affiliate income and the decreases in our shares outstanding and income tax rate. Our business performed very well, especially in light of economic conditions. We're cautiously optimistic about revenue growth in fiscal 2009 and Carl will give full guidance for the next fiscal year in his remarks. In terms of demand, companies still need our services and we will continue to benefit from increasing complexity generally whether around regulatory reform or sophisticated investment possibilities.
From a strategic standpoint, we're going to stay focused on what we do best, even more so in light of economic conditions. First, we're focused on clients. We will continue to be on top of the issues and pressures they are facing and we're orchestrating our services to meet those needs. Internally, we continue to focus on financial and operational discipline. With our strong balance sheet, we want to use the economic uncertainty to strengthen our hand even more. For example, we're hiring aggressively in the investment practice and making strategic hires in other practices. We also think there is real opportunity to grow market share in our carefully defined target market especially among the world's largest multinationals. We continue to look for strategic acquisitions to fill geographic holes and strengthen our practices.
Now, let's review each of our segments beginning with Benefits. For the year, Benefits Group revenues were $993 million, an increase of 21% over prior year and 18% on a constant currency basis. On an organic basis, excluding acquisitions and foreign currency movements, Benefits revenues increased 6%. For the quarter, Benefits Group revenues were $255 million, up 17% from prior year and 15% on a constant currency basis. We experienced increased demand for our services in all geographic regions. Our growth in Europe was especially strong even after consideration of our German acquisition, earlier this year.
Excluding acquisitions and currency movements, organic growth for the practice was 8%. This growth is even after the spin-off of our multi-employer retirement business in North America. We continue to assist companies around the world with the complex issues they face around the design and administration of their employee retirement benefits. As companies continue to evaluate the trade-offs between cost, risk and workforce management, we anticipate that there will continue to be global demand for our retirement services. Our healthcare consulting practice had another strong quarter. While this is still a small part of our overall benefits practiced, it is experiencing solid growth. With healthcare costs continuing to increase, employers are turning to a number of options to improve employee health into controlled healthcare costs.
According to a survey that we conducted with the National Business Group on Health, healthcare cost increases for companies with high participation and consumer directed health plans are roughly half those of companies offering traditional health coverage. Consumer directed health plans are cost effective health and welfare programs that encourage workers to adopt healthier lifestyles and to become smarter healthcare consumers. With many companies focused on containing the cost of healthcare benefits, we expect the demand for our healthcare consulting services will continue to grow. Now let's move on to Technology and Administrative Solutions Group. For the year revenues were $183 million, a 16% increase over prior year and 14% on a constant currency basis. For the quarter, revenues were $48 million, up 21% from prior year and 21% on a constant currency basis. We have stronger than expected demand for services at existing clients in North America and therefore our revenues are better than forecasted. Our revenues in North America continue to increase as the number of pension administration and health and welfare outsourcing assignments in ongoing service delivery increased.
We had 142 projects in service delivery at the end of June 2008, up from 84 at the end of June 2007. These projects are of varying size and are in addition to more than 100 systems that we had implemented prior to the change in accounting rules in 2004. You will recall that we don't recognize revenues until projects move into ongoing services delivery, which is after project implementation. At the end of June 2008 we had another 50 projects in implementation.
Companies continue to take a selective approach to outsourcing their HR technology and functions. Selective outsourcing is growing so popular because it can be tailored to meet an organization's exact needs. For most organizations this means outsourcing routine transaction-oriented processes while refocusing the HR department on more strategic issues. Many companies report that selective outsourcing best meets their needs for access to leading edge technologies while leveraging their own capabilities and improving employee experience in service levels. The key to successful outsourcing is finding the solutions that fit the organization's needs and culture.
The economic strain some companies are facing will only add to the reasons to choose selective outsourcing. As this practice matures in North America and we have more clients in ongoing service delivery, the clients with projects and implementation will become less significant to our total performance. We continue to see some price competition and we will only pursue profitable growth. Our number of projects and implementation has declined slightly from last quarter but we're experiencing steady growth. Our associates continue to be very busy in part by expanding the services provided to existing clients. We continue to be pleased with our retention rate.
We're also performing well in Europe and have excellent retention there too. The outsourcing of benefits administration is a mature market in the UK. We are one of the major players and we continue to win new clients. We are excited about the client wins we had this fiscal year and our European team is very busy with the new client installs. We tend to have lower margins during the installation period and Carl will discuss this further when he provides the guidance for fiscal 2009. We have compelling technology and outsourcing offerings that suit the markets we serve. We expect good profitable growth opportunities will continue to be available.
Next let me turn to the Human Capital Group. For the year revenues were $196 million, a 15% increase over prior year and 12% on a constant currency basis. For the quarter revenues were $51 million, up 16% from prior year and 13% on a constant currency basis. We experienced growth in both Human Capital consulting projects and data services. Demand was especially strong for both executive compensation and broadbased employee compensation programs. Inflation has been in the news not just in the U.S. but globally. Unlike currency there are no hedging strategies related to people costs. The impact of inflation on people cost is real and can be difficult to manage. In times of global inflation, many companies look to us for reputable market data and related consulting. We except demand for our services will continue.
Now I'll discuss the Insurance and Financial Services Group. For the year revenues were $119 million, an increase of 4% over prior year, but flat on a constant currency basis. For the quarter, revenues were $29 million, a 2% decline from prior-year and a 5% decline on a constant currency basis. The decline in revenues is due to fewer large projects in Europe this fiscal year than in past years. The practice continues to perform well in Asia and we had modest revenue growth in North America. We will make some investment in our life insurance consulting practice in North America in FY09. We believe we've rightsized our organization for a profitable growth in Europe and Asia next fiscal year.
Lastly, Investment Consulting ends the fiscal year with another great quarter. For the year revenues were $169 million, an increase of 31% over prior year or 27% on a constant currency basis. For the quarter, revenues were $43 million, up 26% from prior year and 25% on a constant currency basis. We continue to see strong demand for all of our services, particularly advice on investment strategy. In today's complex investment markets, pension funds continue to be challenged with how best to turn today's plan assets into tomorrow's retirement income. Funds continue to seek advice on how to ride out crises, how to make the most of long time horizons and how to provide good value for money.
The current market continues to be challenging for many investors. We expect strong demand for our investment consulting services to continue although market conditions have impacted liquidity and pricing for those clients who wished to hedge liability risks and this may impact the pace at which projects can be executed. Wrapping up, we performed well despite the challenging economic times. We're cautiously optimistic that we will continue to grow in each of our practices next fiscal year.
Now, I'll turn the call over to Carl.
Carl D. Mautz - Vice President and Chief Financial Officer
Thank you John and good morning to everyone. As you've just heard, we had a strong finish to our fiscal 2008. For the year, we achieved revenues of $1.76 billion and diluted earnings per share of $3.50. For the quarter, we reported revenues of $454 million and diluted earnings per share of $0.95. Our results this quarter were helped by the $2.7 million of affiliate income, our continued share repurchases and a low income tax rate. Our operating margin was down slightly this quarter.
The Benefits Group had a 29% margin for the year, an increase from 27% last year. For the quarter, the Benefits Group had a 30% margin, up from 29% in the fourth quarter of last year. These margins are consistent with our expectations of full year margins in the high 20% range.
Technology and Administration Solutions had a 26% margin for the year, an increase from 23% last year. The increase over prior year is due primarily to the one-time work in North America. For the quarter, Technology and Administration Solutions had a 26 % margin, up from 24% in the fourth quarter of last year. These margins again are consistent with our expectations of the mid 20% range.
Human Capital Group had an 18% margin for the year, an increase from 14% last year. For the year we achieved margin improvement in all geographic regions especially in North America. For the quarter, Human Capital Group had a 15% margin, up from 11% in the fourth quarter of last year. For the quarter we achieved notable margin improvement in North America and Asia Pacific. Insurance and Financial Services had a 2% margin for the year, a decrease from 17% last year. For the quarter, Insurance and Financial Services had a negative 1% margin, down from 14% in the fourth quarter of last year. Margins in the fourth quarter were depressed as we encouraged some non-recurring charges to rightsize the cost structure of the practice in both North America and Europe.
Investment Consulting had a 35% margin for the year, an increase from 31% last year. For the quarter, Investment Consulting had a 35% margin, up from 32% in the fourth quarter of last year. This quarter's margin improvement was due to continued strong performance in Europe. The segment margins that we have just reviewed are before consideration of discretionary compensation and other unallocated corporate cost such as amortization of intangibles resulting from our acquisition. Our full-year operating income margin was 12.9%, an increase from 12.1% last year. We achieved this margin improvement in spite of increased non-cash amortization from the acquisition.
For the quarter, our operating income margin was 11.3%, a decline from 12.4% in the prior year quarter. The quarter-over-quarter decline is due to an increase in reimbursable expenses, the seasonality of [inaudible] and the timing of similar occupancy and other expenses. Net income for the year was $155 million, an increase from $116 million last year. Net income for the quarter was $42 million, up from $32 million in the prior year. Fully diluted earnings per share for the quarter were $0.95 compared to prior year fourth quarter earnings per share of $0.71.
Moving to the balance sheet. We ended the quarter with $124 million of cash and no debt. We also used $29 million to repurchase shares during the quarter pursuant to our $100 million share repurchase bringing us to total share repurchases of $45 million at the end of the quarter. We expect to complete our $100 million share repurchase by November 2008. Our business will continue to generate strong cash flows and this year we reported $284 million in cash flows from operations.
Now, let's review our guidance for fiscal 2009. The slides posted on our website may be helpful for following along in this section. Please note that our forward-looking guidance assumes the strengthening of the U.S. dollar during fiscal 2009 and this negatively impacts revenue growth and profit growth to some extent. We are assuming exchange rate of $1.99 to the British pound for the first half of fiscal year and the exchange of $1.95 to the British pound for the back half of the fiscal year.
We have assumed an exchange rate of $1.55 to the euro in the first quarter that steadily drops to $1.47 to the euro by the fourth quarter with an average of about $1.51 to the euro for the fiscal year.
For fiscal 2009, we're expecting revenues of $1.85 billion to $1.9 billion, an increase of approximately 5% to 8% over fiscal 2008. Our revenue guidance by segment can be found on slide three. We are expecting diluted earnings per share of $3.70 to $3.77 for fiscal 2009, an increase of approximately 6% to 8% over fiscal 2008. Fundamentally, we are cautiously optimistic about fiscal '09. We've not yet seen many signs of a real slowdown in the business but the signs of economic concern are all around us. As a result, we are forecasting revenue growth considerably with a greater opportunity to upside than downside and the commensurate effect on the bottom line. Even in these cautious times, we are forecasting revenue growth and are investing for further opportunity particularly in the Investment Consulting practice.
Now, I'll walk you through the revenue and margin guidance for each of the segments. Let's start with Benefit. Our Benefit's revenue guidance is 3% to 6% growth in fiscal 2009. Normalizing benefits for the multi-employer business that we exited in fiscal 2008, revenue growth would be 4% to 7%. Benefit ended fiscal 2008 strong. There was uncertain economic conditions, we assumed growth at the low end of our longer-term range. At this time, we think there is probably a greater possibility of exceeding our forecast than falling short. However, we recognize these are uncertain times. We expect margins will continue to be in the high 20% range in fiscal 2009.
Moving on to the Technology and Administration Solutions Group, we expect revenue growth of 3% to 6% in fiscal 2009. This growth is slightly lower than our longer term expected growth of 5% to 8%. In Europe, we anticipate constant currency growth in fiscal 2009 that is slightly higher than what we achieved in fiscal 2008. In North America, we are expecting our growth rate to decline in fiscal 2009. You will recall that in fiscal 2008, we had approximately $4 million of non-recurring revenues due to system modification made in response to the Pension Protection Act. We are not anticipating yet those will recur. We are also not projecting many new projects in North America in fiscal 2009, as the Pension Administration business and the Benefits enrolment business mature, we expect that more of our growth in North America will come from expansion of services to existing clients. We've got... saw this begin in fiscal 2008. We are encouraged that this price will continue to grow in the down economy.
Again we think there is greater chance of hitting this forecast than missing it. We expect margins will be in the low to mid 20% range and probably slightly lower than fiscal 2008. We are investing in our talent management software in North America and in a new few clients in Europe, both of which are contributing to the margin decline. Additionally, the non-recurring revenues in fiscal 2008 had no incremental costs.
Now let's turn to the Human Capital Group. We expect revenue growth of 9% to 12% in fiscal 2009. This growth is consistent with the longer-term growth expectations for this practice. We also expect margins will continue to be in the high teens in fiscal 2009.
Now we'll discuss Insurance and Financial Services. We expect fiscal 2009 to be a year of recovery for this practice. We are expecting revenue growth of 4% to 7%. We are continuing to build our practice in Asia and expect Asia will account for about a third of the revenue growth. We are expecting modest revenue growth in Europe, but more significant income growth driven by our rightsizing activities in fiscal 2008. We are focused on growing our life insurance consulting practice in North America, we expect margins will be in the high single digits.
Lastly, we expect Investment Consulting revenues will increase 18% to 21% in fiscal 2009. We are planning to expand our team, especially in Europe in fiscal 2009. We expect margins will be in the low 30% range. After taking into account the year-over-year margin declines in the Technology and Investment Consulting Groups, we are not expecting to achieve year-over-year margin improvement. The investments we are making position us well for future growth. Our fiscal 2009 cost structure can support more revenues that we are anticipating in fiscal 2009.
Our diluted earnings per share for fiscal 2009 are expected to be in the range of $3.70 to $3.77, a 6% to 8% increase over fiscal 2008. This guidance assumes a 32.9% tax rate for the year and weighted average shares outstanding of 42.8 million for the year. We are also expecting $4 million of other income in fiscal 2009, due to payments we will receive from the acquires of our multi-employer business. We expect first quarter revenues to range from $433 million to $442 million, and diluted earnings per share to a range from $0.82 to $0.85. First quarter revenue guidance by segment is presented on slide four.
In summary, we recognized that these are uncertain economic times and we are predicting solid growth for fiscal 2009.
John J. Haley - President and Chief Executive Officer
Thanks Carl. Before we take your questions, I would like to take this moment to wish my good friend Carl well in retirement and thank him for his service to the firm. I think Carl, we've concluded, this is our 32nd earnings call and every one of them have been a pleasure. So I'm grateful for your counsel and your friendship over the years. It's also my pleasure to welcome Carl's successor, Roger Millay. Roger will not officially join the firm until August 18, but we thought sitting in today's call would be helpful to his transition and Roger, I appreciate your making the time to come down and sit with us through this call. Of course you can hold Roger responsible for anything we're saying today and you can ask him any questions. Roger brings impressive experience to the role and I look forward to working closely with him.
Now Carl and I will take any questions you may have.