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Executives

John Haley - President & Chief Executive Officer

Roger Millay - Chief Financial Officer

Mary Malone - Director of Investor Relations

Analysts 

Ashwin Shirvaikar - City Group

Andrew Fones - UBS

Paul Ginocchio - Deutsche Bank

Mark Marcon - Robert W. Baird

Shlomo Rosenbaum - Stifel Nicolaus

Tobey Sommer - Suntrust Robinson Humphrey

Josh Vogel - Sidoti & Co.

 

Presentation 

Operator 

Good day ladies and gentlemen and welcome to the second quarter fiscal 2009 Watson Wyatt Worldwide earnings conference call. At this time all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference. (Operator Instructions)

I will now turn the presentation over to Mary Malone; please proceed ma’am.

Mary Malone

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 second quarter of fiscal year 2009. I’m here today with John Haley, Watson Wyatt’s President and Chief Executive Officer and Roger Millay, our Chief Financial Officer. After some brief prepared remarks we will open the conference call for your question. 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 65678869. 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 of the company in 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 facts 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 todays 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 Federal Securities Laws.

At this time, I’ll turn the conference call over to John Haley.

John Haley

Thank you, Mary. Good morning and thank you for joining us today. I am pleased to share the results of our fiscal year ’09 second quarter with you. Our reported revenues for the quarter were $436 million a decline of 2% over prior year reported revenues. However, on a constant currency basis, our revenues increased 6% over prior year.

In spite of the economic slow down we achieved constant currency revenue growth in each of our segments during the quarter; 7% in benefits, 12% in technology and administration solutions, 1% in the human capital group, 28% in insurance and financial services and 5% in investment consulting. Current economic conditions have increased demand for some of our segments and hindered others, but overall we’re pleased with our results and resilience.

For the quarter diluted earnings per share were $0.93. This is a 13% increase over the prior period of $0.82 per share. The strengthening of the U.S. dollar resulted in an 8% reduction through our EPS. On the constant currency basis, diluted earnings were $1.01 or a 23% increase over prior year. The growth in our EPS is due to decreases in our income tax rate and shares outstanding as well as to the increases in both operating and non-operating income.

While we would prefer to work in a good economy, we are well positioned to weather this economic down turn. Our services are well aligned with changing market demands. We have contingency plans in place to pro-actively manage our costs in areas where demand may slow. We are a conservatively managed company with excellent cash flow and a strong balance sheet. For the third consecutive year Forbes magazine named Watson Wyatt one of the Americas 400 best big companies.

Now let’s review each of our segments beginning with benefits. For the quarter, Benefits Group revenues were $240 million, a decrease of 2% from prior year, but an increase of 7% on a constant currency basis. We experienced increased demand for our services across all geographic regions. Growth was two points higher after adjusting for the spin off of the Multi-Employer Retirement business in North America in February 2008.

The economic turmoil created additional demand for us, as we advice pension plans sponsors on their funding requirements. Funding is largely influenced by law. In Europe, many plan sponsors are focused on the solvency of their pension plans and in some countries any statutory ramification from changes in funded status.

In the U.S. the pension protection act is taking effect at one of the worst possible times. Companies are transitioning to new more restrictive funding requirements while declining pension asset values and the weakened economy. While it is expected that the PPA will lead to more predictable funding, planned sponsors have not had time to build up surplus cushions to soften the extremely volatile and negative market conditions over the last four months.

The recovery act that was signed into law on December 23 will provide some measure of relief, but the recovery acts effect on funded status will be slight and offers no relief from benefit restrictions. We think to find benefit plan sponsors will still struggle to meet the large and unexpected contributions required in the next two years.

There are two other relief proposals that have been put before congress. These other proposals combined with the recovery act would generate more significant improvement in plan funded status and reduction in required contributions. We expect significant dialogue with our clients on these issues.

Now, let’s move to the Technology and Administration Solutions Group. For the quarter revenues were $51 million, up 3% from prior year and 12% on a constant currency basis. We performed better-than-expected in North America, primarily due to additional project work with existing clients.

On a pre-deferral basis, constant currency revenue was 6%. As this practice matures in North America and we have more clients in on-going service delivery, our base of recurring revenue increases. When projects move from implementation into on-going service delivery, we begin recognizing revenues and this provides growth over the prior period.

We also achieved growth this quarter from additional project work at existing clients as compared to prior year; we had more work at existing clients and less project implementation work. Some other project work is due to corporate actions resulting from the economic downturn. This change in the mix of work drove our high growth rate.

We continue to have an excellent retention rate. However, we expect project work will probably decline as companies continue to face economic pressure and cancel or delay discretionary projects. The on-going administration work is considered a critical business activity.

Our administration revenues are largely based on participant levels and an increase in unemployment could have a negative effect on those revenues. However, in North America, we think our revenues will be impacted more by discretionary project levels than by changes in unemployment rates.

We are also performing well in Europe and have an excellent retention rate there too. Virtually, all of our revenues in Europe are from on-going administration work. We have a stable platform of revenues in this segment and we have some visibility into our growth. We expect that revenues will continue to grow for the remainder of the fiscal year, but they will probably grow at a more moderate rate.

Due to the economic climate, fewer companies may change their technology platforms and this could have a negative affect on our ability to win new clients. Although our growth may slow the administration services that we provide or a compelling proposition for companies looking to control cost, improve employee engagement and productivity and free-up the HR function for more strategic efforts.

Next, let me turn to the Human Capital Group. For the quarter, revenues were $51 million, down 4% from prior year, but up 1% on a constant currency basis. This segment performed well on our first fiscal quarter, but in the middle of the second quarter, we started to see a slow down. We are focused on containing cost within this practice in maintaining profitability. Demand for compensation services was lower than expected and we think this is directly related to the economic times.

We expect our fiscal third quarter will be seasonally stronger for this practice due to the compliance nature of some of the work performed. However, we’re bringing down our expectations for this segment for fiscal year 2009. As the new administration takes off, these companies are preparing for what is anticipated to be a lively congressional debate on executive compensation. While many new ideas are certain to emerge between now and then, we’ve seen a number of proposals, some of which have become part of the bank bailout legislation.

In addition, shareholder activists have seen some success in winning approval for say on pay mandates. There may also be some project work as companies in bankruptcy restructured the compensation program. We still expect to have constant currency revenue growth through the fiscal year, but it will be lower than initially expected.

Now I’ll discuss the insurance in Financial Services Group. For the quarter, revenues were $34 million, up 14% from prior year and 28% on a constant currency basis. Insurers and financial services companies have been hit hard by the crisis and we’re working closely with these clients to help them through the turmoil. We’ve seen an increase in merger and acquisition activity as some financial services groups look to raise capital to help them through these difficult times.

We have also seen some fall off in demand as companies defer work or take projects in-house. So far client needs created by the crisis have more than offset project cancellations or deferrals and we expect this to continue in the short term. We also had one very large project this quarter that contributed to the significant increase in our revenues. We think the client needs created by the crisis will more than offset any project cancellations or deferrals. As of now, we expect to have good growth for the remainder of this fiscal year.

Lastly, Investment Consulting reported revenues of $37 million for the quarter, a decrease of 12% from prior year, but an increase of 5% on a constant currency basis. The financial crisis is affecting our business in two ways. First, in our ability to execute transactions on behalf of our clients, particularly hedging transactions and second in the advice we give to clients.

We’re still urging clients to exercise caution in changing managers and to defer making certain types of investments, while the long term effects of this global crisis will take some time to manifest we are thinking ahead of that winning strategies that will add value in an increasingly unpredictable and competitive marketplace. Many funds are looking at their investment strategy and risk powers. The proposal pipeline is as strong as we have ever seen in North America, but the sales process is taking longer.

In Europe we also have a very strong pipeline with significant interest in our Advanced Investment Solution service. We continue to be optimistic about the longer term growth prospects for this segment but growth will be more moderate for this fiscal year.

Wrapping up, we continue to stay as close as possible to our clients. In fact, we hosted more than 200 of our clients at our 11th annual client conference in early November.

We will continue to partner with our clients to find practical solutions for today’s business challenges. We are cautiously optimistic about our overall performance for the remainder of this fiscal year. While we will continue to face challenges and some of our segments will perform better than others we expect to achieve constant currency revenue and EPS growth.

Now I’ll turn the call over to Roger.

Roger Millay

Thanks, John and good morning to everyone. As you’ve just heard we experienced good growth in our second fiscal quarter. For the quarter we reported revenues of $436 million and diluted earnings per share of $0.93. On a constant currency basis total revenues were $475 million resulting in 6% growth over the prior year. On a constant currency basis our diluted EPS was a $1.1 an increase of 23% over prior year.

The Benefits Group had a 30% margin for the quarter, an increase from 26% last year. The margin improvement over prior year was driven by North America. We’re still expecting full year margins consistent with prior year in the high 20% range.

 

Technology and Administration Solutions had a 28% margin for the quarter, a decrease from 33% last year. Margins decreased in both Europe and North America. In Europe the margin decline is due to increased installation activity during the quarter, which is generally lower margin work.

In North America, the prior year’s second quarter margin was unusually high due to client work around the implementation of the Pension Protection Act. We still expect margins for the year to be in the mid 20% range.

Human Capital Group had a 20% margin for the quarter, a decrease from 23% last year. Margins were down in both North America and Europe. We are taking steps to contain our costs as we anticipate continued revenue slowdown in this segment. Our margins for the year will probably be in the mid-teens.

Insurance and Financial Services had a 29% margin for the quarter, a significant increase from the -1% last year. The margin improvement reflects the increase in revenues, as well as the reduction in the expenses from the rightsizing of our cost structure last fiscal year. We are increasing our forecast for this segment and expect margins will be in the mid-teens for the year.

Investment Consulting had a 22% margin for the quarter, a decrease from 35% last year. Margins were down in all regions as compared to prior year. As we mentioned last quarter we’ve added to the team this year to support our past growth and to position ourselves for our future growth. We’ve slowed our hiring as we await greater visibility to market developments.

We’re working in a tough environment but remain confident in our franchise. We have the research capabilities and the client support teams required to maintain our market leadership position. We still expect our margins for fiscal 2009, to be in the high 20% range. In fiscal 2009, our cost increased to include the talent and skills needed for the long term, but our revenues incorporate the negative impact of continued market turmoil for the remainder of the fiscal year.

We continue to think the long-term prospects are good for this practice. The segment margins that we’ve just reviewed before consideration of discretionary compensation and other unallocated corporate costs such as amortization of intangibles resulting from our acquisitions.

For the quarter, our operating income margin was 12.8% an improvement over the last quarter but a decline from 13.4% in the prior year quarter. Net income for the quarter was $40 million, up from $37 million in the prior year. Fully diluted earnings per share for the quarter were $0.93 as compared to prior year first quarter earnings per share of $0.82. On a constant currency basis, diluted earnings per share for the quarter were $1.01.

Moving to the balance sheet, we ended the quarter with $74 million of cash and $61 million of debt. We expect to have debt repaid by the end of the fiscal year. We generated $77 million in cash flows from operating activities this quarter and we’ll continue to generate strong cash flows this fiscal year. Our liquidity position is also very strong. We have an additional $239 million available under our line of credit that we don’t expect to need.

Now, let’s review our guidance for fiscal 2009. The slides posted in our website will be following along in this session. The revenues and diluted earnings per share that we report will continue to be affected by changes in foreign exchange rates.

We’re keeping our full year EPS guidance at $3.50 to $3.57. A positive effect of our business performing better than forecast as offset the negative effect of the strengthening of the U.S. dollar. This guidance includes up to $0.35 of foreign currency translation losses from the strengthening of the U.S. dollar. We’re bringing down our revenue guidance and we expect to report revenues in the range of $1.67 billion to $1.72 billion.

We don’t know exchange rate will fluctuate over the remainder of our fiscal year. This guidance anticipates that over the next six months, the pound Sterling maintains a minimum average value of approximately $1.30 and the euro maintains a minimum of average value of approximately $1.20.

Generally speaking, a little less than half of our business is in Europe and a 10% drop in the pound and the euro will result in a little more than 5% drop in our EPS over the remainder of the fiscal year. The U.K is about three quarters of our European business, so changes in the pound affect our results more than changes in the Euro.

Seasonally more of our European income is earned in the second half of the fiscal year. We continue to be cautiously optimistic of our fiscal ’09. We’re beginning to see signs of slow down in certain parts of our business where other parts of our business are doing well. This guidance assumes an income tax rate of 32% to 33% for the year and shares outstanding of approximately 42.8 million for the year.

Now I’ll pass through the revenue guidance for each of the segments. Please note that the slides in our website show both reported and constant currency revenue guidance. Since constant currency is better measure of underlying business performance, I’ll focus my remarks on the constant currency guidance.

Let’s start with Benefits. Our Benefits constant currency revenue guidance is 4%to 6% growth in fiscal year 2009. Normalizing benefits for the multi-employer business that we exited in fiscal ’08 revenue growth would be 5% to 7%.

In the Technology and Administration Solutions Group we’re increasing our constant currency revenue guidance to 9% to 12% growth in fiscal ’09. The increase reflects the mix of work in our pipeline in North America and the progress of our new client in Europe.

We’ve stopped providing the project numbers in North America because these numbers have become much less useful in understanding or projecting financial results. The project numbers recited were just a subset of our North America works and have become an increasingly small part of the North America business.

In the Human Capital Group, we’re reducing our constant currency revenue guidance to 2% to 5% in fiscal ‘09 based on the slow down we’re seeing. In Insurance and Financial Services we are increasing our constant currency revenue guidance to 10% to 15% for fiscal 2009, as we expect the turmoil and the financial services sector to create work for us in the near term. This segment has the widest range because we have less visibility into the magnitude and timing of the potential projects.

Lastly, we are revising our constant currency investment consulting revenue growth down to 6% to 9% in fiscal 2009. This down will revision to our guidance assumes that market conditions continue to be difficult for the remainder of the fiscal year. These are difficult economic times for everyone. Despite this environment we continue to expect to achieve constant currency revenue growth in each of our segments.

We expect reported third quarter revenues will be in the range of $420 million to $430 million and reported diluted EPS will be in the range of $0.88 to $0.92 cents. Third quarter diluted EPS may include up to $0.15 of foreign currency translation losses due to the strengthening of the US dollar. Third quarter revenue guidance by segment is presented on slide four.

In summary, we continue to believe that we will deliver good earnings and cash flow results for the year in the local markets of our business across the world. However, the resilience of our underlying business is somewhat massed in our reported results by the changes in foreign exchange rates.

John Haley

Thanks Roger. Now we’ll take any questions that you may have. 

Question-and-Answer Session

Watson Wyatt Worldwide Inc. (WW) F2Q09 Earnings Call February 5, 2009 9:00 PM ET

Operator

(Operator Instructions) Your first question comes from Ashwin Shirvaikar - City Group.

Ashwin Shirvaikar - City Group

So I heavily appreciate the clarity of the press release separating out the impact of currency from the factor that you can actually control. My first question is, as it relates to maintaining your forward outlook, clearly the December quarter, performance is a part of that, but what kind of proactive steps are you taking to run in your cost structure? And is there any way you can separate out a variable comp accruals from other steps you’re taking?

John Haley

Well, do you want to talk about the cost and I’ll handle the variable.

Roger Millay

Yes sure. Ashwin, I think if you look at the business again our emphasis is on the balance between what we’re seeing in the revenue line and just to reemphasize we are seeing constant currency growth in all the segments, but really maintaining focus on those segments like Human Capital that are seeing some pressures.

So we haven’t taken kind of broad systemic cost actions at this point. Its been targeted to those practices and those regions of the world where the pressure is and at this point, that’s the continuing plan for the year, but we’re prepared to respond with contingency plans as we see the environment change.

John Haley

Yes and just to follow up on that, salary and employ benefits are our biggest expense, but there is a lot of other cost management activities that we can’t pursue. Some of the easier ones really relate to discretionary costs such as non-essential travel, certain internal meetings. We’ve been very aggressive in going after those costs.

As you know as well as I’ve stated in the past, I don’t generally like the idea of the lay-offs during temporary declines in demand, their cost associated with the lay-offs then their additional cost associated with ramping back up, lay-offs are very bad for morale. So they are not something that we look at as our first or maybe then our second resource. Now these are unusual times and if there are some significant slowdowns in our business we would have to consider all alternatives, but as of now we don’t have any significant work force reduction plans.

Let me turn to the variable comp. The way we look at the variable comp is that there is really a partnership between our shareholders and our associate and as times get better they should both share in that and as times are more difficult they should both share in the downside and we try to keep that then relatively constant.

So we grow the earnings per share by the same percentage as we grow the variable comp and we’ve been following that model for some number of years now and while we can always review that and look at one way or other. We again follow that this quarter. 

Ashwin Shirvaikar - Citigroup Global Markets

Okay. Can you comment on the cash flow outlook, commentary on debt pay and seem to indicate the potentially lower cash expectation than before?

John Haley

Yes, I think in the guidance I believe that we gave before was $195 million cash balance at the end of the year and I think now we’re looking at some thing more or like 160 to 170. Apart of that difference probably the biggest, the most significant part of that difference being additional pension contributions, which we’re working on now and then also, of course, currency does affect some of the foreign current log at this point all the foreign currency cash balances or there is an impact of effects as well.

Ashwin Shirvaikar - Citigroup Global Markets

Okay and my last question. As I look at the next two quarters, can you remind us of any one time impact that affected the prior year that we should be aware of?

Roger Millay

No. Ashwin, as you know, of course, every quarter has its own unique features, but there is nothing really big, I don’t think last year that we can think of.

Operator

Your next question comes from Andrew Fones - UBS.

Andrew Fones – UBS

Yes. Thank you. First, I need to ask on the Insurance and Financial Services business. If you could kind of give us a quantification, perhaps of this one off project and how that might impact the third and fourth quarters, if at all? Thanks.

John Haley

Sure. I think this was a big project and basically, the way to think about it is, it really provided all of our growth for the quarter. Now, that this project has ended, but we expect that there are going to some others like that. The credit crisis and the falling asset prices have really resulted in an increase in M&A activity.

As financial services companies look to strengthen their balance sheet and we’ve been active with this increase in activity, we’ve consulted on both buy-side and sell-side situations. So, when I say that we expect to see some projects do that we have pretty visibility into the third quarter projects, but, we also expect to see a little in the fourth quarter, but we are little less clear about that activity.

Andrew Fones – UBS

Okay. Thanks and on the Human Capital Group, I think you’ve said in the past about 65% of the revenues come from compensation services and you, expect that to kind of hold a factor in a weak economic environment. Can you talk about the seasonality of that work and how that impacts, some of the weakness we’re seeing now, but the potential strength you might see in the fourth quarter? Thanks.

John Haley

So let me talk about that I think first of all well, let me confirm that the 65% per compensation is correct about 26% of our revenues are for data services at about 9% for our organizational effectiveness. The slow down we’ve seen so far has primarily been in compensation and particularly in sales force compensation consulting.

We’ve also seen some slowing in strategic rewards which is our broad base compensation consulting program and an executive comp. Executive comp is the one holding up the best so far and we still think we’re going to see a lot of activity on that further remainder of the fiscal year. We are still doing some work in organizational effectiveness but we do expect that’s going to be down year-over-year.

Our Data Services is the area that we expect to be the most resilient in the FCG area. We’re one of only a few providers of data in a broad range of countries and therefore we are well positioned even if companies cut back on the number of suppliers used for data.

Andrew Fones- UBS

Thanks and in terms that 65% what proportion of that roughly is the executive comp versus sales force in strategic reward.

Roger Millay

I would guess that it’s in the area of around two thirds.

Andrew Fones- UBS

Okay. Thank you and then just finally on technology solutions you mentioned that you are benefiting there in similar force changes and there project works that’s great. Do you have any senses to tell what should be the growth is been driven by that or, you know what proportion of revenue that would it.

Roger Millay

It was one of the real drivers of growth for the quarter certainly and although new implementations of long term contracts was also a significant contributor. I don’t have a number for you but certainly we think the leading contributor to the existing new projects at existing clients was driven by the restructuring type activities within those clients and you know I think there would be some hope that would continue obviously that’s unpredictable though given that it’s dependent on what’s happening within our clients businesses.

Operator

Your next question comes from Paul Ginocchio - Deutsche.

Paul Ginocchio - Deutsche Bank

Thank you. Just wondering you’ve been in the fourth quarter the full impact on demand of the decline in the market was felt in that in the pick up or in a demand for pension consulting or do you think there is more to come relative to the fourth quarter in the next couple of quarters. Thanks.

John Haley

So you are talking about our second fiscal quarter.

Paul Ginocchio - Deutsche Bank

Yes.

John Haley

Yes. We’ve done a lot of work in the retirement field there in the second quarter and we expect we’re going to continue to do a lot of work into the third quarter. Maybe a little less than that in the fourth quarter but, one of the features of the current environment is that we see a lot of activity particularly, in North America in our retirement consulting.

Operator

Your next question comes from Mark Marcon - R.W. Baird.

Mark Marcon - Robert W. Baird

Good morning and congratulations on the strong results. I was wondering if you could just expand a little bit John on how you think, the friendship consulting portion of the Benefit’s practice is going to continue to unfold. On one hand, it sounds like there is obviously a lot of stress in terms of asset evaluations, as well as changes in regulation on the flip side. It is becoming more cumbersome for some companies to fund these initiatives and so how do you think it’s going to unfold for the balance of this year relative to what you’ve seen thus far and then how do you think about it from a longer term perspective?

John Haley

So, I think Mark, I guess in talking about any of this, I should start by saying this is probably the most difficult time in my experience to give any predictions, even a quarter or so in advance.

When I think about the pension consulting, its during the height of the storm that we actually see the biggest increase in some of the pension consulting because, its when you have all of these incredible strains on the funding, on the benefit restrictions because of the under-funding on the volatility of the contributions, that’s when plan sponsors are consulting with us quite a bit on what’s going on. It’s when the storm has passed it’s may be when there is not quite as much going on.

So I actually expect that for our third fiscal quarter, we expect to still see a lot of activity in the retirement area, particularly, in North America and we expect to see continued activity into the fourth quarter. I think its 2010, that we might see it slowing down a little bit more. Thinking about this long term, I do think that most of the people that still have defined benefit plan seem to be pretty much committed to them and we haven’t seen any big changes like additional freezing’s of plans or anything like that. Even if that occurs, we still get a lot of worked out.

So I think we don’t see this as fast a growth factor as some of our other areas, but we do see this as a solid performing business for a long time.

Mark Marcon - Robert W. Baird

Can you talk a little bit about the amendment to the PPA that was passed on December 23? I mean, it doesn’t seem like that could have had any impact at all in the fiscal second quarter, but it should have a positive impact in the….

John Haley

Sure. Let me mention two things and really that was December 23. So that’s not going to show up in the second quarter. So the Recovery Act permits 24 month as its moving, but the smooth asset value has to fall within 90% and 100% of fair market value. So what happens is, the smooth asset value is probably going to be more than 110. So everybody is going to decline under 110.

We have to consult around what the impact of that would be, but one of the things we think is that it’s only going to provide limit relief to the validity of the contribution. There is a couple of other proposals out there, one is to get rid of the 110 or at least change it in some fashion. The other is to allow plans to more of a free election of evaluation methods. We are talking with client sponsors about those if we see those pass we could see additional consulting assignments.

Mark Marcon - Robert W. Baird

Okay. Can you talk about the magnitude of those sorts of consulting assignments relative to what you’ve already done? Because you have a confluence of two factors, you have the assets other than U.S treasuries and Japanese governments have obviously contracted materially. So that’s one aspect and then there is these changes to the PPA and I was just wondering if there is any way to potentially spice the impact and then and most of the discussions also focused on North America, but obviously the asset destructions is global. So if you could talk a little bit about the international impacts as well that would be great.

John Haley

Sure. So two things first of all and as you know, we don’t really keep track. There is no way for us to look at what part of any special projects we might do or our current market conditions or pension funding, we don’t really have that data, but we looked at it and we think, “okay, how much of the revenue in the second quarter, how much of the increase was from that?” and we think basically about a point or two about the global growth probably came from these types of projects. So one way I’m thinking about what could it do in the third quarter would be to say if we would expect another point or two of global growth in retirement to come from that.

Roger Millay

I think one of the reasons that we are focusing on North America, everywhere around the world where there are defined Benefit plans; people are being hit with the decline in asset values with the necessity of increased fundings. North America or the U.S. in particular is a little different because not only is it the decline in asset values, but it’s also new funding regulation hitting at the same time. So, that’s really why we’ve done that because there is probably some increased consulting as a result to that.

Mark Marcon - Robert W. Baird

And that’s why I was trying to get at this, but in particular, the impact of the change that’s coming because that hasn’t slowed through as you said. So, I mean, how much do you think this amendment is going end up adding?

John Haley

I guess Mark, now when you look at our guidance that we gave for the rest of the year, we took that all into account. Okay

Mark Marcon - Robert W. Baird

A point or two?

John Haley

Yes. I mean, I think the point or two is probably right, but I don’t think there is anything over what we have in our guidance. I’d guess what I should say is our guidance is based on about the same kind of activity. If we see more because there is some new proposals come out or some thing that could provide some up-sight, but we have already factored in sort of the current situation.

Mark Marcon - Robert W. Baird

Okay. The reason why I’m asking is because it looks like you didn’t definitely change your full year outlook on the benefit side on a CC basis and you wouldn’t have had the change, the amendment in your guidance previously and that’s so I guess, that’s why I went asking.

Roger Millay

Yes. I mean to your point we are running at the high-end of the guidance that we’ve given. So you might interpret that relative to the range that there might be some upside there, but I think again, John’s 1% to 2% probably the numbers that we’re looking at and it’s incorporated in the guidance.

John Haley

But I think Roger really has that right. We are running at the high side of the guidance and could we have taken the guidance up, as long as we are in the corner there, we didn’t.

Mark Marcon - Robert W. Baird

Okay. Great and then, can you talk a little bit more about Technology Solutions and just the areas where you saw some improvement be of all of the various changes that are occurring in another words. What were the other scope projects for the already installed based that you ended up putting in place?

Roger Millay

I think the one think that’s may be get a little different this quarter from what the companies talked about that in the past is that as we’ve add client activity as they have restructured their business either related to their underline segments or related to their underline employee population or relative to their plans, because of pressures that they have, there are benefit changes in their plans that have to be incorporated into the underlying systems that we provide to them. So that’s just generated work and so it is kind of change order type work related to those activities with their clients and that was the major driver.

Mark Marcon - Robert W. Baird

Can you scope how much of the upside was due to that..?

Roger Millay

Well, I mean I think again I don’t have a dollar number for that quite. You know I think it was low double digit growth and the change order piece of that was substantial portion. I would say probably some where around half of that and so that gives you some sense of that magnitude.

Operator

Your next question comes from Shlomo Rosenbaum - Stifel Nicolaus.

Shlomo Rosenbaum - Stifel Nicolaus

Hi. Thank you very much for taking my call. Most of my questions have been answered I just want to just go over the expectations for an insurance and financial services. We understood that you added a large project in the last quarter and you are anticipating another project to pick up to start in this in the quarter that we are in right now, is that correct?

John Haley

That’s correct. Although the new project, we don’t expect to be as big as the one we had in the second quarter but it’s in same type of M&A type of activity.

Shlomo Rosenbaum - Stifel Nicolaus

And then is that project that’s supposed to carry you forward into the fourth quarter and that’s the way that you are raising the guidance for the year on that unit?

Roger Millay

Yes. I think what we expected that this second project. It’s come along will pretty much be completed in the third quarter just as the other one was completed in the fourth quarter.

Now that the third quarter is always seasonally a stronger quarter for IFS, so we have that there, we tend to have more recurring work, but in the fourth quarter that’s where we look at the market conditions that produce this project in the second quarter and this one in the third quarter and we say and we think there’s still be around or may be additional projects like that in the fourth quarter. We haven’t factored those into our forecast now.

Shlomo Rosenbaum - Stifel Nicolaus

Okay. That is not in there.

John Haley

No, the one in the third quarter is but not anything beyond that. Not anything that we known already have.

Shlomo Rosenbaum - Stifel Nicolaus

And is there a pipeline that sort of takes into next year with this or is this sort of you see these deals being allocated to consultants over the next couple of quarters and then that sort of were it ends.

John Haley

Yes. What tends to happen with these are, these are by-side and self-side activity either advising the buyer or the seller on these and they can do a rise a pretty quickly and they tend to get done pretty quickly. So, we don’t have a long pipeline in terms of were we’re bidding on it over a period of a couple months or something like that.

Roger Millay

And just to re-emphasize that the range that we’ve given is broader than in other segments. As John has been talking about, their partners’ project work going on that we feel good about now for this quarter, but that work is just more volatile though as you can imagine those types of projects can expand or go away and so we’re that’s why we have the broader range because we’re a little bit more cautious and really projecting exact results for the second half here.

John Haley

But I think if you remember back to the beginning of the year and even in our discussion of the first quarter results, we said that we thought that IFS would benefit from some of the economic changes that have occurred in the general financial services industry and we thought that M&A was a potential upside to that and certainly we’ve seen that so far in the second quarter.

Shlomo Rosenbaum - Stifel Nicolaus

Can you just tell us, I mean, are you seeing more of the activity and banks, insurance companies anymore detail on there.

John Haley

I think we tend to work more; we tend to work with insurance companies and with banks on their insurance company related activities.

Shlomo Rosenbaum - Stifel Nicolaus

Okay and then, last question is just given what’s going on in the just in the industry, I was just wondering if you are seeing more assets available for sale for you guys to expand your own business through acquisitions. I know you have made a number of small acquisitions, is there anything larger that you are seeing the pricing becoming more compelling?

John Haley

Yes, I don’t, when we think about acquisitions we’re not primarily driven by the price although we would want any acquisition we do to be some thing that will succeed on financially, but we are not looking to necessarily going to a distress assets or some thing like that.

We tend to focus first and formals on people and culture in the fit around that we look at the strategically do the two organizations fit together and then last and it’s decidedly the third one is does it make financial sense and we don’t want to do anything that doesn’t make financial sense, but as I said, if it something will have to pass the first two criteria before we’d even get to that.

Shlomo Rosenbaum - Stifel Nicolaus

So, it doesn’t sound like there’s anything significant that, that’s percolating because of the environment.

John Haley

I think that’s correct. Yes.

Operator

Your next question comes from Tobey Sommer - Suntrust Robinson Humph.

Tobey Sommer - Suntrust Robinson Humphrey

Thanks. Question for you on your Investment Consulting group; you described I think pretty strong pipeline but its taking some time. Are you able to identify any changes that are in the market place that may allow that pipeline to come down for vision any faster? Thanks.

John Haley

Yes. I think the answer to that is probably no. the pace at which we’re close through the pipeline tends to be dominated by the client’s side, I think and it’s just a question of how fast they want to move on thinking about things how fast they want to move on making some changes. So, we don’t anticipate that it’s necessarily in a pick up in the short run at all, where that there is much that we can do about that.

We think we have to just work with the clients to do that. I do think though, that we feel pretty good about the fact that there is such a strong pipeline out there, I mean, that’s to my mind that was the headline for me in terms of looking at this. Then we did have a couple of notable client wins in the last quarter. So we’re seeing some closure activity but as you can imagine its volatile for our clients in this environment.

Tobey Sommer - Suntrust Robinson Humphrey

One follow up and the rest of my questions have been answered. In terms of the size in relative link that it’s taking the close new customers, are you closing bigger opportunities in is the closing period it’s still kind of an expanding and lengthening pace or is it relatively stable. Thanks.

John Haley

Yes. I don’t think there is a big change in the size expect as we noted in Europe we are seeing a lot more interest in our Advanced Investment Solutions which tend to be bigger projects that we’re doing and bigger, longer term relationships which is something we like. Just mention, the majority of consulting revenues are in Europe and the constant currency forecast for Investment Consulting in Europe really hasn’t changed. Its North America and Asia where we are still building the practice and anticipating most of the growth to come from new clients, that’s where we’ve lowered our expectations a little bit.

Operator

Your next question comes from Josh Vogel Sidoti & Co.

Josh Vogel – Sidoti & Co.

Good morning. Thank you for taking my call and my questions. Most of my questions have been hit up, but could you just remind us the exposure you have to Europe across each segment. I know Investment Consulting and Insurance of finance is north of 70% but what about for the other segments?

John Haley

I can give some rough numbers there. In Benefits, I think about 45% of our revenues are from Europe. Now I guess, as the pound in Euro dropped that maybe a little lower even that was the beginning of the year number. In TASS it’s about 40% of our revenues are from Europe. HCJ’s about 28% are from Europe. In Investment Consulting, it’s a little bit over 70%, about 72% are from Europe and then IFS actually has the biggest, that is about 75% are from Europe.

Roger Millay

And just to reemphasize what John said, those numbers were based on I guess the last; I think the last fiscal year or so.

John Haley

No. They took in [Inaudible] because we had.

Roger Millay

They are probably a little bit lower or maybe a little lower going forward.

John Haley

Not too much though because they had been up at like 79%, I think for IFS saying that 75% or so.

Josh Vogel – Sidoti & Co.

Okay, great. That’s helpful and just a little bit on the house-keeping side. What was in the other income of 1.7 million? What was in there?

Roger Millay

We sold our multi-employer pension business last year. I think not quite a year ago and we get a share of revenues, basically that was the proceeds for that sale. We got a share of revenues. It just started coming in this quarter because a portion, there was debt financing in the deal until the proceeds exceeded the debt we weren’t allowed to recognize the earning itself. So that is going to come in over the next several years probably about $1 million a quarter or so.

Just to mention so in the affiliating account that’s a PCIC the insurance business that we have a minority interest in.

Josh Vogel – Sidoti & Co.

Actually my next question is just your guidance for Q3 .Are you baking in any income from PCIC?

Roger Millay

PCIC is difficult; it tends to bounce around quite a bit. So we don’t put projections in for that, but we do have the mutli employer business projected in our estimates.

Operator

Your next question comes from Mark Marcon - Robert W. Baird & Co.

Mark Marcon- Robert W. Baird & Co

I was just wondering if you could talk a little bit about how the strong project in IFS ended up potentially impacting kind of like how you accrued for bonuses across the organization. Does it all go to the people in IFS or would there be a positive impact across the entire organization.

John Haley

Well what we do Mark is we accrued for our bonuses at the company level during the course of the year. When we get to the end of the year, we have a distribution message which distributes bonuses and it’s based essentially 25% on how the company as a whole did 25% on how the particular geographic region did and 50% on how the regional practice did and that gives us sort of pools for people use and then we looked o the practices within each of the regions to distribute the bonus to individuals.

So when IFS has a good year that increases the regional practice component significantly whoever did that, but it also increases the regional component of the rest of the geographic region they are in and it increases the overall company component for everybody. Similarly, associates in IFS gain when Benefits has good year.

Mark Marcon- Robert W. Baird & Co

Okay, great and then, just in terms of the size and scope, you have this other IFS project it’s coming on, but it sounds like you have others in the pipeline as well. Would you expect that the one that you just did would be the largest of any of them or could some of the other ones be just as big?

John Haley

We expect when we just state it would be largest.

Mark Marcon- Robert W. Baird & Co

Okay and nothing even on a cumulative basis the other ones wouldn’t from that to its size.

John Haley

Yes, I mean, we have and so the visibility we have is that we see a project that we are working on right now in the third quarter, that is not by a good bit, as the one we just finished in the second quarter and then we look at a market which we think could generate some more of these and it’s hard for us to say about how cumulatively the others could affect it, but we can tell you of the first two, the first one was much bigger than the second.

Mark Marcon - Robert W. Baird & Co

And the first one didn’t run over until this quarter?

Roger Millay

Not really now.

Mark Marcon - Robert W. Baird & Co

And then, can you just this is a qualitative question that obviously as the quarter unfolded the severity of the downturn intensified and I’m just wondering if qualitatively if you can talk a little about, how your clients were reacting broad scope as they saw things intensifying and going into January and then, in terms of what sort of feed back are you getting from your various practice managers?

John Haley

Yes, I mean, I guess that the problem is that there is no way to give sort of what is a aggregate client reaction, because it depends so much on the specific practices.

Mark Marcon - Robert W. Baird & Co

So, certainly this was a positive, in certain areas it’s a negative right?

John Haley

Yes, exactly right and so I think if you go back to the sort of commentary that we gave on each of the individual practices that probably gives you a sense of what the reactions are from clients, but I think that it’s just varies significantly.

Operator

Your next question comes from Andrew Fones - UBS.

Andrew Fones - UBS

Yes. Thank you. I just had a question on expenses; the professional and subcontracted services, even I think just in for currency was down year-over-year. I realize it’s a long pay. If there is anything trails there and perhaps if you could we should think about whether a lot of those services are used by anyone of your particular businesses and nice trend with that going forward and then the second question was on the occupancy and communications, you did a good job of keeping cost stand there too and whether we should expect that continue to remain relatively allowing them to year-over-year consequence growth. Thanks.

John Haley

It sounds like a question for Roger.

Andrew Fones - UBS

It sounds like a question for later may be.

Roger Millay

Yes. Certainly, currency I don’t have anything in my fingertips that can do a variance analysis for you there. Certainly currency is one of the impactors and makes it difficult to compare the financial statements. I will say broadly that as John indicated earlier, we started I would say, at least early in the quarter strong focus on the costs every where and so I think you’ll see currency aside you will see in the occupancy and other line.

On going discipline in that area and certainly in occupancy and I think its commercial real estate markets continues to soften and leases role over will be all the drive we think more favorable leases. So I think you see continued discipline and other than that I don’t think I have any specific comments, but we can take a look at and follow up with you if you like.

Operator

Mr. Haley, there is no additional questions at this time.

John Haley

Okay. Well, again thanks to every one for joining us and we look forward to reviewing our third quarter results with you in May.

Operator

Thank you for your participation in today’s conference. This concludes the presentation. You may now disconnect. Good day. 

 

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