Hewitt Associates, Inc. (NYSE:HEW), a global human resources
services company, today reported results for its fiscal 2009 fourth
quarter and year ended September 30, 2009.
Fourth Quarter 2009
Highlights
- Reported net revenues (revenues
before reimbursements) declined 6% to $757.7 million, compared with
$806.7 million in the prior-year quarter. Net revenues declined 4%
after adjusting for foreign currency translation, acquisitions and
divestitures, and third-party revenues in both periods.
- Reported operating income grew
95% to $105.8 million, compared with $54.3 million in the
prior-year quarter. Underlying operating income grew 23% after
adjusting for prior-period unusual items discussed below.
- Reported net income increased to
$64.4 million, or $0.68 per diluted share, compared with $31.6
million, or $0.32 per diluted share in the prior-year quarter.
Underlying net income for the prior-year quarter was $48.3 million,
or $0.49 per diluted share, when adjusting for unusual items.
Fiscal 2009
Highlights
- Reported net revenues declined
5% to $3.00 billion, compared with $3.15 billion in the prior year.
Net revenues were flat after adjusting for foreign currency
translation, acquisitions and divestitures, HR Business Process
Outsourcing (HR BPO) contract restructurings in the prior year, and
third-party revenues in both years.
- Reported operating income grew
39% to $434.1 million, compared with $312.8 million in the prior
year. Underlying operating income grew 29% to $424.8 million after
adjusting for unusual items in both years discussed below.
- Reported net income increased to
$265.1 million, or $2.78 per diluted share, compared with $188.1
million, or $1.85 per diluted share in the prior year. Underlying
net income increased to $254.6 million, or $2.67 per diluted share,
compared with $202.3 million, or $1.98 per diluted share in the
prior year, when adjusting for unusual items in both years.
- Free cash flow, a non-GAAP
measure, increased to $305.1 million, compared with $210.3 million
in the prior year.
- Adjusted Earnings Before
Interest, Taxes, Depreciation and Amortization (EBITDA), a non-GAAP
measure, increased to $566.6 million, compared with $517.3 million
in the prior year.
- The Company repurchased 2.6
million of its outstanding common shares for a total of $74.2
million during fiscal 2009.
“We are pleased with how our 2009 business performance held up
in an incredibly challenging environment,” said Russ Fradin,
chairman and chief executive officer. “Revenues were resilient, and
our focus on productivity over the past two years produced record
operating profit, operating margin and earnings per share. We also
delivered strong sales, improved client satisfaction and generated
strong free cash flow. These results clearly reflect the dedication
and commitment of our leaders and associates worldwide. In 2010, we
intend to accelerate our sales efforts and continue to invest in
growing our business by adding new clients and services.”
Operating
Performance
Fourth Quarter 2009
Reported net revenues were $757.7 million, compared with $806.7
million in the prior-year quarter, a decrease of 6%. Net revenues
declined 4% when excluding third-party supplier revenues in both
periods and adjusting for the following items:
- In the current quarter, $16.9
million in unfavorable foreign currency translation and a $6.8
million contribution from an acquisition.
- In the prior-year quarter, a
$9.4 million contribution from HR BPO businesses2 divested in the
current fiscal year.
On the same adjusted basis, Benefits Outsourcing net revenues
grew 1%, while HR BPO and Consulting declined 10% and 9%,
respectively.
Reported operating income increased 95%, to $105.8 million,
compared with $54.3 million in the prior-year quarter. Reported
operating margin was 14.0%, compared with 6.7% in the prior-year
quarter.
Underlying operating income increased 23% to $105.8 million,
compared with $86.4 million in the prior-year quarter, when
adjusting for unusual items in the prior-year period. Underlying
operating margin was 14.0%, compared with 10.8% in the prior-year
quarter. Lower performance-based compensation, staffing leverage,
and lower selling, general and administrative expenses drove most
of the underlying margin improvement.
Current-quarter underlying results include $17.3 million in
pretax severance charges, compared to $16.8 million in pretax
severance charges in the prior-year quarter. Current-quarter
underlying results also include $5.7 million in pretax charges
related to ongoing real estate optimization initiatives and updated
real estate sublease assumptions, reflecting worsening commercial
real estate market conditions.
Fiscal 2008 fourth quarter underlying results exclude the
following unusual items:
- A pretax charge of $34.4 million
related to the Company’s real estate portfolio review.
- A favorable pretax adjustment of
$1.5 million related to a previous HR BPO contract
restructuring.
- Favorable pretax contributions
of $0.8 million from comparable divested HR BPO operations.
The fourth quarter reported effective tax rate was 34.4%,
compared with 34.5% in the prior-year quarter. The fourth quarter
underlying effective tax rate was 34.4%, compared with 39.0% in the
prior-year quarter.
Fiscal 2009
Reported net revenues were $3.00 billion, compared with $3.15
billion in the prior year, a decrease of 5%. Net revenues were flat
when excluding third-party supplier revenues in both periods and
adjusting for the following items:
- In the current year, $128.8
million in unfavorable foreign currency translation and a $32.4
million contribution from acquisitions.
- In the prior year, a $31.2
million contribution from HR BPO businesses3 divested in the
current year and a $23.1 million benefit related to HR BPO contract
restructurings.
On the same adjusted basis, Benefits Outsourcing net revenues
grew 1%, while HR BPO and Consulting declined 3% and 1%,
respectively. Current year underlying revenues include the
realization of $20.1 million of deferred revenues related to the
settlement of a Benefits Outsourcing contract dispute.
Reported operating income increased 39%, to $434.1 million,
compared with $312.8 million in the prior year. Reported operating
margin was 14.5%, compared with 9.9% in the prior year.
Underlying operating income increased 29% to $424.8 million,
compared with $328.9 million in the prior year, when adjusting for
unusual items in both years. Underlying operating margin was 14.1%,
compared with 10.6% in the prior year. Staffing leverage, lower
selling, general and administrative expenses, and foreign exchange
drove most of the underlying margin improvement.
Current-year underlying results include $34.7 million in pretax
severance charges, compared with $30.3 million in pretax severance
charges in the prior year. Current-year underlying results also
include $14.9 million in pretax charges related to updated real
estate sublease assumptions, reflecting worsening commercial real
estate market conditions, and ongoing real estate optimization
initiatives.
Current year unusual items include pretax gains totaling $9.4
million related to the sales of the Company’s HR BPO Latin America
and relocation services businesses. Prior-year unusual items
include the following:
- Pretax charges of $44.8 million
related to the Company’s real estate portfolio review.
- A pretax net gain of $35.4
million related to the divestiture of the Cyborg business.
- Pretax net charges of $11.8
million related to HR BPO contract restructurings.
- Favorable pretax contributions
of $5.1 million from comparable divested HR BPO operations.
The current-year reported effective tax rate was 35.3%, compared
with 40.5% in the prior year. The current-year underlying effective
tax rate was 36.4%, compared with 39.0% in the prior year.
Business Segment
Results
Benefits Outsourcing
Fourth Quarter 2009
Benefits Outsourcing segment revenues were approximately flat at
$388.7 million, compared with $387.9 million in the prior-year
quarter. Revenues increased 1% after adjusting for $2.3 million of
unfavorable foreign currency translation. The adjusted revenue
growth was principally driven by growth in large market and
mid-market clients, partially offset by lower project revenue.
Benefits Outsourcing segment income increased 31% to $87.2
million, compared with $66.6 million in the prior-year quarter.
Segment margin was 22.4%, compared with 17.2% in the prior-year
quarter.
Underlying segment income increased 8% to $87.2 million,
compared with $80.9 million in the prior-year quarter, when
adjusting for unusual items in the prior-year period. Underlying
segment margin was 22.4%, compared to 20.9% in the prior-year
quarter. The underlying margin improvement was principally due to
foreign currency translation, lower performance-based compensation,
cost management efforts, and lower severance expense, partially
offset by lower project revenue and higher healthcare costs.
Prior-year period unusual items include:
- A pretax charge of $14.0 million
related to the Company’s real estate portfolio review.
- A pretax loss of $0.3 million
related to comparable divested HR BPO operations that also impacted
Benefits Outsourcing.
Fiscal 2009
Benefits Outsourcing segment revenues were flat at $1.55
billion. Revenues increased 1% after adjusting for the following
items:
- In the current year, $17.3
million of unfavorable foreign currency translation and a $16.7
million contribution from acquisitions.
- In the prior year, a $9.0
million benefit related to HR BPO contract restructurings that also
impacted Benefits Outsourcing.
The adjusted revenue increase was principally driven by the
realization of $20.1 million of deferred revenues related to the
settlement of a contract dispute and mid-market client growth,
partially offset by lower project revenue and current period
adjustments related to client service issues in prior years.
Benefits Outsourcing segment income increased 6% to $387.2
million, compared with $365.3 million in the prior year. Segment
margin was 25.0%, compared with 23.6% in the prior year.
Underlying segment income increased 2% to $387.2 million,
compared with $379.2 million in the prior year, when adjusting for
unusual items in the prior year. Underlying segment margin was
25.0%, compared to 24.6% in the prior year. The underlying margin
improvement was principally due to cost management efforts and
foreign currency translation. This was partially offset by the
impact of a prior-year acquisition, lower project revenue, current
period adjustments for client service issues in prior years, and
higher healthcare costs.
Fiscal 2008 results include the following unusual items:
- A pretax charge of $17.9 million
related to the Company’s real estate portfolio review.
- A pretax benefit of $4.3 million
related to HR BPO contract restructurings that also impacted
Benefits Outsourcing.
- A pretax loss of $0.3 million
related to comparable divested HR BPO operations that also impacted
Benefits Outsourcing.
As of September 30, 2009, the Company was live with
approximately 20.5 million end-user Benefits Outsourcing
participants, compared with approximately 19.7 million as of
September 30, 2008.
Human Resources Business Process Outsourcing
Fourth Quarter 2009
HR BPO segment revenues declined 16% to $113.9 million, compared
with $135.1 million in the prior-year quarter. Revenues decreased
10% after excluding third-party supplier revenues in both periods
and adjusting for the following items:
- In the current year, $2.3
million of unfavorable foreign currency translation.
- In the prior year, a $9.4
million comparable contribution from divested businesses.
The adjusted revenue decline was driven by client terminations
and liquidations, partially offset by the impact of new clients
going live with contract services over the last 12 months and
certain contractual adjustments.
The HR BPO segment loss was $2.1 million, compared with a loss
of $21.6 million in the prior-year quarter. Underlying segment loss
was $2.1 million, compared with a loss of $12.1 million in the
prior-year quarter, when adjusting for unusual items in the
prior-year period. The underlying operating improvement reflects
staffing leverage and infrastructure cost management, partially
offset by lower revenues.
Prior-year quarter results include the following unusual
items:
- A pretax charge of $12.1 million
related to the Company’s real estate portfolio review.
- A favorable pretax adjustment of
$1.5 million related to a prior HR BPO contract restructuring.
- Favorable pretax contributions
of $1.1 million from comparable divested operations.
Fiscal 2009
HR BPO segment revenues declined 14% to $479.7 million, compared
with $554.9 million in the prior-year quarter. Revenues decreased
3% after excluding third-party supplier revenues in both periods
and adjusting for the following items:
- In the current year, $19.7
million of unfavorable foreign currency translation.
- In the prior year, a $31.2
million comparable prior-year contribution from divested businesses
and a $14.1 million benefit related to HR BPO contract
restructurings.
The adjusted revenue decline was driven by client losses and
liquidations, partially offset by the impact of new clients going
live with contract services over the last 12 months and certain
contractual adjustments.
The HR BPO segment loss was $5.2 million, compared with a loss
of $83.3 million in the prior year. Underlying segment loss was
$14.6 million, compared with a loss of $94.9 million in the prior
year, when adjusting for unusual items in both years. The
underlying operating improvement reflects staffing leverage,
infrastructure cost management, lower amortization of intangibles,
and lower charges related to disputes and settlements, partially
offset by lower revenues.
Current year unusual items include pretax gains totaling $9.4
million related to the sales of the Company’s HR BPO Latin America
and relocation services businesses. Prior-year unusual items
include the following:
- A pretax net gain of $35.4
million related to the divestiture of the Cyborg business.
- A pretax net charge of $16.1
million related to HR BPO contract restructurings.
- A pretax charge of $13.1 million
related to the Company’s real estate portfolio review.
- Favorable pretax contributions
of $5.4 million from comparable divested operations.
As of September 30, 2009, the Company was live with
approximately 695,000 client employees with HR BPO services,
compared with approximately 987,000 as of September 30, 2008.
Consulting
Fourth Quarter 2009
Consulting segment revenues declined 10% to $265.2 million,
compared with $295.8 million in the prior-year quarter. Consulting
revenues declined 9% after adjusting for $12.3 million of
unfavorable foreign currency translation and a $6.8 million
contribution from an acquisition, both in the current year. The
adjusted decline resulted from revenue decreases related to Talent
and Organizational Consulting services across all regions and
Communication and Health Management services in North America. This
was partially offset by growth in Retirement and Financial
Management services in North America and Europe.
Consulting segment income declined 11% to $43.7 million,
compared with $49.4 million in the prior-year quarter. Segment
margin was 16.5%, compared with 16.7% in the prior-year quarter.
Underlying segment income declined 11% to $43.7 million, compared
with $49.3 million in the prior-year quarter, when adjusting for
the impact of the Company’s real estate portfolio review in the
prior-year period. Underlying segment margin was 16.5%, compared
with 16.7% in the prior-year quarter. The underlying margin
decrease was principally due to lower revenues and higher severance
expense, partially offset by lower performance-based compensation
and discretionary cost controls.
Fiscal 2009
Consulting segment revenues declined 8% to $1.01 billion,
compared with $1.09 billion in the prior year. Revenues decreased
1% after adjusting for $91.8 million of unfavorable foreign
currency translation and a $15.8 million contribution from
acquisitions, both in the current year. The adjusted decline
resulted from revenue decreases related to Talent and
Organizational Consulting services across all regions and
Communication services in North America. This was partially offset
by growth in Retirement and Financial Management services in Europe
and North America and modest growth in Health Management
services.
Consulting segment income was approximately flat at $143.8
million, compared with $143.2 million in the prior year. Segment
margin was 14.2%, compared with 13.1% in the prior year. Underlying
segment income decreased 3% to $143.8 million, compared with $147.5
million in the prior year, when adjusting for an unusual item in
the prior year. Underlying segment margin was 14.2%, compared with
13.5% in the prior year. The underlying margin improvement was
principally due to lower performance-based compensation and
discretionary cost controls, partially offset by higher severance
expense.
The prior-year unusual item was a pretax charge of $4.2 million
related to the Company’s real estate portfolio review.
Unallocated Shared Service Costs
Fourth quarter 2009 unallocated shared service costs were $23.0
million, or 3.0% of net revenues, compared with $40.1 million, or
5.0% of net revenues, in the prior-year quarter. Underlying
prior-year quarter unallocated shared service costs were $31.7
million, or 4.0% of net revenues, when excluding pretax charges of
$8.4 million related to the Company’s real estate portfolio review.
The decrease in expenses relative to net revenues was principally
due to lower professional services fees and lower performance-based
compensation.
Fiscal 2009 unallocated shared service costs were $91.6 million,
or 3.0% of net revenues, compared with $112.4 million, or 3.6% of
net revenues, in the prior year. Underlying prior-year unallocated
shared service costs were $102.9 million, or 3.3% of net revenues,
when excluding pretax charges of $9.5 million related to the
Company’s real estate portfolio review. The decrease in expenses
relative to net revenues was principally due to lower professional
services fees.
Cash Flow
Cash flow from operations was $433.0 million in fiscal 2009,
compared with $327.9 million in the prior year. Free cash flow, a
non-GAAP measure reflecting cash flow from operations less capital
expenditures and capitalized software costs, was $305.1 million,
compared with $210.3 million in the prior year. The improvement in
free cash flow was principally driven by improved receivables
collections and stronger operating performance, partially offset by
lower Outsourcing net deferrals and higher performance-based
compensation related to fiscal 2008 performance.
Adjusted EBITDA, a non-GAAP measure, was $566.6 million in
fiscal 2009, compared with $517.3 million in the prior year. The
increase reflects improved HR BPO operating performance, partially
offset by lower Outsourcing net deferrals.
Share
Repurchase
During the fourth quarter, the Company repurchased 1.0 million
of its outstanding common shares at an average price of $30.19 per
share, or $30.1 million. During fiscal 2009, the Company
repurchased 2.6 million of its outstanding common shares at an
average price of $28.91 per share, or $74.2 million. From October
1, 2009 through November 9, 2009, the Company repurchased an
additional 185,000 shares for a total of $6.8 million. At November
9, 2009, the Company had approximately $219 million remaining under
its current $300 million authorization.
Supplemental
Information
On October 9, 2009, subsequent to the year ended September 30,
2009, the Company entered into a three-year $250 million credit
facility with a multi-bank syndicate. This credit facility contains
a $25 million sub-limit for the issuance of letters of credit. This
credit facility replaces the previous $200 million five-year credit
facility dated May 23, 2005. Borrowings under this facility accrue
interest at LIBOR plus 200-300 basis points or a base rate plus 100
to 200 basis points. Borrowings are repayable at expiration of the
facility on October 9, 2012 and quarterly commitment fees ranging
from 30-50 basis points are charged under the credit facility. The
outstanding letters of credit of $10.4 million under the current
credit facility were transferred to this new credit facility in
fiscal 2010. Additional information can be found in the Company’s
Form 8-K dated October 9, 2009.
Business
Outlook
In addition to reporting results in accordance with U.S. GAAP,
the Company assesses its performance once unusual items have been
removed. The following guidance reflects the Company’s expectations
for fiscal 2010 on this underlying basis, which excludes the impact
of unusual items in the prior-year:
- Low- to mid-single digit total
Company net revenue growth, with solid growth in Consulting, a flat
performance in Benefits Outsourcing, and a decline in HR BPO;
- Diluted earnings per share of
$2.85 to $2.95, with operating income growth moderately exceeding
diluted EPS growth, an effective tax rate in the range of 37 to 38
percent, and continued execution against its share repurchase
authorization.
“While we are seeing some positive signs in terms of customer
demand, our guidance is not dependent on a meaningful recovery,”
said Russ Fradin, chairman and chief executive officer. “As our
clients continue to grapple with how to succeed in this economy, we
are confident that our thinking and our services are clearly part
of the solution. We intend to build on last year’s success and
deliver top- and bottom-line growth in the coming year.”
Conference Call
At 7:30 a.m. (CT) today, management will host a conference call
with investors to discuss fiscal 2009 fourth quarter results. The
live presentation is accessible through the Investor Relations
section of Hewitt’s website at www.hewitt.com. The webcast will be
archived on the site for approximately one month.
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations
around the world with expert human resources consulting and
outsourcing solutions to help them anticipate and solve their most
complex benefits, talent, and related financial challenges. Hewitt
works with companies to design, implement, communicate, and
administer a wide range of human resources, retirement, investment
management, health care, compensation, and talent management
strategies. With a history of exceptional client service since
1940, Hewitt has offices in more than 30 countries and employs
approximately 23,000 associates who are helping make the world a
better place to work. For more information, please visit
www.hewitt.com.
Forward-Looking Information
This presentation contains forward-looking statements within the
meaning of the Private Securities Litigation Reform Act of 1995.
Such statements are based upon the current beliefs and expectations
of Hewitt's management and are subject to significant risks and
uncertainties. Actual results may differ from those set forth in
the forward-looking statements. Factors that could cause actual
results to differ materially from those expressed or implied
include general economic conditions and the factors discussed under
the “Risk Factors” heading in the Business section of the Company’s
most recent annual report on Form 10-K filed with the Securities
and Exchange Commission ("SEC") and available at the SEC's internet
site (www.sec.gov). Hewitt disclaims any obligation to publicly
update or revise any forward-looking statements, whether as a
result of new information, future events, or any other reason.
1 In assessing operating performance, the Company also reviews
its results once unusual adjustments have been removed. The Company
believes that doing so provides a better understanding of
underlying operating performance. A reconciliation of GAAP to
underlying net revenues, operating income, net income, earnings per
share, free cash flow, and Adjusted EBITDA (each a non-GAAP
measure) is included in this press release.
2 HR BPO divested assets include Latin America (February 2009),
and relocation services (March 2009). Post-disposition amounts have
been excluded from “underlying” and “as adjusted” amounts for
year-over-year comparative purposes.
3 HR BPO divested assets include Cyborg (January 2008), Latin
America (February 2009), and relocation services (March 2009).
Cyborg prior period results and Latin America and relocation
services comparative post-disposition amounts have been excluded
from “underlying” and “as adjusted” amounts for year-over-year
comparative purposes.
4 Free cash flow, a non GAAP measure, is cash flow from
operations less capital expenditures and capitalized software
costs. The Company believes this measure provides useful
information related to the Company’s liquidity, including but not
limited to its ability to reduce debt, make strategic investments,
and repurchase stock. The Company views free cash flow as a
supplement to, and not a substitute for, GAAP measures of liquidity
included in its consolidated statements of cash flows.
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF
OPERATIONS
(In thousands except for share and
per share amounts)
Three Months Ended
September 30,
Year Ended
September 30,
2009
2008
% Change
2009
2008
% Change
Revenues:
Revenues before reimbursements
(net revenues) (1)
$
757,742
$
806,689
(6.1)%
$
3,003,766
$
3,151,389
(4.7)%
Reimbursements
16,294 17,840 (8.7)%
69,794 76,259 (8.5)%
Total revenues
774,036 824,529 (6.1)%
3,073,560 3,227,648 (4.8)%
Operating expenses:
Compensation and related
expenses
472,210 525,758 (10.2)% 1,875,401 2,042,623 (8.2)%
Goodwill and asset impairment
- 1,621 n/m 4,159 4,117 1.0%
Reimbursable expenses
16,294 17,840 (8.7)% 69,794 76,259 (8.5)%
Other operating expenses
145,267 183,282 (20.7)% 558,075 624,989 (10.7)% Selling, general
and administrative expenses 34,436 41,758 (17.5)% 141,361 202,483
(30.2)% Gain on sale of businesses
-
- n/m
(9,379)
(35,667) (73.7)%
Total operating expenses
668,207 770,259 (13.2)%
2,639,411 2,914,804 (9.4)%
Operating income
105,829 54,270 95.0% 434,149 312,844 38.8%
Other (expense) income, net:
Interest expense
(9,821) (11,130) (11.8)% (39,979) (24,788) 61.3%
Interest income
170 4,480 (96.2)% 7,410 22,023 (66.4)%
Other income, net
2,016 531 279.7%
8,140 6,365 27.9%
Total other (expense) income,
net
(7,635) (6,119) 24.8%
(24,429) 3,600 n/m
Income before income taxes
98,194 48,151 103.9% 409,720 316,444 29.5%
Provision for income taxes
33,770 16,599 103.4%
144,595 128,302 12.7%
Net income
$ 64,424 $
31,552 104.2%
$ 265,125
$ 188,142 40.9% Earnings per
share:
Basic
$ 0.70 $ 0.33 $ 2.84 $ 1.90
Diluted (2)
$ 0.68 $ 0.32 $ 2.78 $ 1.85 Weighted average shares:
Basic
92,560,989 95,167,179 93,400,271 98,791,739
Diluted
94,707,255 98,163,780 95,390,026 101,970,321
(1) Net revenues include $11,989 and $9,752 of third-party
supplier revenues for the three months ended September 30, 2009 and
2008, respectively, and $42,776 and $40,498 for the year ended
September 30, 2009 and 2008, respectively. Generally, the
third-party supplier arrangements are marginally profitable. The
related third-party supplier expenses are included in other
operating expenses.
(2) Debt securities convertible into 1,870,748 shares of Class A
common stock were outstanding in the three months and year ended
September 30, 2008, but were not included in the computation of
diluted earnings per share because the effect of including the
convertible debt securities would be antidilutive. There were no
convertible debt securities outstanding at September 30, 2009.
HEWITT ASSOCIATES, INC.
UNDERLYING NET REVENUES,
OPERATING INCOME, NET INCOME, AND
EARNINGS PER SHARE
(Unaudited)
(In thousands except for share and
per share amounts)
In assessing operating
performance, the Company also reviews its results once unusual
adjustments have been removed. The Company believes that doing so
provides a better understanding of underlying operating
performance. For the three months and year ended September 30, 2009
and September 30, 2008, underlying net revenues, operating income,
net income, and earnings per share were:
Three Months Ended
September 30,
Year Ended
September 30,
2009 2008
2009 2008
Revenues before reimbursements (net revenues), as reported
$ 757,742 $ 806,689 $
3,003,766 $ 3,151,389 Adjustments: HR BPO
divestitures (1) - (9,640 ) - (31,536 ) HR BPO contract
restructurings
- -
- (23,086
) Total adjustments - (9,640 ) - (54,622 )
Underlying revenues before reimbursements (net revenues)
757,742 797,049 3,003,766 3,096,767
Operating income, as reported 105,829
54,270 434,149 312,844 Adjustments: HR BPO
divestitures (1) - (783 ) (9,379 ) (40,518 ) Real estate
rationalization (2) - 34,429 - 44,775 HR BPO contract
restructurings
-
(1,525 ) -
11,798 Total adjustments - 32,121 (9,379
) 16,055
Underlying operating income 105,829
86,391 424,770 328,899 % of underlying net
revenues 14.0 % 10.8 % 14.1 % 10.6 % Total other income
(expense), net (7,635 ) (6,119 ) (24,429 ) 3,600 HR BPO
divestitures (1) - (1,104 ) - (1,131 ) Add A/R interest write-off
(3)
- -
- 273
Underlying other income, net (7,635 ) (7,223 ) (24,429 ) 2,742
Underlying pretax income 98,194 79,168 400,341 331,641
Provision for income taxes (4)
33,770
30,876
145,695 129,340
Underlying net income $
64,424 $
48,292 $
254,646 $
202,301 Underlying earnings per
share: Basic
$ 0.70 $ 0.51 $
2.73 $ 2.05 Diluted
$ 0.68
$ 0.49 $ 2.67 $ 1.98
Shares outstanding: Basic 92,560,989 95,167,179 93,400,271
98,791,739 Diluted 94,707,255 98,163,780 95,390,026 101,970,321
(1) HR BPO divested assets include Cyborg (January 2008), Latin
America (February 2009), and relocation services (March 2009).
Cyborg prior period results and Latin America and relocation
services comparative post-disposition amounts have been excluded
from “underlying” and “as adjusted” amounts for year-over-year
comparative purposes. Adjustments to net revenues for the three
months and year ended September 30, 2008 include third-party
supplier revenues of $193 and $366, respectively, related to HR BPO
divested assets. Adjustments to operating income for the three
months and year ended September 30, 2008 reflect a $221 reduction
to the $35,667 “gain on sale of business” reported in the Q2 FY08
Consolidated Statement of Operations. This reduction pertains to
certain Cyborg employee-related expenses recorded in the second
quarter of fiscal 2008. Adjustments to other income (expense), net
primarily relate to the exclusion of interest income and gain on
assets, net of interest expense for divested HR BPO Latin America
and relocation services operations.
(2) Charges related to the Company's real estate rationalization
initiative were excluded from operating income in deriving
underlying operating income, net income, EPS, and Adjusted EBITDA
for the three months and year ended September 30, 2008. Charges
related to ongoing real estate optimization initiatives and updated
real estate sublease rental assumptions of $5,675 and $14,855 are
included in the reported and underlying results for the three
months and year ended September 30, 2009, respectively.
(3) Related to HR BPO contract restructurings and
divestitures.
(4) The Company used an effective tax rate of 39.0% for the
three months and year ended September 30, 2008, for its underlying
net income calculation. The Company used an underlying effective
tax rate of 36.4% for the year ended September 30, 2009 to adjust
for tax benefits associated with its HR BPO Latin America
divestiture. The Company believes this approximates the normalized
effective tax rate for the period.
HEWITT ASSOCIATES, INC.
BUSINESS SEGMENT
RESULTS
(Dollars in thousands)
Business Segments
Three Months
EndedSeptember 30,
Year EndedSeptember
30,
2009
2008
% Change
2009
2008
% Change
Benefits Outsourcing
Segment net revenues
$ 388,665 $ 387,910 0.2% $ 1,549,991 $ 1,550,110 (0.0)%
Segment income
87,205 66,635 30.9% 387,168 365,336 6.0%
Segment income as a percentage of
segment revenues
22.4%
17.2%
25.0%
23.6%
HR BPO
Segment net revenues (1)
$ 113,862 $ 135,142 (15.7)% $ 479,724 $ 554,854 (13.5)%
Segment loss
(2,065) (21,620) (90.4)% (5,223) (83,277) (93.7)%
Segment loss as a percentage of
segment revenues
(1.8)%
(16.0)%
(1.1)%
(15.0)%
Consulting
Segment net revenues
$ 265,176 $ 295,833 (10.4)% $ 1,011,781 $ 1,094,323 (7.5)%
Segment income
43,720 49,350 (11.4)% 143,769 143,217 0.4%
Segment income as a percentage of
segment revenues
16.5%
16.7%
14.2%
13.1%
Total Company
Segment net revenues (1)
$ 767,703 $ 818,885 (6.3)% $ 3,041,496 $ 3,199,287 (4.9)%
Intersegment revenues
(9,961) (12,196) (18.3)%
(37,730) (47,898) (21.2)%
Net revenues
757,742 806,689 (6.1)% 3,003,766 3,151,389 (4.7)%
Reimbursements
16,294 17,840 (8.7)%
69,794 76,259 (8.5)%
Total revenues
$ 774,036 $
824,529 (6.1)%
$ 3,073,560
$ 3,227,648 (4.8)%
Segment income
$ 128,860 $ 94,365 36.6% $ 525,714 $ 425,276 23.6%
Unallocated shared services
costs
23,031 40,095 (42.6)%
91,565 112,432 (18.6)%
Operating income
$ 105,829 $
54,270 95.0%
$ 434,149
$ 312,844 38.8%
(1) HR BPO net revenues include $11,989 and $9,752 of
third-party supplier revenues for the three months ended September
30, 2009 and 2008, respectively, and $42,776 and $40,498 for the
year ended September 30, 2009 and 2008, respectively. Generally,
the third-party supplier arrangements are marginally profitable.
The related third-party supplier expenses are included in other
operating expenses.
HEWITT ASSOCIATES, INC.
CONSOLIDATED BALANCE
SHEETS
(In thousands except for share and
per share amounts)
September 30, September 30,
2009 2008 ASSETS Current
Assets: Cash and cash equivalents $ 581,642 $ 541,494 Short-term
investments 60,994 - Client receivables and unbilled work in
process, less allowances of $14,381 and $18,029 at September 30,
2009 and September 30, 2008, respectively 527,272 655,543 Prepaid
expenses and other current assets 169,533 129,529 Funds held for
clients 131,801 102,518 Short-term deferred contract costs, net
89,919 83,444 Deferred income taxes, net 34,119
34,104 Total current assets 1,595,280 1,546,632
Non-Current Assets: Deferred contract costs, less current
portion 254,905 287,060 Property and equipment, net 384,254 385,885
Other intangible assets, net 191,479 206,822 Goodwill 412,745
364,141 Long-term investments 54,442 124,530 Other non-current
assets, net 31,535 63,762 Total non-current assets
1,329,360 1,432,200 Total Assets $ 2,924,640 $
2,978,832
LIABILITIES Current Liabilities:
Accounts payable $ 20,790 $ 15,880 Accrued expenses 164,724 239,521
Funds held for clients 131,801 102,518 Advanced billings to clients
137,447 158,238 Accrued compensation and benefits 393,463 403,611
Short-term deferred contract revenues, net 61,356 52,733 Short-term
debt - 17,602 Current portion of long-term debt and capital lease
obligations 36,282 133,002 Total current liabilities
945,863 1,123,105 Non-Current Liabilities:
Deferred contract revenues, less current portion 192,056 237,648
Debt and capital lease obligations, less current portion 618,561
650,182 Other non-current liabilities 223,835 240,637 Deferred
income taxes, net 84,023 77,058 Total non-current
liabilities 1,118,475 1,205,525 Total
Liabilities $ 2,064,338 $ 2,328,630
HEWITT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS –
Continued
(In thousands except for share and
per share amounts)
September 30, September 30,
2009 2008
STOCKHOLDERS’ EQUITY Stockholders’ Equity: Class A
common stock, par value $0.01 per share, 750,000,000 shares
authorized, 132,844,269 and 130,390,880 shares issued, 93,535,270
and 94,227,120 shares outstanding, as of September 30, 2009 and
September 30, 2008, respectively $ 1,328 $ 1,304 Additional paid-in
capital 1,662,687 1,579,077 Cost of common stock in treasury,
39,308,999 and 36,163,760 shares of Class A common stock as of
September 30, 2009 and September 30, 2008, respectively (1,277,815
) (1,183,427 ) Retained earnings 469,777 206,558 Accumulated other
comprehensive income, net 4,325 46,690
Total stockholders’ equity 860,302 650,202
Total Liabilities and Stockholders’ Equity $
2,924,640 $ 2,978,832
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH
FLOWS
(Amounts in thousands)
Year Ended
September 30,
2009 2008 Cash
flows from operating activities: Net income $ 265,125 $ 188,142
Adjustments to reconcile net income to net cash provided by
operating activities: Depreciation and amortization, including
amortization of deferred contract revenues and costs
164,693
174,767
Goodwill and asset impairment 4,159 4,117 Gain on sale of
businesses (9,379 ) (35,667 ) Share-based compensation 54,329
48,345 Deferred income taxes 17,332 6,976 Fair value adjustment
related to financial assets 18 - Gain on sale of investments -
(2,581 ) Changes in operating assets and liabilities, net of effect
of acquisitions and dispositions: Client receivables and unbilled
work in process 102,982 (34,271 ) Prepaid expenses and other
current assets (35,441 ) (51,155 ) Deferred contract costs (92,393
) (102,214 ) Other assets 2,600 (22,646 ) Accounts payable 5,219
(4,962 ) Accrued compensation and benefits (1,899 ) 34,787 Accrued
expenses (56,422 ) 22,518 Advanced billings to clients (11,478 )
(1,515 ) Deferred contract revenues 44,607 96,077 Other long-term
liabilities (21,054 ) 7,184 Net cash provided
by operating activities 432,998 327,902 Cash flows from
investing activities: Purchases of investments - (426,675 )
Proceeds from sales of investments 5,300 513,064 Additions to
property and equipment (127,907 ) (117,556 ) Cash paid for
acquisitions and transaction costs, net of cash acquired (61,764 )
(134,081 ) Cash received for sale of businesses 1,105
42,420 Net cash used in investing activities (183,266
) (122,828 ) Cash flows from financing activities: Proceeds
from the exercise of stock options 20,052 43,606 Excess tax
benefits from the exercise of share-based awards 7,002 10,227
Proceeds from short-term borrowings 18,119 185,468 Proceeds from
long-term borrowings - 539,751 Repayments of short-term borrowings,
capital leases and long-term debt (153,062 ) (225,977 ) Purchase of
Class A common shares for treasury (94,388 ) (586,227
) Net cash used in financing activities (202,277 ) (33,152 )
Effect of exchange rate changes on cash and cash equivalents
(7,307 ) (9,171 ) Net increase in cash and cash equivalents
40,148 162,751 Cash and cash equivalents, beginning of year
541,494 378,743 Cash and cash
equivalents, end of year $ 581,642 $ 541,494
Supplementary disclosure of cash paid during the period: Interest
paid $ 41,708 $ 20,730 Income taxes paid $ 127,592 $ 136,347
Schedule of non-cash financing activities: Capital leases $ 5,994 $
13,278
HEWITT ASSOCIATES, INC.
FREE CASH FLOW
RECONCILIATION4
(Unaudited)
(Amounts in thousands)
Year EndedSeptember 30, 2009
2008 Net cash provided by
operating activities $ 432,998 $ 327,902 Additions to property and
equipment
(127,907 )
(117,556 ) Free Cash Flow
$
305,091
$
210,346
HEWITT ASSOCIATES, INC.
ADJUSTED EBITDA
RECONCILIATION
(Unaudited)
(Amounts in thousands)
Year EndedSeptember 30, 2009
2008 Reported net
income $ 265,125 $ 188,142
Depreciation and amortization (1) 164,693 170,847 Provision for
income taxes 144,595 128,302 Interest expense, net 32,569 2,765
EBITDA 606,982 490,056 Adjustments: HR BPO
divestitures (2) (9,379 ) (40,518 ) Real estate rationalization (3)
- 44,775 HR BPO contract restructuring
-
11,798 Underlying adjustments (9,379 )
16,055 Normalized depreciation and amortization addbacks (1) - (539
) Other (income) expense, excluding interest (4)
(8,140 ) (6,365
) Total adjustments (17,519 ) 9,151
Adjusted
EBITDA before certain non-cash addbacks 589,463
499,207 Certain non-cash addbacks: Asset impairment
4,159 2,927 Net deferrals (5) (40,087 ) (5,558 ) Deferred internal
software development costs (40,379 ) (23,085 ) Share-based
compensation (6) 54,324 52,084 Other (loss reserve / provision for
bad debt)
(867 )
(8,229 ) Total certain non-cash addbacks
(22,850 ) 18,139
Adjusted EBITDA
$ 566,613
$ 517,346
(1) For the year ended September 30, 2008, depreciation and
amortization includes $539 of adjustments related to HR BPO
contract restructurings and divestitures and real estate
rationalization. Additionally, discount accretion on the Exult
convertible debt of $3,920 is excluded from amounts for the year
ended September 30, 2008.
(2) HR BPO divested assets include Cyborg (January 2008), Latin
America (February 2009), and relocation services (March 2009).
Cyborg prior period results and Latin America and relocation
services comparative post-disposition amounts have been excluded
from “underlying” and “as adjusted” amounts for year-over-year
comparative purposes. Adjustments to operating income for the year
ended September 30, 2008 reflect a $221 reduction to the $35,667
“gain on sale of business” reported in the Q2 FY08 Consolidated
Statement of Operations. This reduction pertains to certain Cyborg
employee-related expenses recorded in the second quarter of fiscal
2008.
(3) Charges related to the Company's real estate rationalization
initiative were excluded from operating income in deriving
underlying operating income, net income, EPS, and Adjusted EBITDA
for the year ended September 30, 2008. Charges related to ongoing
real estate optimization initiatives and updated real estate
sublease rental assumptions of $14,855 are included in the reported
and underlying results and Adjusted EBITDA for the year ended
September 30, 2009.
(4) For the year ended September 30, 2009, other (income)
expense, excluding interest includes a non-cash impairment of $18
related to auction rate securities.
(5) Net deferrals as presented and the net of revenue and cost
deferrals in the Statements of Cash Flows vary by $7,699 and $579
for the Year Ended September 30, 2009 and 2008, respectively,
relating to Balance Sheets and Statements of Operations
reclassifications and the settlement of a client contract dispute
in the current year.
(6) Share-based compensation as presented in the Statements of
Cash Flows varies by $5 and $3,739 for the year ended September 30,
2009 and 2008, respectively, due to current year amortization
expense for a deferred compensation arrangement related to an
acquisition in the prior year, the impact of foreign exchange in
the current year, and the reclassification of certain prior-year
amounts to conform to the current year presentation.
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