UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number: 001-34594

TOWERS WATSON & CO.

(Exact name of Registrant as specified in its charter)

Delaware (State or other jurisdiction of incorporation or organization)		27-0676603 (I.R.S. Employer Identification No.)
875 Third Avenue New York, NY (Address of principal executive offices)		10022 (zip code)

(212) 725-7550
(Registrant’s telephone number, including area code)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes þ       No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

Yes o       No o

Indicate by check mark whether the Registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of “large accelerated filer” and “accelerated filer,” and “smaller reporting company” in Rule 12b-2 of the Exchange Act.

Large accelerated filer o		Accelerated filer o		Non-accelerated filer þ		Smaller reporting company o
				(Do not check if a smaller reporting company)

Indicate by check mark whether the Registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes o      No þ

As of February 1, 2010 there were 46,920,133 outstanding shares of Class A Common Stock at a par value of $0.01 per share; 12,798,117.77 outstanding shares of Class B-1 Common Stock at a par value of $0.01; 5,561,630.05 outstanding shares of Class B-2 Common Stock at a par value of $0.01; 5,561,630.05 outstanding shares of Class B-3 Common Stock at a par value of $0.01 and 5,561,630.05 outstanding shares of Class B-4 Common Stock at a par value of $0.01.

 

 

INTRODUCTION

On January 1, 2010, pursuant to the Agreement and Plan of Merger, as amended by Amendment No. 1 (the “Merger Agreement”), Watson Wyatt Worldwide, Inc. (“Watson Wyatt”) and Towers, Perrin, Forster & Crosby, Inc. (“Towers Perrin”) combined their businesses through two simultaneous mergers (the “Merger”) and became wholly-owned subsidiaries of Jupiter Saturn Holding Company, which changed its name to Towers Watson & Co. (“Towers Watson”).

As of and for the three and six months ended December 31, 2009, Towers Watson had not conducted any activities other than those incident to its formation and the matters contemplated by the Merger Agreement. The business of Towers Watson after the Merger was consummated on January 1, 2010, is the combined businesses previously conducted by Towers Perrin and Watson Wyatt. Therefore, this quarterly report of Towers Watson does not include separate financials for Jupiter Saturn Holding Company as they do not contain any material information. In select sections of this quarterly report that contain prospective or forward-looking information, Towers Watson post-Merger has been disclosed. Although the business combination of Watson Wyatt and Towers Perrin was a “merger of equals”, generally accepted accounting principles require that one of the combining entities be identified as the acquirer by reviewing facts and circumstances as of the acquisition date. Watson Wyatt was determined to be the accounting acquirer. This conclusion is primarily supported by the facts that Watson Wyatt shareholders own approximately 56 percent of all Towers Watson common stock after the redemption of Towers Watson Class R common stock and that Watson Wyatt’s Chief Executive Officer became the Chief Executive Officer of Towers Watson. Watson Wyatt is the accounting predecessor in the Merger and as such, the historical results of Watson Wyatt have become those of the new registrant, Towers Watson, and are presented in this filing. Because the Merger was not yet consummated as of December 31, 2009, the results of Towers Perrin are not included in the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2009 or 2008 or Condensed Consolidated Balance Sheets as of December 31, 2009 and June 30, 2009. Towers Watson’s condensed consolidated financial statements as of and for the three and nine months ended March 31, 2010 will include the results of Towers Perrin’s operations beginning January 1, 2010.

TOWERS WATSON & CO.
INDEX TO FORM 10-Q

For the Three and Six Months Ended December 31, 2009

PART I.		FINANCIAL INFORMATION
Item 1.		Financial Statements (Unaudited)
		Condensed Consolidated Statements of Operations—Three and Six Months Ended December 31, 2009 and 2008		1
		Condensed Consolidated Balance Sheets—December 31, 2009 and June 30, 2009		2
		Condensed Consolidated Statements of Cash Flows—Six Months Ended December 31, 2009 and 2008		3
		Condensed Consolidated Statement of Changes in Stockholders’ Equity—Six Months Ended December 31, 2009		4
		Notes to the Condensed Consolidated Financial Statements		5
Item 2.		Management’s Discussion and Analysis of Financial Condition and Results of Operations		28
Item 3.		Quantitative and Qualitative Disclosures About Market Risk		51
Item 4.		Controls and Procedures		51
PART II.		OTHER INFORMATION
Item 1.		Legal Proceedings		52
Item 1A.		Risk Factors		52
Item 2.		Unregistered Sales of Equity Securities and Use of Proceeds		53
Item 3.		Defaults Upon Senior Securities		53
Item 4.		Submission of Matters to a Vote of Security Holders		54
Item 5.		Other Information		54
Item 6.		Exhibits		55
Signatures				57
Certifications				64
EX-21
EX-31.1
EX-31.2
EX-32

TOWERS WATSON & CO.

(Thousands of U.S. Dollars, Except Per Share Data)

(Unaudited)

		Three months ended December 31,								Six months ended December 31,
		2009				2008				2009				2008
Revenue		$	432,614			$	436,389			$	833,959			$	862,515
Costs of providing services:
Salaries and employee benefits			247,058				246,648				483,139				482,527
Professional and subcontracted services			19,184				25,564				35,343				51,879
Occupancy, communications and other			42,645				46,316				82,517				96,313
General and administrative expenses			42,763				43,206				82,533				87,093
Depreciation and amortization			18,251				18,870				36,185				37,734
Transaction and integration expenses			16,904				—				25,292				—
			386,805				380,604				745,009				755,546
Income from operations			45,809				55,785				88,950				106,969
(Loss)/Income from affiliates			(1,167	)			1,070				(220	)			2,765
Interest income			189				322				539				1,353
Interest expense			(604	)			(1,059	)			(1,053	)			(1,628	)
Other non-operating income			1,758				1,699				2,900				1,680
Income before income taxes			45,985				57,817				91,116				111,139
Provision for income taxes			22,113				18,266				37,463				36,428
Net income		$	23,872			$	39,551			$	53,653			$	74,711
Earnings per share:
Net income — Basic		$	0.57			$	0.93			$	1.26			$	1.75
Net income — Diluted		$	0.56			$	0.93			$	1.26			$	1.75
Weighted average shares of common stock, basic (000)			42,244				42,571				42,458				42,753
Weighted average shares of common stock, diluted (000)			42,580				42,616				42,734				42,804

See accompanying notes to the
condensed consolidated financial statements

TOWERS WATSON & CO.

(Thousands of U.S. Dollars, Except Share Data)

(Unaudited)

		December 31,				June 30,
		2009				2009
Assets
Cash and cash equivalents		$	143,948			$	209,832
Receivables from clients:
Billed, net of allowances of $4,036 and $4,452			205,135				190,991
Unbilled, at estimated net realizable value			112,637				111,419
			317,772				302,410
Other current assets			56,016				53,358
Total current assets			517,736				565,600
Investment in affiliates			23,027				23,361
Fixed assets, net			163,865				174,857
Deferred income taxes			115,012				111,912
Goodwill			541,179				542,754
Intangible assets, net			177,798				186,233
Other assets			25,700				21,602
Total Assets		$	1,564,317			$	1,626,319
Liabilities
Accounts payable and accrued liabilities		$	123,991			$	123,073
Accrued salary and discretionary compensation			116,980				162,351
Other current liabilities			42,312				51,716
Total current liabilities			283,283				337,140
Revolving credit facility			—				—
Accrued retirement benefits			278,968				292,555
Deferred rent and accrued lease losses			26,521				28,434
Other noncurrent liabilities			97,444				113,554
Total Liabilities			686,216				771,683
Commitments and contingencies
Stockholders’ Equity
Class A Common Stock — $.01 par value:
99,000,000 shares authorized; 42,201,872 and 43,813,451 issued and 42,201,872 and 42,657,431 outstanding			422				438
Additional paid-in capital			370,352				452,938
Treasury stock, at cost - 0 and 1,156,020 shares			—				(63,299	)
Retained earnings			655,923				608,634
Accumulated other comprehensive loss			(149,649	)			(145,073	)
Total Stockholders’ Equity			877,048				853,638
Non-controlling interest			1,053				998
Total Equity			878,101				854,636
Total Liabilities and Total Equity		$	1,564,317			$	1,626,319

See accompanying notes to the
condensed consolidated financial statements

TOWERS WATSON & CO.

(Thousands of U.S. Dollars)
(Unaudited)

		Six months ended December 31,
		2009				2008
Cash flows (used in)/from operating activities:
Net income		$	53,653			$	74,711
Adjustments to reconcile net income to net cash from operating activities:
Provision for doubtful receivables from clients			1,462				3,481
Depreciation			29,367				30,329
Amortization of intangible assets			6,818				7,405
Provision for (benefit from) deferred income taxes			13,601				56
Loss/(Income) from affiliates			220				(2,765	)
Distribution from affiliates			408				118
Other, net			672				2,485
Changes in operating assets and liabilities (net of business acquisitions)
Receivables from clients			(16,824	)			16,247
Other current assets			(7,377	)			(11,322	)
Other assets			(4,098	)			4,831
Accounts payable and accrued liabilities			(48,142	)			(92,291	)
Income taxes payable and deferred			2,427				214
Accrued retirement benefits			(13,587	)			(7,500	)
Deferred rent and accrued lease losses			(1,913	)			59
Other noncurrent liabilities			(24,492	)			(22,238	)
Cash flows (used in)/from operating activities:			(7,805	)			3,820
Cash flows used in investing activities:
Business acquisitions and contingent consideration payments			—				(518	)
Purchases of fixed assets			(9,974	)			(19,045	)
Capitalized software costs			(10,304	)			(10,322	)
Investment in affiliates			—				(2,041	)
Contingent proceeds from divestitures			2,900				1,680
Cash flows used in investing activities:			(17,378	)			(30,246	)
Cash flows used in financing activities:
Borrowings under Credit Facility			—				60,641
Dividends paid			(6,364	)			(6,389	)
Repurchases of common stock			(34,922	)			(77,442	)
Issuances of common stock and excess tax benefit			3,238				3,439
Cash flows used in financing activities:			(38,048	)			(19,751	)
Effect of exchange rates on cash			(2,653	)			(4,577	)
Decrease in cash and cash equivalents			(65,884	)			(50,754	)
Cash and cash equivalents at beginning of period			209,832				124,632
Cash and cash equivalents at end of period		$	143,948			$	73,878
Supplemental disclosures:
Cash paid for interest		$	1,057			$	1,650
Cash paid for income taxes, net of refunds		$	35,800			$	31,411

See accompanying notes to the
condensed consolidated financial statements

TOWERS WATSON & CO.

Condensed Consolidated Statement of Changes in Stockholders’ Equity
(Thousands of U.S. Dollars, Except Share Data)
(Unaudited)

		Class A
		Common
		Stock																				Accumulated
		Outstanding				Class A				Additional				Treasury								Other
		(number of shares,				Common				Paid-in				Stock,				Retained				Comprehensive
		in thousands)				Stock				Capital				at Cost				Earnings				Loss				Total
Balance at June 30, 2009			42,657			$	438			$	452,938			$	(63,299	)		$	608,634			$	(145,073	)		$	853,638
Comprehensive Income:
Net income			—				—				—				—				53,653				—				53,653
Foreign currency translation adjustment, net of tax			—				—				—				—				—				(4,576	)			(4,576	)
Total comprehensive income																											49,077
Cash dividends declared			—				—				—				—				(6,364	)			—				(6,364	)
Repurchases of common stock			(792	)			—				—				(34,922	)			—				—				(34,922	)
Issuances of common stock and excess tax benefit			337				—				(2,021	)			17,640				—				—				15,619
Retirement of treasury stock			—				(16	)			(80,565	)			80,581				—				—				—
Balance at December 31, 2009			42,202			$	422			$	370,352			$	—			$	655,923			$	(149,649	)		$	877,048

See accompanying notes to the
condensed consolidated financial statements

TOWERS WATSON & CO.

Notes to the Condensed Consolidated Financial Statements
(Tabular amounts are in thousands, except per share data)
(Unaudited)

Note 1 — Organization and Basis of Presentation.

On January 1, 2010, pursuant to the Agreement and Plan of Merger, as amended by Amendment No. 1 (the “Merger Agreement”), Watson Wyatt Worldwide, Inc. (“Watson Wyatt”) and Towers, Perrin, Forster & Crosby, Inc. (“Towers Perrin”) combined their businesses through two simultaneous mergers (the “Merger”) and became wholly-owned subsidiaries of Jupiter Saturn Holding Company, which changed its name to Towers Watson & Co. (“Towers Watson”).

As of and for the three and six months ended December 31, 2009, Towers Watson had not conducted any activities other than those incident to its formation and the matters contemplated by the Merger Agreement. The business of Towers Watson after the Merger was consummated on January 1, 2010, is the combined businesses previously conducted by Towers Perrin and Watson Wyatt. Therefore, the Jupiter Saturn Holding Company Condensed Consolidated Balance Sheets, Condensed Consolidated Statements of Operations, the Condensed Consolidated Statements of Cash Flows, and the Condensed Consolidated Statement of Changes in Stockholders’ Equity, each for the three and six month periods ended December 31, 2009, are not presented separately, as they do not contain any material information. Although the business combination of Watson Wyatt and Towers Perrin was a “merger of equals”, generally accepted accounting principles require that one of the combining entities be identified as the acquirer by reviewing facts and circumstances as of the acquisition date. Watson Wyatt was determined to be the accounting acquirer. This conclusion is primarily supported by the facts that Watson Wyatt shareholders own approximately 56 percent of all Towers Watson common stock after the redemption of Towers Watson Class R common stock and that Watson Wyatt’s Chief Executive Officer became the Chief Executive Officer of Towers Watson. Watson Wyatt is the accounting predecessor in the Merger and as such, the historical results of Watson Wyatt have become those of the new registrant, Towers Watson, and are presented in this filing. Because the Merger was not yet consummated as of December 31, 2009, the results of Towers Perrin are not included in the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2009 or 2008 or Condensed Consolidated Balance Sheets as of December 31, 2009 and June 30, 2009. Towers Watson’s condensed consolidated financial statements as of and for the three and nine months ended March 31, 2010 will include the results of Towers Perrin’s operations beginning January 1, 2010.

The accompanying unaudited quarterly condensed consolidated financial statements of Towers Watson & Co. (Watson Wyatt is Towers Watson’s accounting predecessor) and our subsidiaries (collectively referred to as “we,” “Towers Watson” or the “Company”) are presented in accordance with the rules and regulations of the Securities Exchange Commission (“SEC”) for quarterly reports on Form 10-Q and therefore do not include all of the information and footnotes required by U.S. generally accepted accounting principles. In the opinion of management, these condensed consolidated financial statements reflect all adjustments, consisting only of normal recurring adjustments, which are necessary for a fair presentation of the condensed consolidated financial statements and results for the interim periods. All intercompany accounts and transactions have been eliminated in consolidation. The condensed consolidated financial statements should be read together with the Watson Wyatt audited consolidated financial statements and notes thereto contained in its Annual Report on Form 10-K for the fiscal year ended June 30, 2009, which is filed under the historical registrant Watson Wyatt with the SEC and may be accessed via EDGAR on the SEC’s web site at www.sec.gov. The year-end balance sheet data was derived from audited financial statements.

Our fiscal year 2010 began July 1, 2009 and ends June 30, 2010.

The results of operations for the six months ended December 31, 2009 are not indicative of the results that can be expected for the entire fiscal year ending June 30, 2010, especially in light of the Merger. The results reflect certain estimates and assumptions made by management including estimated bonuses and anticipated tax liabilities that affect the amounts reported in the condensed consolidated financial statements and related notes.

Note 2 —Merger Consideration.

The issuance of Towers Watson Common Stock and Towers Watson Notes in the Merger was registered under the Securities Act of 1933, as amended, pursuant to the Towers Watson’s Registration Statement on Form S-4/A (Registration No. 333-161705) filed with the SEC, and declared effective on November 9, 2009. The Towers Watson Class A common stock, par value $0.01 per share (the “Class A Common Stock”) is listed on The New York Stock Exchange, LLC and The NASDAQ Stock Market, LLC under the ticker symbol “TW”, and began trading on January 4, 2010.

The consummation of the Merger resulted in the following:

Each share of Watson Wyatt Class A common stock, par value $0.01 per share (the “Watson Wyatt Common Stock”) issued and outstanding immediately prior to the Merger was converted into the right to receive one (1) share of Towers Watson Class A Common Stock. In addition, outstanding deferred rights to receive Watson Wyatt Common Stock were converted into the right to receive an equal number of shares of Towers Watson Class A Common Stock, and outstanding options to purchase Watson Wyatt Common Stock were assumed by Towers Watson and converted on a one-for-one basis into fully-vested options to purchase shares of Towers Watson Class A Common Stock with the same exercise price as the underlying Watson Wyatt options.

Each share of Towers Perrin common stock, par value $0.50 per share issued and outstanding immediately prior to the Merger was converted into the right to receive 545.627600377 (the “Exchange Ratio”) fully-paid and nonassessable shares of Towers Watson common stock, which ratio was determined at the time of the Merger in accordance with the Merger Agreement (the “Merger Consideration”). Shares of Towers Watson common stock issued to Towers Perrin shareholders (other than shares issued to Towers Perrin shareholders located in certain countries (as detailed below) and other than shares issued to Towers Perrin shareholders who have elected to receive a portion of their Merger Consideration as shares of Towers Watson’s Class R common stock, par value $0.01 per share (“Towers Watson Class R Common Stock”), which is described below) have been divided among four series of non-transferable Towers Watson common stock, Classes B-1, B-2, B-3 and B-4, each with a par value of $0.01 per share (the “Towers Watson Class B Common Stock”). Outstanding shares of Towers Watson Class B Common Stock will automatically convert on a one-for-one basis into shares of freely transferable shares of Towers Watson Class A Common Stock on the following timetable:

     Class B-1 Common Stock January 1, 2011

     Class B-2 Common Stock January 1, 2012

     Class B-3 Common Stock January 1, 2013

     Class B-4 Common Stock January 1, 2014

In accordance with the Merger Agreement, to provide immediate liquidity to certain Towers Perrin shareholders located in countries where the Merger Consideration may be subject to current tax, such Towers Perrin shareholders received a portion of their Merger Consideration in the form of unrestricted shares of Towers Watson Class A Common Stock instead of shares of Towers Watson Class B Common Stock.

Certain Towers Perrin shareholders who met defined age and service criteria elected to terminate their employment no later than January 31, 2010 (except as extended by the Towers Watson’s executive committee) and receive a portion of their Merger Consideration in shares of Towers Watson Class R Common Stock, which subsequently were automatically redeemed for equal amounts of cash and subordinated one-year promissory notes (“Towers Watson Notes”) (such election, a “Class R Election”). The amount of cash and principal amount of Towers Watson Notes issued in exchange for each share of Towers Watson Class R Common Stock was determined based on the Exchange Ratio and the average closing price per share of Watson Wyatt Common Stock for the 10 trading days ending on December 28, 2009, the second trading day immediately prior to the closing of the Merger, which was $46.79. Class R Elections were prorated so that the amount of cash and notes payable on the automatic conversion of the shares of Towers Watson Class R Common Stock would not exceed $400 million, which amount was agreed to by Towers Perrin and Watson Wyatt prior to the closing of the Merger. Towers Perrin shareholders who made valid Class R Elections received shares of Towers Watson Class B-1 Common Stock in exchange for their shares of Towers Perrin Common Stock that were not exchanged for shares of Towers Watson Class R Common Stock due to proration or because the Towers Perrin shareholder elected to receive less than 100 percent of his or her Merger Consideration in the form of Towers Watson Class R Common Stock. As noted above, shares of Towers Watson Class B-1 Common Stock will automatically convert into freely tradable shares of Towers Watson Class A Common Stock on January 1, 2011.

• Prior to the Merger, Towers Perrin issued awards of restricted stock units to certain Towers Perrin employees, which were exchanged in the Merger for shares of Towers Watson Class A Common Stock, generally subject to a three-year contractual vesting schedule and other restrictions.

In summary, as a result of closing of the Merger, all outstanding Towers Perrin and Watson Wyatt common stock, restricted stock units and derivative securities have been converted into the right to receive the following forms of consideration:

• 46,911,275 shares of Towers Watson Class A Common Stock (less a number of shares that have been withheld for tax purposes in respect of Watson Wyatt deferred stock units and deferred shares), including 4,248,984 shares of Restricted Towers Watson Class A Common Stock;

• 29,483,008 shares of Towers Watson Class B Common Stock, including:

• 12,798,118 shares of Class B-1 Common Stock;

• 5,561,630 shares of Class B-2 Common Stock;

• 5,561,630 shares of Class B-3 Common Stock; and

• 5,561,630 shares of Class B-4 Common Stock;

• 8,548,835 shares of Towers Watson Class R Common Stock, which subsequently were redeemed automatically in exchange for the right to receive:

• $200 million in cash (subject to applicable tax withholding and gross-up adjustments); and

• Towers Watson Notes in an aggregate principal amount of $200 million.

In addition, on January 1, 2010, Towers Watson issued shares of Class F stock, no par value, pro rata to all holders of Towers Perrin Common Stock, which shares represent only the contingent right to receive a pro rata portion of a number of shares of Towers Watson Class A Common Stock equal to the number of shares of restricted Towers Watson Class A Common Stock forfeited by former Towers Perrin employees plus a number of shares of Towers Watson Class A Common Stock with a value equivalent to the amount of dividends attributed to such forfeited shares.

For a more complete description of the Merger Agreement and amendment to the Merger Agreement, please see the registration statement on Form S-4/A filed with the SEC (Registration No. 333-161705) and declared effective on November 9, 2009.

As of December 31, 2009, both Towers Perrin and Watson Wyatt each owned a 36.4 percent equity investment in Professional Consultants Insurance Company (“PCIC”). PCIC is a captive insurance company that provides professional liability insurance on a claims-made basis. Watson Wyatt applies the equity method of accounting for its investment in PCIC. However, beginning on January 1, 2010, as a result of the Merger, Towers Watson has a majority ownership of PCIC which changed the allocation of economic risks and rewards of PCIC among the variable interest holders. Towers Watson will consolidate the results of PCIC into its consolidated financial statements.

Watson Wyatt’s financial statements as of and for the three and six months ended December 31, 2009, included herein, reflect Watson Wyatt’s equity method of accounting for PCIC.

Assets acquired and liabilities assumed under the Merger will be recorded at their respective fair values as of the business combination date, January 1, 2010. The determination of estimated fair value requires management to make significant estimates and assumptions. As of the date of the filing of this quarterly report, the initial accounting for this business combination is not yet complete.

Note 3 — Segment Information.

Watson Wyatt has five reportable operating segments or practice areas as follows:

	•		Benefits Group
	•		Human Capital Group
	•		Technology and Administration Solutions Group
	•		Investment Consulting Group
	•		Insurance and Financial Services Group

Management evaluates the performance of its segments and allocates resources to them based on net operating income on a pre-bonus, pre-tax basis. The table below presents information about Watson Wyatt’s reported segments as of and for the three months ended December 31, 2009:

										Technology and				Investment				Insurance &
		Benefits				Human Capital				Administration				Consulting				Financial Services
		Group				Group				Solutions				Group				Group				Other				Total
Revenue (net of reimbursable expenses)		$	237,910			$	43,321			$	59,193			$	46,549			$	24,397			$	8,298			$	419,668
Net operating income			68,664				8,253				19,661				15,392				132				(1,466	)			110,636
Receivables			214,985				35,755				23,677				25,324				19,786				5,942				325,469

The table below presents information about Watson Wyatt’s reported segments as of and for the three months ended December 31, 2008:

										Technology and				Investment				Insurance &
		Benefits				Human Capital				Administration				Consulting				Financial Services
		Group				Group				Solutions				Group				Group				Other				Total
Revenue (net of reimbursable expenses)		$	239,984			$	51,454			$	50,992			$	37,492			$	34,486			$	10,828			$	425,236
Net operating income			71,606				10,110				14,419				8,411				10,065				1,323				115,934
Receivables			233,279				44,426				22,180				24,301				32,758				6,734				363,678

The table below presents information about Watson Wyatt’s reported segments as of and for the six months ended December 31, 2009:

										Technology and				Investment				Insurance &
		Benefits				Human Capital				Administration				Consulting				Financial Services
		Group				Group				Solutions				Group				Group				Other				Total
Revenue (net of reimbursable expenses)		$	461,580			$	81,001			$	114,650			$	91,278			$	48,579			$	18,914			$	816,002
Net operating income			132,082				10,937				36,744				30,514				424				1,163				211,864
Receivables			214,985				35,755				23,677				25,324				19,786				5,942				325,469

The table below presents information about Watson Wyatt’s reported segments as of and for the six months ended December 31, 2008:

										Technology and				Investment				Insurance &
		Benefits				Human Capital				Administration				Consulting				Financial Services
		Group				Group				Solutions				Group				Group				Other				Total
Revenue (net of reimbursable expenses)		$	477,797			$	101,056			$	98,902			$	79,599			$	62,293			$	22,474			$	842,121
Net operating income			134,796				16,952				27,279				20,930				10,899				4,653				215,509
Receivables			233,279				44,426				22,180				24,301				32,758				6,734				363,678

Information about interest income and tax expense is not presented as a segment expense because such items are not considered a responsibility of the segments’ operating management.

Reconciliations of the information reported by Watson Wyatt’s segments to the historical consolidated amounts follow for the three and six month periods ended December 31, 2009 and 2008:

		Three Months Ended December 31,								Six Months Ended December 31,
		2009				2008				2009				2008
Revenue:
Total segment revenue		$	419,668			$	425,236			$	816,002			$	842,121
Reimbursable expenses and other not included in total segment revenue			12,946				11,153				17,957				20,394
Revenue		$	432,614			$	436,389			$	833,959			$	862,515
Net Operating Income:
Total segment net operating income		$	110,636			$	115,934			$	211,864			$	215,509
Income from affiliates			(1,167	)			1,070				(220	)			2,765
Differences in allocation methods(1)			1,637				(3,486	)			1,265				(6,446	)
Transaction and integration expenses			(16,904	)			—				(25,292	)			—
Discretionary compensation			(46,865	)			(56,415	)			(94,828	)			(98,673	)
Other, net			(1,352	)			714				(1,673	)			(2,016	)
Income before income taxes		$	45,985			$	57,817			$	91,116			$	111,139
Receivables:
Total segment receivables — billed and unbilled(2)		$	325,469			$	363,678			$	325,469			$	363,678
Net valuation differences			(7,697	)			(17,650	)			(7,697	)			(17,650	)
Total billed and unbilled receivables			317,772				346,028				317,772				346,028
Assets not reported by segment			1,246,545				1,112,186				1,246,545				1,112,186
Total assets		$	1,564,317			$	1,458,214			$	1,564,317			$	1,458,214

Note 4 — Share-based Compensation.

Watson Wyatt has four share-based compensation plans, which are described below. These compensation plans include the 2001 Employee Stock Purchase Plan, the 2001 Deferred Stock Unit Plan for Selected Employees, the Amended Compensation Plan for Outside Directors, and the 2000 Long-Term Incentive Plan. All four plans have been approved by Watson Wyatt’s stockholders.

Effective upon consummation of the Merger, on January 1, 2010, Towers Watson assumed the 2001 Employee Stock Purchase Plan and the 2000 Long-Term Incentive Plan. The assumed options are exercisable for shares of Towers Watson Class A Common Stock based on the exchange ratio of one share of Watson Wyatt Class A common stock underlying the options for one share of Towers Watson Class A Common Stock. All outstanding Watson Wyatt stock options became fully vested at the time of the Merger with the exercise price as of the original grant date. Towers Watson did not assume the 2001 Deferred Stock Unit Plan for Selected Employees or the Amended Compensation Plan for Outside Directors.

2001 Employee Stock Purchase Plan

The 2001 Employee Stock Purchase Plan (the “Stock Purchase Plan”) enables employees to purchase shares of Watson Wyatt’s stock at a 5 percent discount. The Stock Purchase Plan is a non-compensatory plan under generally accepted accounting principles of stock-based compensation. As a result, no compensation expense is recognized in conjunction with this plan.

2001 Deferred Stock Unit Plan for Selected Employees

Deferred Stock Units — The 2001 Deferred Stock Unit Plan for Selected Employees is intended to provide selected associates with additional incentives by permitting Watson Wyatt to grant them an equity interest in the form of restricted stock units, in lieu of a portion of their annual fiscal year end bonus. Shares under this plan are awarded during the first quarter of each fiscal year. During the first quarter of fiscal year 2010, 219,751 shares of common stock were awarded at an average market price of $44.08 for a total fair value of $9.7 million. During the first quarter of fiscal year 2009, 295,775 shares of common stock were awarded at an average market price of $54.24 for a total fair value of $16.0 million.

SBI Program — The Performance Share Bonus Incentive Program (the “SBI Program”), as approved by Watson Wyatt’s Board of Directors pursuant to its 2001 Deferred Stock Unit Plan for Selected Employees, is a long-term stock bonus arrangement for senior executives. The SBI program is designed to strengthen incentives and align behaviors to grow the business in a way that is consistent with its strategic goals.

Incentives under the SBI Program are provided through grants of deferred stock units pursuant to the 2001 Deferred Stock Unit Plan for Selected Employees. Grants of deferred stock units are based on either salary or on the value of the cash portion of the eligible participant’s fiscal year-end bonus target and a multiplier, which is then converted into a target number of deferred stock units based upon Watson Wyatt’s stock price as of the quarter end prior to grant. Participants may vest between zero and 170 percent of the target number of deferred stock units or between zero and 100 percent based on the extent to which financial and strategic performance metrics are achieved over a three fiscal year period. The financial and strategic performance metrics are established at the beginning of each performance period. For the performance periods covering fiscal years 2007 through 2009, 2008 through 2010, and 2009 through 2011, the vesting criteria are based upon growth specific metrics such as earnings per share, net operating income and revenue.

During the first quarter of fiscal year 2010, 94,906 shares vested, of which 66,065 were deferred and 28,841 were awarded at a market price of $44.07 to certain senior executive officers under the SBI 2007 plan, which represented vesting at 135 percent of the target number of deferred stock units. During the first quarter of fiscal year 2009, 164,457 shares vested, of which, 120,396 were deferred and 44,061 were awarded at a market price of $56.83 to certain senior executive officers under the SBI 2006 plan, which represented vesting at 170 percent of the target number of deferred stock units.

Watson Wyatt’s management periodically reviews the conditions that would affect the vesting of performance-based awards and adjusts compensation expense, if necessary, based on achievement of financial performance metrics set by the Compensation Committee of Watson Wyatt. The SBI 2008 and 2009 plan documents state that the Compensation Committee has the discretion to accelerate the vesting of awards under the SBI Program in connection with a change in control. Based on available plan performance information, the Compensation Committee concluded that (i) no payout would be made under the SBI 2008 plan upon the date of the Merger, and (ii) it would settle the SBI 2009 plan at 100 percent of target to take into account that the performance period would only be halfway completed as of the closing date of the Merger. In addition, during the second quarter of fiscal 2010, Watson Wyatt’s management evaluated the performance metrics of the SBI 2008 for Select Associates, and based on an update to the forecast for the remaining performance period, the accrual of compensation expense recorded was $3.0 million in the three and six months ended December 31, 2009.

Approximately $3.3 million of compensation expense was recorded relative to the SBI plans during the second quarter of fiscal year 2010 compared to $0.6 million in the second quarter of fiscal year 2009.

Amended Compensation Plan for Outside Directors

In November 2001, the Board of Directors of Watson Wyatt approved the Amended Compensation Plan for Outside Directors (the “Outside Director’s Plan”) which provided for the cash and stock compensation of outside Directors. Under the Outside Director’s Plan, outside Watson Wyatt Directors were initially paid in shares of Watson Wyatt’s common stock, or in a combination of cash and shares, quarterly, at the completed quarter-end share price (which approximates fair value), for services provided during the preceding quarter. The total number of shares reserved for issuance under the Outside Director’s Plan was 150,000.

Approximately $0.6 million of compensation expense was recorded relative to this plan during the first six months of fiscal year 2010 compared to $0.5 million in the first six months of fiscal year 2009.

2000 Long-Term Incentive Plan

In June 2000, Watson Wyatt adopted the Watson Wyatt & Company Holdings 2000 Long-Term Incentive Plan (the “Stock Option Plan”), which provides for the granting of non-qualified stock options and stock appreciation rights to full-time associates and the Board of Directors of Watson Wyatt. Options under the Stock Option Plan were granted in conjunction with its initial public offering in fiscal year 2001 and periodically until March 2002.

In light of the pending Merger with Towers Perrin, the Compensation Committee determined that it could not establish performance metrics for senior executives under the SBI Program for fiscal 2010. As a result, the Board of Directors granted nonqualified stock options as incentive compensation. The option awards have a seven-year term and will vest ratably over each of the three years following the date of grant. The options became fully vested and exercisable according to the Stock Option Plan change of control provisions triggered by the Merger on January 1, 2010. Any unamortized grant date fair value of the options will be expensed in the third quarter of fiscal 2010.

During the three and six months ending December 31, 2009, 0 and 125,648 stock options, respectively, were granted with an exercise price equal to the grant date market price of Watson Wyatt’s common stock of $42.47. Watson Wyatt did not grant stock options during the three and six months ended December 31, 2008. There were 0 and 520 exercises of stock options during the three and six months ended December 31, 2008, respectively. During the three and six months ended December 31, 2008, 1,536 and 3,651 stock options expired, respectively.

The weighted-average fair value of the stock option grants was calculated using the Black-Scholes formula and are included in the valuation assumptions table below. In addition, a post-vesting discount was calculated using 1.4 percent, the risk-free interest rate of a three-year bond, compounded over three-years. The post-vesting discount was used to estimate fair value as there is a transfer restriction for three years of the stock option’s underlying shares once vested. Compensation expense is recorded over a three-year graded vesting term as if one third of the options granted to a participant are granted over one year, one third over two years and the remaining one third over three years. There were no exercises or cancellations of stock options during the three and six months ended December 31, 2009.

		Three Months Ended								Six Months Ended
		December 31,								December 31,
		2009				2008				2009				2008
Stock option grants:
Risk-free interest rate			—				—				1.4	%			—
Expected lives in years			—				—				3				—
Expected volatility			—				—				37.0	%			—
Dividend yield			—				—				0.7	%			—
Weighted-average grant date fair value of options granted			—				—			$	10.21				—
Number of shares granted			—				—				125,648				—

Note 5 — Retirement Benefits.

Defined Benefit Plans

Watson Wyatt sponsors both qualified and non-qualified, non-contributory defined benefit pension plans in North America and the U.K. that account for approximately 85 percent of the pension liability. Under the plans in North America, benefits are based on the number of years of service and the associate’s compensation during the five highest paid consecutive years of service. Beginning January 2008, Watson Wyatt made changes to the plan in the U.K. related to years of service used in calculating benefits for associates. Benefits earned prior to January 2008 are based on the number of years of service and the associate’s compensation during the three years before leaving the plan and benefits earned after January 2008 are based on the number of years of service and the associate’s average compensation during the associate’s term of service since that date. The non-qualified plan in North America provides for pension benefits that would be covered under the qualified plan but are limited by the Internal Revenue Code. The non-qualified plan has no assets and therefore is an unfunded arrangement, the liability for which is reflected in the balance sheet. Watson Wyatt does not have a non-qualified plan in the U.K. The measurement date for all plans is June 30.

Components of Net Periodic Benefit Cost for Defined Benefit Pension Plans

The following table sets forth the components of net periodic benefit cost for Watson Wyatt’s defined benefit pension plan for North America and the U.K. for the three and six month periods ended December 31, 2009 and 2008:

		Three Months Ended December 31,
		2009								2008
		North								North
		America				U.K.				America				U.K.
Service Cost		$	5,884			$	1,511			$	6,409			$	1,851
Interest Cost			12,481				5,263				12,305				6,200
Expected Return on Plan Assets			(11,549	)			(4,912	)			(12,822	)			(6,314	)
Amortization of Net Loss/(Gain)			3,759				703				2,222				(100	)
Amortization of Prior Service (Credit)/Cost			(406	)			11				(565	)			13
Net Periodic Benefit Cost		$	10,169			$	2,576			$	7,549			$	1,650

		Six Months Ended December 31,
		2009								2008
		North								North
		America				U.K.				America				U.K.
Service Cost		$	11,881			$	3,022			$	13,569			$	3,702
Interest Cost			24,791				10,527				24,371				12,400
Expected Return on Plan Assets			(23,116	)			(9,823	)			(25,648	)			(12,628	)
Amortization of Net Loss/(Gain)			7,307				1406				4,089				(200	)
Amortization of Prior Service (Credit)/Cost			(812	)			21				(1,129	)			26
Net Periodic Benefit Cost		$	20,051			$	5,153			$	15,252			$	3,300

The fiscal year 2010 net periodic benefit cost is based, in part, on the following rate assumptions as of June 30, 2009 for the North America and U.K. plans:

		North America				U.K.
Discount rate			7.21	%			6.30	%
Expected long-term rate of return on assets			8.61	%			6.61	%
Rate of increase in compensation levels			3.29	%			5.45	%

Employer Contributions

Watson Wyatt made $31.1 million in contributions to North American plans during the first six months of fiscal year 2010. We anticipate that $1.1 million will be contributed by the Company to the North American pension plans over the remainder of the fiscal year.

Watson Wyatt made $9.9 million in contributions to the U.K. plans during the first six months of fiscal year 2010 and the Company anticipates making $6.6 million in contributions over the remainder of the fiscal year.

Defined Contribution Plans

In the U.S., Watson Wyatt sponsors a savings plan that provides benefits to substantially all U.S. associates. Watson Wyatt matches employee contributions at a rate of 50 percent of the first 6 percent up to $60,000 of associates’ eligible compensation. The Company will also make an annual profit sharing contribution to the plan in an amount that is dependent upon financial performance during the fiscal year.

The U.K. pension plan has a money purchase section to which the Company makes core contributions plus additional contributions matching those of the participating employees up to a maximum rate. Contribution rates are dependent upon the age of the participant and on whether or not they arise from salary sacrifice arrangements through which an individual has taken a reduction in salary and Watson Wyatt has paid an equivalent amount as pension contributions. Core contributions amount to 2-6 percent of pensionable salary with additional matching contributions of a further 2-6 percent.

Health Care Benefits

In the U.S., Watson Wyatt sponsors a contributory health care plan that provides hospitalization, medical and dental benefits to substantially all U.S. associates. Watson Wyatt accrues a liability for estimated incurred but unreported claims based on projected use of the plan as well as prior plan history.

Postretirement Benefits

Watson Wyatt provides certain health care and life insurance benefits for retired associates. The principal plans cover Watson Wyatt associates in the U.S. and Canada who have met certain eligibility requirements. Watson Wyatt’s principal post-retirement benefit plans are unfunded and a liability is accrued for these benefits.

Components of Net Periodic Benefit Cost for Other Postretirement Plans

The following table sets forth the components of net periodic benefit cost for Watson Wyatt’s healthcare and post-retirement plans for the three and six months ended December 31, 2009 and 2008:

		Three Months Ended December 31,								Six Months Ended December 31,
		2009				2008				2009				2008
Service cost		$	295			$	324			$	594			$	653
Interest cost			654				687				1,309				1,411
Expected return on plan assets			—				—				—				—
Amortization of net gain			(275	)			(231	)			(550	)			(433	)
Amortization of prior service cost			(143	)			(166	)			(285	)			(332	)
Net periodic benefit cost		$	531			$	614			$	1,068			$	1,299

Employer Contributions

Watson Wyatt made contributions in the form of premiums and medical claim payments to its healthcare and post-retirement plans of $2.2 million and $2.1 million in the six months ended December 31, 2009 and 2008, respectively. The Company plans to make additional payments of approximately $3.1 million through the remainder of the fiscal year.

Note 6 — Goodwill and Intangible Assets.

The components of goodwill for Watson Wyatt are outlined below for the six months ended December 31, 2009:

										Technology								Insurance
										and								and
						Human				Administration				Investment				Financial
		Benefits				Capital				Solutions				Consulting				Services
		Group				Group				Group				Group				Group				Other				Total
Balance as of June 30, 2009		$	343,158			$	30,644			$	51,796			$	52,308			$	63,634			$	1,214			$	542,754
Goodwill acquired			—				—				—				—				—				—				—
Translation adjustment			726				153				(815	)			(578	)			(1,061	)			—				(1,575	)
Balance as of December 31, 2009		$	343,884			$	30,797			$	50,981			$	51,730			$	62,573			$	1,214			$	541,179

The following table reflects changes in the net carrying amount of the components of intangible assets of Watson Wyatt for the six months ended December 31, 2009:

		Trademark &				Customer related				Core/developed				Non-compete
		trade name				intangible				technology				agreements				Total
Balance as of June 30, 2009		$	100,511			$	78,843			$	6,757			$	122			$	186,233
Intangible assets acquired			—				—				—				—				—
Amortization expense			—				(4,493	)			(2,214	)			(111	)			(6,818	)
Translation adjustment			(1,778	)			186				(29	)			4				(1,617	)
Balance as of December 31, 2009		$	98,733			$	74,536			$	4,514			$	15			$	177,798

The following table reflects the carrying value of intangible assets of Watson Wyatt at December 31, 2009 and June 30, 2009:

		December 31, 2009								June 30, 2009
		Gross								Gross
		Carrying				Accumulated				Carrying				Accumulated
		Amount				Amortization				Amount				Amortization
Intangible assets:
Trademark & trade name		$	99,135			$	402			$	100,913			$	402
Customer related intangibles			109,007				34,471				108,821				29,978
Core/developed technology			23,496				18,982				23,525				16,768
Non-compete agreements			1,277				1,262				1,273				1,151
Total intangible assets		$	232,915			$	55,117			$	234,532			$	48,299

A component of the change in the gross carrying amount of intangible assets reflects translation adjustments between June 30, 2009 and December 31, 2009. Goodwill and intangible assets are largely denominated in the British pound and Euro and are translated into our reporting currency, the U.S. dollar, based on exchange rates at the balance sheet date.

Certain trademark and trade name intangibles have indefinite useful lives and are not amortized.

The weighted average remaining life of amortizable intangible assets at December 31, 2009, was 8.1 years. Estimated amortization expense for the remainder of fiscal year 2010 and subsequent fiscal years is as follows:

Fiscal year ending June 30:		Amount
2010		$	6,591
2011			10,213
2012			9,947
2013			8,887
2014			8,887
Thereafter			34,540
Total		$	79,065

Note 7 — Earnings Per Share.

Basic earnings per share are calculated on the basis of the weighted average number of common shares outstanding during the three and six month periods ended December 31, 2009 and 2008. Diluted earnings per share is calculated by dividing net income by the weighted average number of common shares outstanding, plus the dilutive effect of stock-based compensation plans and employee stock purchase plan shares using the “treasury stock” method over the same measurement period. The components of basic and diluted earnings per share are as follows (in thousands, except per-share amounts):

		Three Months Ended December 31,								Six Months Ended December 31,
		2009				2008				2009				2008
Net income		$	23,872			$	39,551			$	53,653			$	74,711
Weighted average outstanding shares of common stock			42,244				42,571				42,458				42,753
Dilutive effect of employee stock plans			336				45				276				51
Common stock and stock equivalents			42,580				42,616				42,734				42,804
Earnings per share:
Net income-Basic		$	0.57			$	0.93			$	1.26			$	1.75
Net income- Diluted		$	0.56			$	0.93			$	1.26			$	1.75

Note 8 — Investments in Affiliates.

PCIC

Watson Wyatt has an equity investment in PCIC. As defined by ASC 810, PCIC is a variable interest entity. Based on the legal, financial and operating structure of PCIC, Watson Wyatt concluded that as of December 31, 2009, it was not the primary beneficiary of PCIC. Accordingly, it did not consolidate the results of PCIC into its consolidated financial statements. Watson Wyatt applies the equity method of accounting for its investment in PCIC. However, beginning on January 1, 2010, as a result of the Merger, Towers Watson has a majority ownership of PCIC which changed the allocation of economic risks and rewards of PCIC among the variable interest holders. Towers Watson will consolidate the results of PCIC into its consolidated financial statements.

PCIC was organized in 1987 as a captive insurance company under the laws of the State of Vermont. PCIC provides professional liability insurance on a claims-made basis to three actuarial and management consulting firms (Watson Wyatt, Towers Perrin and another party), all of which participate in the program as both policyholders and stockholders.

Capital contributions to PCIC are required when approved by a majority of its stockholders. From the time PCIC was organized through December 31, 2009, Watson Wyatt has provided capital contributions to PCIC through cash contributions totaling $7.3 million and through the issuance of letters of credit totaling $10.6 million. Watson Wyatt’s ownership interest in PCIC as of December 31, 2009 and 2008 was 36.43 percent.

Management believes that Watson Wyatt’s maximum financial statement exposure regarding its investment in PCIC as of December 31, 2009 was limited to the carrying value of its investment in PCIC of $13.7 million, combined with letters of credit totaling $10.6 million, for a total maximum exposure of $24.3 million.

The summary operating results for PCIC for the 12 month period ending December 31, 2009 and 2008 are as follows:

		December 31
		2009				2008
Revenue		$	36,158			$	45,930
Operating Expenses			30,409				13,328
Income before taxes			5,749				32,602
Net income		$	3,854			$	21,520

Summarized balance sheet information for PCIC as of its fiscal year end December 31, 2009 and 2008 is as follows:

		December 31,
		2009				2008
Current assets		$	214,512			$	194,620
Noncurrent assets			82,496				66,655
Total assets		$	297,008			$	261,275
Current liabilities		$	20,453			$	27,984
Noncurrent liabilities			239,910				201,458
Stockholders’ equity			36,645				31,833
Total liabilities and stockholders’ equity		$	297,008			$	261,275

Fifth Quadrant

Watson Wyatt acquired a 20 percent investment in Fifth Quadrant Actuaries & Consultants (Pty) Ltd (Fifth Quadrant) in June 2008. Fifth Quadrant is an independent South African firm of actuaries and employee benefits consultants established in 1998. Its core business is to provide independent, high quality advice to institutional clients, which includes retirement funds, medical schemes, charitable trusts and corporate and public sector clients. Watson Wyatt has a $4.3 million investment in Fifth Quadrant as of December 31, 2009.

Dubai

Watson Wyatt established a partnership with the Knowledge and Human Development Authority in Dubai (Dubai) in January 2008. The partnership is aimed at supporting public and private sector organizations across the Gulf in their pursuit for reaching international standards of excellence in human capital strategies and programs. As of December 31, 2009, Watson Wyatt has a $1.1 million investment in Dubai.

IFA

Watson Wyatt acquired a 20 percent investment in Gesellschaft fur Finanz-und Aktuarwissenschaften mbH, or IFA, in the second quarter of fiscal year 2009. IFA is an insurance and financial services company based in Germany. As of December 31, 2009, Watson Wyatt has a $2.6 million investment in IFA.

Watson Wyatt applies the equity method of accounting for all of its investments in affiliates.

As a result of adoption of ASC 810, the non-controlling interests in Jakarta and Indonesia were retrospectively reclassified from other non-current liabilities to non-controlling interest in total equity. Watson Wyatt owns 60 percent of both subsidiaries and the non-controlling interests was $1.1 million as of December 31, 2009 and June 30, 2009.

Note 9 — Comprehensive Income/(Loss).

Comprehensive income/(loss) includes net income and changes in the cumulative translation adjustment gain or loss. For the three months ended December 31, 2009, comprehensive income totaled $23.9 million compared with comprehensive loss of $64.6 million for the three months ended December 31, 2008. For the six months ended December 31, 2009, comprehensive income totaled $49.1 million, compared with comprehensive loss of $118.8 million for the six months ended December 31, 2008. The fluctuation is primarily attributable to fluctuations in exchange rates.

Note 10 — Commitments and Contingent Liabilities.

Watson Wyatt historically has provided guarantees on an infrequent basis to third parties in the ordinary course of business. The commitment and contingencies described below are currently in effect and could require it to make payments to third parties under certain circumstances.

Indenture: On December 30, 2009, in connection with the Merger and the Class R Elections as described in Note 2, Towers Watson entered into an Indenture (the “Indenture”) with Wilmington Trust FSB, as Trustee (the “Trustee”), for the issuance of Towers Watson Notes in the aggregate principal amount of $200 million. The Towers Watson Notes were issued on January 6, 2010, bearing interest from January 4, 2010 at a fixed per-annum rate of 2.0 percent, and will mature on January 1, 2011. The Indenture contains limited operating covenants, and obligations under the Towers Watson Notes are subordinated to the obligations of Towers Watson under the Senior Credit Facility (as defined below) on the terms set forth in the Indenture.

Towers Watson Credit Facility: On January 1, 2010, in connection with the Merger, Towers Watson and certain subsidiaries entered into a three-year, $500 million revolving credit facility with a syndicate of banks (the “Senior Credit Facility”). Borrowings under the facility will bear interest at a spread to either LIBOR or the Prime Rate. We are charged a quarterly commitment fee, currently 0.5 percent of the facility, which varies with our financial leverage and is paid on the unused portion of the credit facility. Obligations under the facility are guaranteed by Towers Watson and all of its domestic subsidiaries (other than PCIC) and are secured by a pledge of 65 percent of the voting stock and 100 percent of the non-voting stock of Towers Perrin Luxembourg Holdings S.A.R.L.

The Senior Credit Facility contains customary representations and warranties and affirmative and negative covenants. The Senior Credit Facility requires Towers Watson to maintain certain financial covenants that include a minimum Consolidated Interest Coverage Ratio and a maximum Consolidated Leverage Ratio (which terms in each case are defined in the Senior Credit Facility). In addition, the Senior Credit Facility contains restrictions on the ability of Towers Watson and its subsidiaries to, among other things, incur additional indebtedness; pay dividends; make distributions; create liens on assets; make investments, loans or advances; make acquisitions; dispose of property; engage in sale-leaseback transactions; engage in mergers or consolidations, liquidations and dissolutions; engage in certain transactions with affiliates; and make changes in lines of businesses. As of December 31, 2009 and the date of this filing, February 8, 2010, there was no outstanding balance owed under the Senior Credit Facility.

Watson Wyatt Credit Agreement: Watson Wyatt had a credit facility provided by a syndicate of banks in an aggregate principal amount of $300 million. Interest rates associated with this facility varied with LIBOR and/or the Prime Rate and were based on its leverage ratio, as defined by the credit agreement. Watson Wyatt was charged a quarterly commitment fee, currently 0.125 percent of the facility, which varies with its financial leverage and was paid on the unused portion of the credit facility. There were no borrowings under this facility as of December 31, 2009 and June 30, 2009. Credit under the facility was available upon demand, although the credit facility required Watson Wyatt to observe certain covenants (including requirements relating to its leverage ratio and fixed coverage charge ratio) and was collateralized with a pledge of stock of material subsidiaries. Watson Wyatt was in compliance with all covenants under the credit facility as of December 31, 2009. This facility had been scheduled to mature on June 30, 2010, however, it was terminated on January 1, 2010 upon completion of the Merger and was replaced by the Towers Watson Senior Credit Facility.

Letters of Credit: As of December 31, 2009, both Watson Wyatt and Towers Perrin had letters of credit totaling $10.6 million under their respective existing credit facilities to guarantee payment to a beneficiary in the event that it fails to meet its financial obligations to the beneficiary. These letters of credit will remain outstanding as long as Towers Watson retains an ownership share of the affiliated captive insurance company, PCIC.

Watson Wyatt has also provided a $5.0 million Australian dollar-denominated letter of credit (US $4.5 million) to an Australian governmental agency as required by the local regulations. The estimated fair market value of these letters of credit is immaterial because they have never been used, and the Company believes that future usage is remote.

Indemnification Agreements: Watson Wyatt has various agreements that provide that it may be obligated to indemnify the other party with respect to certain matters. Generally, these indemnification clauses are included in contracts arising in the normal course of business and in connection with the purchase and sale of certain businesses. Although it is not possible to predict the maximum potential amount of future payments under these indemnification agreements due to the conditional nature of Watson Wyatt’s obligations and the unique facts of each particular agreement, Watson Wyatt does not believe that any potential liability that might arise from such indemnity provisions is probable or material. There are no provisions for recourse to third parties, nor are any assets held by any third parties that any guarantor can liquidate to recover amounts paid under such indemnities.

Legal Proceedings: From time to time, Towers Watson and its subsidiaries, including Watson Wyatt and Towers Perrin, are parties to various lawsuits, arbitrations or mediations that arise in the ordinary course of business. The matters reported on below involve the most significant pending or potential claims against Towers Watson and its subsidiaries. We also have received subpoenas and requests for information in connection with government investigations.

Watson Wyatt and Towers Perrin each carried substantial professional liability insurance with a self-insured retention of $1 million per occurrence, which provides coverage for professional liability claims including the cost of defending such claims. These policies remain in force subsequent to the Merger. We reserve for contingent liabilities based on ASC 450, “Contingencies” when it is determined that a liability, inclusive of defense costs, is probable and reasonably estimable. Management believes, based on currently available information including the existence of professional liability insurance, that the results of all pending claims against the Company will not have a material adverse effect on the results of operations, but litigation is subject to many factors which are difficult to predict so there can be no assurance that in the event of a material unfavorable result in one or more of such matters, we will not incur material costs. Our professional liability insurance coverage beyond our self-insured retention amount is written by PCIC, an affiliated captive insurance company, with reinsurance and excess insurance attaching at $26 million provided by various other commercial insurance carriers. Post-Merger, Towers Watson has a 72.86 percent ownership interest in PCIC and as a result, PCIC’s results will be consolidated in Towers Watson’s operating results. Although the PCIC insurance policies will continue to cover claims above a $1 million per occurrence self-retention, the consolidation of PCIC will effectively result in self-insurance for Towers Watson for the first $26 million of loss on each claim. Accordingly, the impacts of PCIC’s reserve development also may result in fluctuations in Towers Watson’s earnings.

Watson Wyatt v. SBC Holdings, Inc. (Stroh Brewery Company): On July 23, 2004, we received a demand letter from Stroh’s counsel alleging that errors in valuations for 2001 and subsequent years understated the liabilities of its pension plan and overstated the company’s net worth. As a result, Stroh claimed it did not annuitize its defined benefit plan and redeemed its stock at an inflated price. On April 15, 2005, Watson Wyatt filed a petition in federal court to compel arbitration of the matter. Subsequently, Stroh filed an answer and counterclaim, alleging damages in excess of $46 million.

In January, 2008, the Sixth Circuit Court of Appeals held that the entire claim is subject to arbitration. An arbitration hearing is scheduled to commence in April 2010.

ExxonMobil Superannuation Plan (Australia)

In March 2007, the Trustees of the ExxonMobil (Australia) Superannuation Plan commenced a legal proceeding in the Supreme Court of Victoria against Towers Perrin; the plan sponsors, Esso (Australia) and ExxonMobil (Australia), commenced a similar legal proceeding against Towers Perrin in April 2007 (collectively the “2007 actions”). On May 15, 2009, as the time was expiring to add any additional contributing parties, Towers Perrin filed third-party claims against Watson Wyatt, the successor actuary and Plan administrator.

The complaints in the 2007 actions allege that while performing administrative and actuarial services for the Superannuation Plan during the period from mid-1990 to 1995, Towers Perrin failed to detect drafting errors made by previous plan advisors including attorneys, when they prepared certain amendments to the Superannuation Plan Deed. These amendments were adopted before Towers Perrin commenced its engagement. Watson Wyatt succeeded Towers Perrin as the Plan administrator and Plan actuary in 1996 and continues to serve in those capacities.

Plaintiffs allege that the faulty drafting resulted in the grant of additional, but unintended and unauthorized benefits, to certain Superannuation Plan participants. Plaintiffs further allege that because Towers Perrin failed to detect the drafting error, benefits were not properly administered and the Plan was not properly funded. Towers Perrin administered and valued the Plan benefits consistent with what the plan sponsors contend was intended. Watson Wyatt continued to administer and value the benefits in the same manner when it succeeded Towers Perrin in 1996.

The most recent estimate of the value of the allegedly unintended benefits is AU$580 million.

The Trustee and plan sponsors have been engaged since 2001 in a separate legal proceeding (the “rectification action”) that seeks an interpretation of the relevant portions of the Plan Deed and, if necessary, modification to conform those portions to reflect the manner in which the benefits were intended to be, and were, administered during both the Towers Perrin and Watson Wyatt engagements.

The rectification action is scheduled for trial in April 2010.

Towers Perrin is a defendant in three lawsuits filed by former shareholders

On December 9, 2009, Watson Wyatt was informed by Towers Perrin of a settlement demand from the plaintiffs in a putative class action lawsuit filed by certain former shareholders of Towers Perrin (the “Dugan Action”). Although the complaint in the Dugan Action does not contain a quantification of the damages sought, plaintiffs’ settlement demand, which was orally communicated on December 8, 2009 and in writing on December 9, 2009, sought a payment of $800 million to settle the action on behalf of the proposed class. Plaintiffs requested that Towers Perrin communicate the settlement demand to Watson Wyatt.

The Dugan Action previously was reported in Amendment No. 3 to the Registration Statement on Form S-4/A (File No. 333-161705) filed on November 9, 2009 by the Jupiter Saturn Holding Company (the “Registration Statement”). As reported in the Registration Statement, the complaint was filed on November 5, 2009 against Towers Perrin, members of its board of directors, and certain members of senior management in the United States District Court for the Eastern District of Pennsylvania.

Plaintiffs in this action — Alan H. Dugan, Ronald P. Giesinger, Marvin H. Greene, John G. Kneen, John T. Lynch, Bruce R. Pittenger, J. Russell Southworth, C. Roland Stichweh, Jacobus J. Van de Graaf and John C. Von Hagen — are former members of the Towers Perrin’s senior management, who left Towers Perrin at various times between 1995 and 2000. The Dugan plaintiffs seek to represent a class of former Towers Perrin shareholders who separated from service on or after January 1, 1971, and who also meet certain other specified criteria.

On December 17, 2009, four former Towers Perrin shareholders — Dale Allen, Candace Block, Deborah Dubois, and Elizabeth Scattergood — each of whom voluntarily left Towers Perrin in May or June 2005 and all of whom are excluded from the proposed class in the Dugan Action — commenced a separate legal proceeding in the United States District Court for the Eastern District of Pennsylvania alleging the same claims in substantially the same form as those alleged in the Dugan Action. These plaintiffs are proceeding in their individual capacities and do not seek to represent a proposed class.

On January 15, 2010, former Towers Perrin shareholder — Alice Pao — who separated from service with Towers Perrin in March 2005 when Towers Perrin and EDS launched a joint venture that led to the creation of a corporate entity known as ExcellerateHRO (“eHRO”), commenced a separate legal proceeding in the United States District Court of the Eastern District of Pennsylvania also alleging the same claims in substantially the same form as those alleged in the Dugan Action. Towers Perrin contributed its Towers Perrin Administrative Solutions (“TPAS”) business to eHRO and formerly was a minority shareholder (15 percent) of eHRO. Pao seeks to represent a class of former Towers Perrin shareholders who separated from service in connection with Towers Perrin’s contribution to eHRO of its TPAS business and who are excluded from the proposed class in the Dugan Action.

Pursuant to the corporation’s Bylaws in effect at the time of their separations, the Towers Perrin shares held by each of these plaintiffs were redeemed by Towers Perrin at book value at the time these individuals separated from employment. The complaint alleges that there was a promise that Towers Perrin would remain privately owned in perpetuity and that by agreeing to sell their shares back to Towers Perrin at book value upon separation, plaintiffs and other members of the putative classes relied upon this promise, which they allege was violated by the consummation of the Merger between the Company and Towers Perrin. The complaint asserts claims for breach of contract, breach of express trust, breach of fiduciary duty, promissory estoppel, quasi-contract/unjust enrichment, and constructive trust, and seeks equitable relief including an accounting, disgorgement, rescission and/or restitution, and the imposition of a constructive trust. On January 20, 2010, the court consolidated the three actions for all purposes.

Towers Watson believes the claims in these lawsuits are without merit and intends to defend against them vigorously. The cost of defending against the claims could be substantial. The outcome of these legal proceedings is inherently uncertain and could be unfavorable to Towers Watson.

Note 11 — Recent Accounting Pronouncements.

Adopted in fiscal year 2009

In June 2009, the Financial Accounting Standards Board (FASB) issued its final Statement of Financial Accounting Standards (SFAS) No. 168 — The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles a replacement of FASB Statement No. 162. SFAS No. 168 made the FASB Accounting Standards Codification (the Codification) the single source of U.S. GAAP used by nongovernmental entities in the preparation of financial statements, except for rules and interpretive releases of the SEC under authority of federal securities laws, which are sources of authoritative accounting guidance for SEC registrants. The Codification is meant to simplify user access to all authoritative accounting guidance by reorganizing U.S. GAAP pronouncements into roughly 90 accounting topics within a consistent structure; its purpose is not to create new accounting and reporting guidance. The Codification supersedes all existing non-SEC accounting and reporting standards and was effective for the Company beginning July 1, 2009. Following SFAS No. 168, the Board will not issue new standards in the form of Statements, FASB Staff Positions, or Emerging Issues Task Force Abstracts; instead, it will issue Accounting Standards Updates.

ASC 805, “Business Combinations” which is a revision of accounting provisions that changes the application of the acquisition method in a number of significant aspects. Acquisition costs will generally be expensed as incurred; noncontrolling interests will be valued at fair value at the acquisition date; restructuring costs associated with a business combination will generally be expensed subsequent to the acquisition date; contingent consideration will be recognized at its fair value on the acquisition date and, for certain arrangements, changes in fair value will be recognized in earnings until settled, and changes in deferred tax asset valuation allowances and income tax uncertainties after the acquisition date generally will affect income tax expense. ASC 350-30-35-1, “Determination of the Useful Life of Intangible Assets” amends the factors that should be considered in developing renewal or extension assumptions used to determine the useful life of recognized intangible assets under ASC 350, “Goodwill and Other Intangible Assets.” ASC 805-20-25-18A, “Accounting for Assets Acquired and Liabilities Assumed in a Business Combination That Arise from Contingencies” which amends and clarifies the accounting for acquired contingencies and is effective upon the adoption of ASC 805, “Business Combinations.” We adopted these provisions on July 1, 2009.

ASC 810, “Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB No. 51” requires the recognition of a noncontrolling interest (minority interest) as equity in the consolidated financial statements and separate from the parent’s equity. The amount of net income attributable to the noncontrolling interest will be included in consolidated net income. It also amends certain consolidation procedures for consistency with the requirements of ASC 805, “Business Combinations.” The provisions also include expanded disclosure requirements regarding the interests of the parent and its noncontrolling interest. We adopted these provisions on July 1, 2009. As a result, Watson Wyatt’s non-controlling interest of $1.0 million as of June 30, 2009, which was previously included in other non-current liabilities, was reclassified to non-controlling interest in total equity.

ASC 815-10-50, “SFAS 161, Disclosures About Derivative Instruments and Hedging Activities — an Amendment of FASB Statement No. 133” gives financial statement users better information about the reporting entity’s hedges by providing for qualitative disclosures about the objectives and strategies for using derivatives, quantitative data about the fair value of and gains and losses on derivative contracts, and details of credit-risk-related contingent features in their hedged positions. The Company was required to adopt the provisions on January 1, 2009. The Company expects that in relation to the merger with Watson Wyatt and Towers Perrin, the application of these provisions will be material to the disclosures of Towers Watson’s future filings which will include the results of Towers Perrin.

ASC 820, “Fair Value Measurements” defines fair value, establishes a framework for measuring fair value in generally accepted accounting principles and expands disclosures about fair value measurements. The Company adopted these provisions for financial assets and liabilities on July 1, 2008 and for nonfinancial assets and liabilities on July 1, 2009, these adoptions did not have a material impact on the Company’s financial position or results of operations

Not yet adopted

ASC 715-10-50, “Employers’ Disclosures about Postretirement Benefit Plan Assets” provides guidance on the objectives an employer should consider when providing detailed disclosures about assets of a defined benefit pension plan or other postretirement plan. These disclosure objectives include investment policies and strategies, categories of plan assets, significant concentrations of risk and the inputs and valuation techniques used to measure the fair value of plan assets. These provisions are effective for our fiscal year ending June 30, 2010. The Company is currently evaluating the effects that these provisions may have on its financial statements.

ASC 810 “Amendments to FASB Interpretation No. 46 (R)” which amends the evaluation criteria to identify the primary beneficiary of a variable interest entity provided by FASB Interpretation 46(R), “Consolidation of Variable Interest Entities-An Interpretation of ARB No. 51.” Additionally, the provisions require ongoing assessment of whether an enterprise is the primary beneficiary of the variable interest entity. We will adopt these provisions on July 1, 2010. The Company is currently evaluating the effects that these provisions may have on its financial statements.

Note 12 — Income Taxes.

At December 31, 2009, Watson Wyatt’s gross liability for income taxes associated with uncertain tax positions was $9.4 million. This liability can be reduced by $1.5 million of offsetting deferred tax benefits associated with foreign tax credits and the federal tax benefit of state income taxes. The net difference of $7.9 million, if recognized, would have a $7.6 million favorable impact on the Company’s effective tax rate and would increase other comprehensive income by $0.3 million. The gross tax liability for uncertain tax positions increased by $0.09 million for the six months ended December 31, 2009.

Interest and penalties related to income tax liabilities are included in income tax expense. At December 31, 2009, Watson Wyatt had accrued interest of $1.5 million and penalties of $0.4 million, totaling $1.9 million.

The Company believes it is reasonably possible that there will be a $0.1 million decrease in the gross tax liability for uncertain tax positions within the next 12 months based upon potential settlements and the expiration of statutes of limitations in various tax jurisdictions.

The Company and its subsidiaries conduct business globally and are subject to income tax in the US and in many states and foreign jurisdictions. Watson Wyatt is currently under examination in several tax jurisdictions. A summary of the tax years that remain subject to examination in Watson Wyatt’s major tax jurisdictions are:

			Open Tax Years
			(fiscal year ending)
United States — Federal			2006 and forward
United States — Various States			2005 and forward
Canada — Federal			2006 and forward
Germany			2003 and forward
United Kingdom			2007 and forward

Note 13 — Subsequent Events.

Towers Watson evaluated events occurring between the end of our most recent fiscal quarter end, December 31, 2009 and February 8, 2010, the date the financial statements were issued.

On January 1, 2010, pursuant to the Merger Agreement, Watson Wyatt and Towers Perrin, combined their businesses through two simultaneous mergers and became wholly-owned subsidiaries of Jupiter Saturn Holding Company, which changed its name to Towers Watson. The details of the Merger is described in Note 1 “Organization and Basis of Presentation”, the Merger Consideration issued in the transaction is described in Note 2 “Merger” and the Towers Watson Credit Agreement which was entered into upon completion of the Merger on January 1, 2010 is described in Note 10 “Commitments and Contingent Liabilities”. In addition, the Company registered shares on Form S-8 for the Towers Watson & Co. Employee Stock Purchase Plan and 2009 Long Term Incentive Plan as described below.

Registration of Securities under the Employee Stock Purchase Plan

On January 4, 2010, the Company filed a Registration Statement on Form S-8 relating to 4,696,424 shares of Towers Watson’s Class A Common Stock that may be issued pursuant to awards under the Towers Watson & Co. Employee Stock Purchase Plan (the “ESPP”). The ESPP is an amendment and restatement of the Watson Wyatt & Company Holdings 2001 Employee Stock Purchase Plan. Watson Wyatt originally registered 750,000 shares of its Class A Common Stock on December 19, 2001 and an additional 1,500,000 shares of its Class A common stock on December 16, 2003 for use under the ESPP, of which 196,424 shares remained available for issuance immediately prior to the Merger. At the time of the Merger, the ESPP, as amended and restated, was assumed by Towers Watson, and 4,500,000 additional shares were added to the ESPP. This Registration Statement covered 4,696,424 shares. The ESPP was approved by Watson Wyatt and Towers Perrin, as Towers Watson’s stockholders, on December 30, 2009. For further information, please see the Registration Statement on Form S-8 filed with the SEC (Registration No. 333-164191) on January 4, 2010.

Registration of Securities under the 2009 Long Term Incentive Plan

On January 4, 2010, the Company filed a Registration Statement on Form S-8 relating to: (a) 12,500,000 shares of Towers Watson’s Class A common stock that may be issued pursuant to awards under the Towers Watson & Co. 2009 Long Term Incentive Plan (the “2009 Plan”), which was adopted by the Company; and (b) 125,648 shares of Class A Common Stock that may be issued upon exercise of outstanding stock options (the “Assumed Options”) previously granted under the Watson Wyatt & Company Holdings 2000 Long-Term Incentive Plan (the “2000 Plan” and, together with the 2009 Plan, the “Plans”) that were assumed by the Company at the time of the Merger.

The Company assumed the 2000 Plan for the limited purpose of assuming the Assumed Options; no further stock options or other awards will be granted under the 2000 Plan subsequent to the Merger. The Assumed Options are exercisable for shares of Class A Common Stock based on an exchange ratio of one share of Towers Watson Class A Common Stock for each share of Watson Wyatt Common Stock underlying the Assumed Options immediately prior to the Merger. Except for the replacement of the Towers Watson Class A Common Stock for the Watson Wyatt Common Stock as the security to be issued upon exercise of an Assumed Option and the substitution of Towers Watson & Co. for Watson Wyatt with respect to administration of the Assumed Options and related matters, the Assumed Options remain subject to the same terms and conditions set forth in the 2000 Plan and related agreements. The 2009 Plan was approved by Watson Wyatt shareholders on December 18, 2009. For further information, please see the Registration Statement on Form S-8 filed with the SEC (Registration No. 333-164192) on January 4, 2010.

ITEM 2.		MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

Executive Overview

The Merger

On January 1, 2010, pursuant to the Agreement and Plan of Merger, as amended by Amendment No. 1 (the “Merger Agreement”), Watson Wyatt Worldwide, Inc. (“Watson Wyatt”) and Towers, Perrin, Forster & Crosby, Inc. (“Towers Perrin”) combined their businesses through two simultaneous mergers (the “Merger”) and became wholly-owned subsidiaries of Jupiter Saturn Holding Company, which changed its name to Towers Watson & Co. (“Towers Watson”).

As of and for the three and six months ended December 31, 2009, Towers Watson had not conducted any activities other than those incident to its formation and the matters contemplated by the Merger Agreement. The business of Towers Watson after the Merger was consummated on January 1, 2010, is the combined businesses previously conducted by Towers Perrin and Watson Wyatt. Therefore, this quarterly report of Towers Watson does not include separate financials for Jupiter Saturn Holding Company as they do not contain any material information. In select sections of this quarterly report that contain prospective or forward-looking information, the combined operations of Towers Watson post-Merger have been disclosed. Although the business combination of Watson Wyatt and Towers Perrin was a “merger of equals”, generally accepted accounting principles require that one of the combining entities be identified as the acquirer by reviewing facts and circumstances as of the acquisition date. Watson Wyatt was determined to be the accounting acquirer. This conclusion is primarily supported by the facts that Watson Wyatt shareholders own approximately 56 percent of all Towers Watson common stock after the redemption of Towers Watson Class R common stock and that Watson Wyatt’s Chief Executive Officer became the Chief Executive Officer of Towers Watson. Watson Wyatt is the accounting predecessor in the Merger and as such, the historical results of Watson Wyatt have become those of the new registrant, Towers Watson, and are presented in this filing. Because the Merger was not yet consummated as of December 31, 2009, the results of Towers Perrin are not included in the Condensed Consolidated Statements of Operations for the three and six months ended December 31, 2009 or 2008 or Condensed Consolidated Balance Sheets as of December 31, 2009 and June 30, 2009. Towers Watson’s condensed consolidated financial statements as of and for the three and nine months ended March 31, 2010 will include the results of Towers Perrin’s operations beginning January 1, 2010.

General

Towers Watson began material operations January 1, 2010 and is the combined businesses previously conducted by Towers Perrin and Watson Wyatt. We offer our clients comprehensive services and a strong talent pool of approximately 14,000 associates across 34 countries. The histories of our predecessor firms are summarized below.

Watson Wyatt traces its roots back to the actuarial firm R Watson & Sons, founded in 1878 in the U.K. In 1946, The Wyatt Company was established as an actuarial consulting firm in the U.S. Over the next few decades, the U.S.-based firm branched out into such other services as health care and compensation consulting and broadened its global reach, establishing offices throughout Canada, Europe, Latin America and Asia. In 1995, the two firms formed a global alliance and began operating as Watson Wyatt Worldwide. In 2000, the U.S.-based arm of the alliance completed a successful initial public offering and began trading on the New York Stock Exchange under the symbol WW. In August 2005, the two firms formally combined into one.

Towers Perrin’s predecessor firm, Henry W. Brown & Co., was founded in 1871. Towers, Perrin, Forster & Crosby, Inc. was incorporated in Philadelphia, Pennsylvania on February 13, 1934. The firm opened for business with 26 employees and initially operated a Reinsurance Division and Life Division. The firm eventually began to specialize in pensions and other employee benefit plans. Over the decades, the firm grew, diversified, globalized and, in 1987, was renamed Towers Perrin.

At Towers Watson, we bring together professionals from around the world — experts in their areas of specialty — to deliver the perspectives that give organizations a clear path forward. We do this by working with clients to develop solutions in the areas of employee benefit programs, risk and capital management, and talent and reward programs.

We help our clients enhance business performance by improving their ability to attract, retain, and motivate qualified employees. We focus on delivering consulting services that help our clients anticipate, identify, and capitalize on emerging opportunities in human capital management. We also provide independent financial advice regarding all aspects of life assurance and general insurance, as well as investment advice to assist our clients in developing disciplined and efficient investment strategies to meet their investment goals.

As leading economies worldwide become more services-oriented, human capital and financial management has become increasingly important to companies and other organizations. The heightened competition for skilled employees, unprecedented changes in workforce demographics, regulatory changes related to compensation and retiree benefits and rising employee-related costs have increased the importance of effective human capital management. Insurance and investment decisions become increasingly complex and important in the face of changing economies and dynamic financial markets. Towers Watson helps its clients address these issues by combining the expertise in human capital and financial management with consulting and technology, to improve the design and implementation of various human resources and financial programs, including compensation, retirement, health care, insurance and investment plans.

The human resources consulting industry, although highly fragmented, is highly competitive and is comprised of major human capital consulting firms, specialist firms, consulting arms of accounting firms and information technology consulting firms.

In the short term, Towers Watson’s revenue is driven by many factors including the general state of the global economy and the resulting level of discretionary spending, the continuing regulatory compliance requirements of its clients, changes in investment markets, the ability of the consultants to attract new clients or provide additional services to existing clients, and the impact of new regulations in the legal and accounting fields. In the long term, Towers Watson expects that its financial results will depend in large part upon how well we succeed in deepening the existing client relationships through thought leadership and focus on cross-practice solutions, actively pursuing new clients in the target markets, cross selling and strategic acquisitions. Towers Watson believes that the highly fragmented industry in which it operates represents tremendous growth opportunities, because we offer a unique business combination of benefits and human capital consulting as well as strategic technology solutions.

Overview of Watson Wyatt Financial Condition and Results of Operations

Watson Wyatt is a global consulting firm focusing on providing human capital and financial consulting services. Watson Wyatt provides services in five principal practice areas: Benefits, Human Capital Consulting, Technology and Administration Solutions, Investment Consulting, and Insurance and Financial Services operating from 106 offices in 33 countries throughout North America, Europe, Asia-Pacific and Latin America. Watson Wyatt employed approximately 7,440 and 7,700 associates as of December 31, 2009 and June 30, 2009, respectively, in the following practice areas:

		December 31,				June 30,
		2009				2009
Benefits Group			3,255				3,325
Human Capital Group			750				825
Technology and Administration Solutions Group			1,045				1,060
Investment Consulting Group			565				565
Insurance & Financial Services Group			380				415
Other (incl. Communication)			395				450
Business Services (incl. Corporate and field support)			1,050				1,060
Total associates			7,440				7,700

Principal Services

Watson Wyatt designs, develops and implements human resource and risk management strategies and programs through the following closely-interrelated practice areas:

Benefits Group - The Benefits Group, accounting for 55 percent of Watson Wyatt’s total revenue for the first six months of fiscal 2010, is the foundation of its business. Approximately 50 percent of Benefits Group’s revenue originates from outside of the United States and is thus subject to translation exposure resulting from foreign exchange rate fluctuations. Retirement, the core of the Benefits Group business, typically lags reduction in discretionary spending compared to the other segments, mainly due to the recurring nature of client relationships. Watson Wyatt’s corporate client retention rate within its target market has remained very high. Revenue for the retirement practice is seasonal, with the second and third quarters of each fiscal year being the busier periods. Major revenue growth drivers in this practice include changes in regulations, economic uncertainty, leverage from other practices, increased global demand and increased market share.

Services provided through the Benefits Group include the following:

	•		Design and management of benefit programs;
	•		Actuarial services including development of funding and risk management strategies;
	•		Expatriate and international human resource strategies;
	•		Mergers and acquisitions;
	•		Strategic workforce planning; and
	•		Compliance and governance

Human Capital Group - The Human Capital Group (HCG), accounting for 10 percent of Watson Wyatt’s total revenue for the first six months of fiscal 2010, generally encompasses short-term projects. Approximately 65 percent of HCG’s revenue originates from outside of the United States and is thus subject to translation exposure resulting from foreign exchange rate fluctuations. Discretionary project work associated with this segment is generally affected by the strength of the economy. As a result, this segment tends to be more sensitive to cyclical economic fluctuations than other segments. Services provided through HCG include the following:

	•		Advice concerning compensation plans, including broad-based and executive compensation, stock and other long-term incentive programs;
	•		Strategies to align workforce performance with business objectives;
	•		Organization effectiveness consulting, including talent management;
	•		Strategies for attracting, retaining and motivating employees; and
	•		Data services

Technology and Administration Solutions Group - The Technology and Administration Solutions Group (TAS), accounting for 14 percent of Watson Wyatt’s total revenue for the first six months of fiscal 2010, provides information technology services to the clients. Revenue for TAS is relatively stable, compared to what it had historically experienced in an economic downturn, because of its long term contracts associated with the administration business. However, TAS remains partially subject to the impact of the economy on discretionary spending. Income in this segment is slightly greater in the first half of the fiscal year because of the timing of the typical enrollment season for benefits. Approximately 45 percent of TAS’s revenue originates from outside of the United States and is thus subject to translation exposure resulting from foreign exchange rate fluctuations. Services provided through the TAS Group include the following:

	•		Web-based applications for health and welfare, pension and compensation administration;
	•		Administration outsourcing solutions for health and welfare and pension benefits;
	•		Call center strategy, design and tools;
	•		Strategic human resource technology and service delivery consulting;
	•		Targeted online compensation and benefits statements, content management and call center case management solutions; and
	•		Integrated talent management suite

Investment Consulting Group - The Investment Consulting Group accounts for 11 percent of Watson Wyatt’s total revenue for the first six months of fiscal 2010. Approximately 85 percent of the Investment Consulting Group’s revenue originates from outside of the United States and is thus subject to translation exposure resulting from foreign exchange rate fluctuations. This business, although relationship based, can be affected by an increasingly complex investment landscape as well as by volatility in investment returns, particularly as clients look to us for assistance in managing that volatility.

Services provided through the Investment Consulting Group include the following:

	•		Investment consulting services to pension plans and other institutional funds;
	•		Input on governance and regulatory issues;
	•		Analysis of asset allocation and investment strategies;
	•		Investment structure analysis, selection and evaluation of managers and performance monitoring; and
	•		Implementation/fiduciary services for defined benefit and defined contribution investment programs via the Advanced Investment Solutions (AIS) services

Insurance & Financial Services Group - The Insurance & Financial Services Group (I&FS) accounts for 6 percent of Watson Wyatt’s total revenue for the first six months of fiscal 2010. Approximately 90 percent of I&FS’s revenue originates from outside of the United States and is thus subject to translation exposure resulting from foreign exchange rate fluctuations. This business is largely a project-based business and therefore could be cyclical. Services provided through I&FS include the following:

	•		Independent actuarial and strategic advice;
	•		Assessment and advice regarding financial condition and risk management; and
	•		Financial modeling software tools for product design and pricing, planning and projections, reporting, valuations and risk management

While Watson Wyatt focuses the consulting services in the areas described above, management believes that one of Watson Wyatt’s primary strengths is the ability to draw upon consultants from the different practices to deliver integrated services to meet the needs of its clients. This capability includes communication and change management implementation support services.

Financial Statement Overview

Historically, Watson Wyatt’s fiscal year ended on June 30. Towers Watson’s fiscal year end will also be June 30. The financial statements contained in this quarterly report reflect Condensed Consolidated Balance Sheets as of the end of the second quarter of fiscal year 2010 (December 31, 2009) and as of the end of fiscal year 2009 (June 30, 2009), Condensed Consolidated Statements of Operations for the three and six month periods ended December 31, 2009 and 2008, Condensed Consolidated Statements of Cash Flows for the six month periods ended December 31, 2009 and 2008 and a Condensed Consolidated Statement of Changes in Stockholders’ Equity for the six month period ended December 31, 2009.

Watson Wyatt derives the majority of its revenue from fees for consulting services, which generally are billed based on time and materials or on a fixed-fee basis. Clients are typically invoiced on a monthly basis with revenue generally recognized as services are performed. No single client accounted for more than one percent of consolidated revenue for any of the most recent three fiscal years.

For the three months ended December 31, 2009 and fiscal years ended June 30, 2009 and 2008, Watson Wyatt’s top six markets based on percentage of consolidated revenue were as follows:

		Six Months				Fiscal Year
Geographic Region		2010				2009				2008
United States			44	%			43	%			41	%
United Kingdom			30				32				32
Germany			5				4				5
Canada			3				4				4
Netherlands			3				3				4
Greater China			2				2				2

In delivering consulting services, Watson Wyatt’s principal direct expenses relate to compensation of personnel. Salaries and employee benefits are comprised of wages paid to associates, related taxes, severance, benefit expenses such as pension, medical and insurance costs, and fiscal year-end incentive bonuses.

Professional and subcontracted services represent fees paid to external service providers for employment, marketing and other services. For the most recent three fiscal years, approximately 50 to 60 percent of these professional and subcontracted services were directly incurred on behalf of clients and were reimbursed by them, with such reimbursements being included in revenue. For the second quarter of fiscal year 2010, approximately 50 percent of professional and subcontracted services represent these reimbursable services.

Occupancy, communications and other expenses represent expenses for rent, utilities, supplies and telephone to operate office locations as well as non-client-reimbursed travel by associates, publications and professional development. This line item also includes miscellaneous expenses, including gains and losses on foreign currency transactions.

General and administrative expenses include the operational costs, professional fees and insurance paid by corporate management, general counsel, marketing, human resources, finance, research and technology support.

Depreciation and amortization includes the depreciation of fixed assets and amortization of intangible assets and internally developed software.

Transaction and integration expenses include all fees and charges associated with the Merger.

Critical Accounting Policies and Estimates

The preparation of condensed consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosures of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenue and expenses during the reporting period. Our estimates, judgments and assumptions are continually evaluated based on available information and experience. Because of the use of estimates inherent in the financial reporting process, actual results could differ from those estimates. The areas that we believe are critical accounting policies include revenue recognition, valuation of billed and unbilled receivables from clients, discretionary compensation, income taxes, pension assumptions, incurred but not reported claims, and goodwill and intangible assets. The critical accounting policies discussed below involve making difficult, subjective or complex accounting estimates that could have a material effect on the financial condition and results of operations. These critical accounting policies require us to make assumptions about matters that are highly uncertain at the time of the estimate or assumption. Different estimates that we could have used, or changes in estimates that are reasonably likely to occur, may have a material impact on our financial statements and results of operations.

Revenue Recognition

Revenue includes fees primarily generated from consulting services provided. We recognize revenue from these consulting engagements when hours are worked, either on a time-and-materials basis or on a fixed-fee basis, depending on the terms and conditions defined at the inception of an engagement with a client. We have engagement letters with our clients that specify the terms and conditions upon which the engagements are based. These terms and conditions can only be changed upon agreement by both parties. Individual consultants’ billing rates are principally based on a multiple of salary and compensation costs.

Revenue for fixed-fee arrangements, which span multiple months, is based upon the percentage of completion method. The Company typically has three types of fixed-fee arrangements: annual recurring projects, projects of a short duration, and non-recurring system projects. Annual recurring projects and the projects of short duration are typically straightforward and highly predictable in nature. As a result, the project manager and financial staff are able to identify, as the project status is reviewed and bills are prepared monthly, the occasions when cost overruns could lead to the recording of a loss accrual.

Watson Wyatt has non-recurring system projects that are typically found in the Technology and Administration Solutions Group. They tend to be projects that are longer in duration and subject to more changes in scope as the project progresses than projects undertaken in other segments. Watson Wyatt evaluates at least quarterly, and more often as needed, project managers’ estimates-to-complete to assure that the projects’ current status is accounted for properly. The Technology and Administration Solutions Group contracts generally provide that if the client terminates a contract, the Company is entitled to payment for services performed through termination.

Revenue recognition for fixed-fee engagements is affected by a number of factors that change the estimated amount of work required to complete the project such as changes in scope, the staffing on the engagement and/or the level of client participation. The periodic engagement evaluations require us to make judgments and estimates regarding the overall profitability and stage of project completion that, in turn, affect how we recognize revenue. The Company recognizes a loss on an engagement when estimated revenue to be received for that engagement is less than the total estimated direct and indirect costs associated with the engagement. Losses are recognized in the period in which the loss becomes probable and the amount of the loss is reasonably estimable. The Company has experienced certain costs in excess of estimates from time to time. Management believes that it is rare, however, for these excess costs to result in overall project losses.

The Company has developed various software programs and technologies that we provide to clients in connection with consulting services. In most instances, such software is hosted and maintained by the Company and ownership of the technology and rights to the related code remain with the Company. Software developed to be utilized in providing services to a client, but for which the client does not have the contractual right to take possession, is capitalized in accordance with generally accepted accounting principles of capitalized software. Revenue associated with the related contract, together with amortization of the related capitalized software, is recognized over the service period. As a result, we do not recognize revenue during the implementation phase of an engagement.

In connection with the Merger, we acquired the reinsurance intermediary business of Towers Perrin. Beginning January 1, 2010 in our capacity as a reinsurance intermediary, we collect premiums from reinsureds and, after deducting our brokerage commissions, we remit the premiums to the respective reinsurance underwriters on behalf of reinsureds. The net premiums and claims due to or due from reinsurers and reinsureds are not included in our condensed consolidated balance sheets. In general, compensation for reinsurance intermediary services is earned on a commission basis. Commissions are calculated as a percentage of a reinsurance premium as stipulated in the reinsurance contracts with the Company’s clients and reinsurers. The Company recognizes intermediary services revenue on the later of the inception date or billing date of the contract. In addition, the Company holds cash needed to settle amounts due reinsurers or reinsureds, net of any commissions due the Company, pending remittance to the ultimate recipient. The Company is permitted to invest these funds in high quality liquid instruments.

Revenue recognized in excess of billings is recorded as unbilled accounts receivable. Cash collections and invoices generated in excess of revenue recognized are recorded as deferred revenue until the revenue recognition criteria are met. Client reimbursable expenses, including those relating to travel, other out-of-pocket expenses and any third-party costs, are included in revenue, and an equivalent amount of reimbursable expenses are included in professional and subcontracted services as a cost of revenue.

Valuation of Billed and Unbilled Receivables from Clients

We maintain allowances for doubtful accounts to reflect estimated losses resulting from the clients’ failure to pay for the services after the services have been rendered, including allowances when customer disputes may exist. The related provision is recorded as a reduction to revenue. Our allowance policy is based on the aging of the billed and unbilled client receivables and has been developed based on the write-off history. Facts and circumstances such as the average length of time the receivables are past due, general market conditions, current economic trends and our clients’ ability to pay may cause fluctuations in our valuation of billed and unbilled receivables.

Discretionary Compensation

Watson Wyatt’s compensation program includes a discretionary bonus that is determined by management and has historically been paid once per fiscal year in the form of cash and/or deferred stock units after its annual operating results are finalized. As a result of the Merger, interim bonuses will be paid in March 2010 relative to the six-month period ended December 31, 2009.

An estimated annual bonus amount is initially developed at the beginning of each fiscal year in conjunction with our budgeting process. Quarterly, estimated annual operating performance is reviewed by the Company and the discretionary annual bonus amount is then adjusted, if necessary, by management to reflect changes in the forecast of pre-bonus profitability for the year. In those quarters where the estimated annual bonus level changes, the remaining estimated annual bonus is accrued over the remaining quarters as a constant percentage of estimated future net income.

Income Taxes

The Company accounts for income taxes in accordance with ASC 740, “Income Taxes”, which prescribes the use of the asset and liability method whereby deferred tax asset or liability account balances are calculated at the balance sheet date using current tax laws and rates in effect. Valuation allowances are established, when necessary, to reduce deferred tax assets when it is more likely than not that a portion or all of a given deferred tax asset will not be realized. In accordance with ASC 740, income tax expense includes (i) deferred tax expense, which generally represents the net change in the deferred tax asset or liability balance during the year plus any change in valuation allowances and (ii) current tax expense, which represents the amount of tax currently payable to or receivable from a taxing authority plus amounts accrued for expected tax contingencies (including both tax and interest). ASC 740 prescribes a recognition threshold of more-likely-than-not, and a measurement attribute for all tax positions taken or expected to be taken on a tax return, in order for those positions to be recognized in the financial statements. The Company continually reviews tax laws, regulations and related guidance in order to properly record any uncertain tax liabilities. We adjust these reserves in light of changing facts and circumstances, such as the outcome of tax audits. The provision for income taxes includes the impact of reserve provisions and changes to reserves that are considered appropriate.

Pension Assumptions

Watson Wyatt sponsors both qualified and non-qualified, non-contributory defined benefit pension plans in North America and the U.K. that cover approximately 85 percent of the liability. Under the plans in North America, benefits are based on the number of years of service and the associate’s compensation during the five highest paid consecutive years of service. Beginning January 2008, Watson Wyatt made changes to the plan in the U.K. related to years of service used in calculating benefits for associates. Benefits earned prior to January 2008 are based on the number of years of service and the associate’s compensation during the three years before leaving the plan and benefits earned after January 2008 are based on the number of years of service and the associate’s average compensation during the associate’s term of service since that date. The non-qualified plan, included only in North America, provides for pension benefits that would be covered under the qualified plan but are limited by the Internal Revenue Code. The non-qualified plan has no assets and therefore is an unfunded arrangement. The benefit liability is reflected on the balance sheet. The measurement date for each of the plans is June 30.

Determination of the obligations and annual expense under the plans is based on a number of assumptions that, given the longevity of the plans, are long-term in focus. A change in one or a combination of these assumptions could have a material impact on the pension benefit obligation and related expense. For this reason, management employs a long-term view so that assumptions do not change frequently in response to short-term volatility in the economy. Any difference between actual and assumed results is amortized into the pension expense over the average remaining service period of participating employees. We considers several factors prior to the start of each fiscal year when determining the appropriate annual assumptions, including economic forecasts, relevant benchmarks, historical trends, portfolio composition and peer comparisons.

North America

The following assumptions were used in the valuation of Watson Wyatt’s North American plans at June 30, 2009, 2008 and 2007:

		Year Ended June 30
		2009				2008				2007
Discount rate			7.21	%			6.91	%			6.25	%
Expected long-term rate of return on assets			8.61	%			8.75	%			8.75	%
Rate of increase in compensation levels			3.29	%			4.08	%			3.84	%

The following information illustrates the sensitivity to a change in certain assumptions for the U.S. pension plans:

		Effect on FY2010
Change in Assumption		Pre-Tax Pension Expense
25 basis point decrease in discount rate		+$3.0 million
25 basis point increase in discount rate		-$2.9 million
25 basis point decrease in expected return on assets		+$1.2 million
25 basis point increase in expected return on assets		-$1.2 million

United Kingdom

The following assumptions were used in the valuation of Watson Wyatt’s U.K. plan at June 30, 2009, 2008 and 2007:

		Year Ended June 30
		2009				2008				2007
Discount rate			6.30	%			6.50	%			5.80	%
Expected long-term rate of return on assets			6.61	%			6.46	%			5.69	%
Rate of increase in compensation levels			5.45	%			5.65	%			4.95	%