http://www.businesswire.com/news/home/20091110005742/en
Fourth Quarter - GAAP and Underlying EPS $0.68; Underlying EPS Increases 38% and
Underlying Operating Margin Expands 310 Basis Points to 14.0%1
Full Year - GAAP EPS $2.78; Underlying EPS Increases 35% to $2.67 and Underlying
Operating Margin Expands 350 Basis Points to 14.1%
Company Issues Fiscal 2010 EPS Guidance of $2.85 to $2.95
LINCOLNSHIRE, Ill.--(Business Wire)--
Hewitt Associates, Inc. (NYSE:HEW), a global human resources services company,
today reported results for its fiscal 2009 fourth quarter and year ended
September 30, 2009.
Fourth Quarter 2009 Highlights
* Reported net revenues (revenues before reimbursements) declined 6% to $757.7
million, compared with $806.7 million in the prior-year quarter. Net revenues
declined 4% after adjusting for foreign currency translation, acquisitions and
divestitures, and third-party revenues in both periods.
* Reported operating income grew 95% to $105.8 million, compared with $54.3
million in the prior-year quarter. Underlying operating income grew 23% after
adjusting for prior-period unusual items discussed below.
* Reported net income increased to $64.4 million, or $0.68 per diluted share,
compared with $31.6 million, or $0.32 per diluted share in the prior-year
quarter. Underlying net income for the prior-year quarter was $48.3 million, or
$0.49 per diluted share, when adjusting for unusual items.
Fiscal 2009 Highlights
* Reported net revenues declined 5% to $3.00 billion, compared with $3.15
billion in the prior year. Net revenues were flat after adjusting for foreign
currency translation, acquisitions and divestitures, HR Business Process
Outsourcing (HR BPO) contract restructurings in the prior year, and third-party
revenues in both years.
* Reported operating income grew 39% to $434.1 million, compared with $312.8
million in the prior year. Underlying operating income grew 29% to $424.8
million after adjusting for unusual items in both years discussed below.
* Reported net income increased to $265.1 million, or $2.78 per diluted share,
compared with $188.1 million, or $1.85 per diluted share in the prior year.
Underlying net income increased to $254.6 million, or $2.67 per diluted share,
compared with $202.3 million, or $1.98 per diluted share in the prior year, when
adjusting for unusual items in both years.
* Free cash flow, a non-GAAP measure, increased to $305.1 million, compared with
$210.3 million in the prior year.
* Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization
(EBITDA), a non-GAAP measure, increased to $566.6 million, compared with $517.3
million in the prior year.
* The Company repurchased 2.6 million of its outstanding common shares for a
total of $74.2 million during fiscal 2009.
"We are pleased with how our 2009 business performance held up in an incredibly
challenging environment," said Russ Fradin, chairman and chief executive
officer. "Revenues were resilient, and our focus on productivity over the past
two years produced record operating profit, operating margin and earnings per
share. We also delivered strong sales, improved client satisfaction and
generated strong free cash flow. These results clearly reflect the dedication
and commitment of our leaders and associates worldwide. In 2010, we intend to
accelerate our sales efforts and continue to invest in growing our business by
adding new clients and services."
Operating Performance
Fourth Quarter 2009
Reported net revenues were $757.7 million, compared with $806.7 million in the
prior-year quarter, a decrease of 6%. Net revenues declined 4% when excluding
third-party supplier revenues in both periods and adjusting for the following
items:
* In the current quarter, $16.9 million in unfavorable foreign currency
translation and a $6.8 million contribution from an acquisition.
* In the prior-year quarter, a $9.4 million contribution from HR BPO businesses2
divested in the current fiscal year.
On the same adjusted basis, Benefits Outsourcing net revenues grew 1%, while HR
BPO and Consulting declined 10% and 9%, respectively.
Reported operating income increased 95%, to $105.8 million, compared with $54.3
million in the prior-year quarter. Reported operating margin was 14.0%, compared
with 6.7% in the prior-year quarter.
Underlying operating income increased 23% to $105.8 million, compared with $86.4
million in the prior-year quarter, when adjusting for unusual items in the
prior-year period. Underlying operating margin was 14.0%, compared with 10.8% in
the prior-year quarter. Lower performance-based compensation, staffing leverage,
and lower selling, general and administrative expenses drove most of the
underlying margin improvement.
Current-quarter underlying results include $17.3 million in pretax severance
charges, compared to $16.8 million in pretax severance charges in the prior-year
quarter. Current-quarter underlying results also include $5.7 million in pretax
charges related to ongoing real estate optimization initiatives and updated real
estate sublease assumptions, reflecting worsening commercial real estate market
conditions.
Fiscal 2008 fourth quarter underlying results exclude the following unusual
items:
* A pretax charge of $34.4 million related to the Company`s real estate
portfolio review.
* A favorable pretax adjustment of $1.5 million related to a previous HR BPO
contract restructuring.
* Favorable pretax contributions of $0.8 million from comparable divested HR BPO
operations.
The fourth quarter reported effective tax rate was 34.4%, compared with 34.5% in
the prior-year quarter. The fourth quarter underlying effective tax rate was
34.4%, compared with 39.0% in the prior-year quarter.
Fiscal 2009
Reported net revenues were $3.00 billion, compared with $3.15 billion in the
prior year, a decrease of 5%. Net revenues were flat when excluding third-party
supplier revenues in both periods and adjusting for the following items:
* In the current year, $128.8 million in unfavorable foreign currency
translation and a $32.4 million contribution from acquisitions.
* In the prior year, a $31.2 million contribution from HR BPO businesses3
divested in the current year and a $23.1 million benefit related to HR BPO
contract restructurings.
On the same adjusted basis, Benefits Outsourcing net revenues grew 1%, while HR
BPO and Consulting declined 3% and 1%, respectively. Current year underlying
revenues include the realization of $20.1 million of deferred revenues related
to the settlement of a Benefits Outsourcing contract dispute.
Reported operating income increased 39%, to $434.1 million, compared with $312.8
million in the prior year. Reported operating margin was 14.5%, compared with
9.9% in the prior year.
Underlying operating income increased 29% to $424.8 million, compared with
$328.9 million in the prior year, when adjusting for unusual items in both
years. Underlying operating margin was 14.1%, compared with 10.6% in the prior
year. Staffing leverage, lower selling, general and administrative expenses, and
foreign exchange drove most of the underlying margin improvement.
Current-year underlying results include $34.7 million in pretax severance
charges, compared with $30.3 million in pretax severance charges in the prior
year. Current-year underlying results also include $14.9 million in pretax
charges related to updated real estate sublease assumptions, reflecting
worsening commercial real estate market conditions, and ongoing real estate
optimization initiatives.
Current year unusual items include pretax gains totaling $9.4 million related to
the sales of the Company`s HR BPO Latin America and relocation services
businesses. Prior-year unusual items include the following:
* Pretax charges of $44.8 million related to the Company`s real estate portfolio
review.
* A pretax net gain of $35.4 million related to the divestiture of the Cyborg
business.
* Pretax net charges of $11.8 million related to HR BPO contract restructurings.
* Favorable pretax contributions of $5.1 million from comparable divested HR BPO
operations.
The current-year reported effective tax rate was 35.3%, compared with 40.5% in
the prior year. The current-year underlying effective tax rate was 36.4%,
compared with 39.0% in the prior year.
Business Segment Results
Benefits Outsourcing
Fourth Quarter 2009
Benefits Outsourcing segment revenues were approximately flat at $388.7 million,
compared with $387.9 million in the prior-year quarter. Revenues increased 1%
after adjusting for $2.3 million of unfavorable foreign currency translation.
The adjusted revenue growth was principally driven by growth in large market and
mid-market clients, partially offset by lower project revenue.
Benefits Outsourcing segment income increased 31% to $87.2 million, compared
with $66.6 million in the prior-year quarter. Segment margin was 22.4%, compared
with 17.2% in the prior-year quarter.
Underlying segment income increased 8% to $87.2 million, compared with $80.9
million in the prior-year quarter, when adjusting for unusual items in the
prior-year period. Underlying segment margin was 22.4%, compared to 20.9% in the
prior-year quarter. The underlying margin improvement was principally due to
foreign currency translation, lower performance-based compensation, cost
management efforts, and lower severance expense, partially offset by lower
project revenue and higher healthcare costs.
Prior-year period unusual items include:
* A pretax charge of $14.0 million related to the Company`s real estate
portfolio review.
* A pretax loss of $0.3 million related to comparable divested HR BPO operations
that also impacted Benefits Outsourcing.
Fiscal 2009
Benefits Outsourcing segment revenues were flat at $1.55 billion. Revenues
increased 1% after adjusting for the following items:
* In the current year, $17.3 million of unfavorable foreign currency translation
and a $16.7 million contribution from acquisitions.
* In the prior year, a $9.0 million benefit related to HR BPO contract
restructurings that also impacted Benefits Outsourcing.
The adjusted revenue increase was principally driven by the realization of $20.1
million of deferred revenues related to the settlement of a contract dispute and
mid-market client growth, partially offset by lower project revenue and current
period adjustments related to client service issues in prior years.
Benefits Outsourcing segment income increased 6% to $387.2 million, compared
with $365.3 million in the prior year. Segment margin was 25.0%, compared with
23.6% in the prior year.
Underlying segment income increased 2% to $387.2 million, compared with $379.2
million in the prior year, when adjusting for unusual items in the prior year.
Underlying segment margin was 25.0%, compared to 24.6% in the prior year. The
underlying margin improvement was principally due to cost management efforts and
foreign currency translation. This was partially offset by the impact of a
prior-year acquisition, lower project revenue, current period adjustments for
client service issues in prior years, and higher healthcare costs.
Fiscal 2008 results include the following unusual items:
* A pretax charge of $17.9 million related to the Company`s real estate
portfolio review.
* A pretax benefit of $4.3 million related to HR BPO contract restructurings
that also impacted Benefits Outsourcing.
* A pretax loss of $0.3 million related to comparable divested HR BPO operations
that also impacted Benefits Outsourcing.
As of September 30, 2009, the Company was live with approximately 20.5 million
end-user Benefits Outsourcing participants, compared with approximately 19.7
million as of September 30, 2008.
Human Resources Business Process Outsourcing
Fourth Quarter 2009
HR BPO segment revenues declined 16% to $113.9 million, compared with $135.1
million in the prior-year quarter. Revenues decreased 10% after excluding
third-party supplier revenues in both periods and adjusting for the following
items:
* In the current year, $2.3 million of unfavorable foreign currency translation.
* In the prior year, a $9.4 million comparable contribution from divested
businesses.
The adjusted revenue decline was driven by client terminations and liquidations,
partially offset by the impact of new clients going live with contract services
over the last 12 months and certain contractual adjustments.
The HR BPO segment loss was $2.1 million, compared with a loss of $21.6 million
in the prior-year quarter. Underlying segment loss was $2.1 million, compared
with a loss of $12.1 million in the prior-year quarter, when adjusting for
unusual items in the prior-year period. The underlying operating improvement
reflects staffing leverage and infrastructure cost management, partially offset
by lower revenues.
Prior-year quarter results include the following unusual items:
* A pretax charge of $12.1 million related to the Company`s real estate
portfolio review.
* A favorable pretax adjustment of $1.5 million related to a prior HR BPO
contract restructuring.
* Favorable pretax contributions of $1.1 million from comparable divested
operations.
Fiscal 2009
HR BPO segment revenues declined 14% to $479.7 million, compared with $554.9
million in the prior-year quarter. Revenues decreased 3% after excluding
third-party supplier revenues in both periods and adjusting for the following
items:
* In the current year, $19.7 million of unfavorable foreign currency
translation.
* In the prior year, a $31.2 million comparable prior-year contribution from
divested businesses and a $14.1 million benefit related to HR BPO contract
restructurings.
The adjusted revenue decline was driven by client losses and liquidations,
partially offset by the impact of new clients going live with contract services
over the last 12 months and certain contractual adjustments.
The HR BPO segment loss was $5.2 million, compared with a loss of $83.3 million
in the prior year. Underlying segment loss was $14.6 million, compared with a
loss of $94.9 million in the prior year, when adjusting for unusual items in
both years. The underlying operating improvement reflects staffing leverage,
infrastructure cost management, lower amortization of intangibles, and lower
charges related to disputes and settlements, partially offset by lower revenues.
Current year unusual items include pretax gains totaling $9.4 million related to
the sales of the Company`s HR BPO Latin America and relocation services
businesses. Prior-year unusual items include the following:
* A pretax net gain of $35.4 million related to the divestiture of the Cyborg
business.
* A pretax net charge of $16.1 million related to HR BPO contract
restructurings.
* A pretax charge of $13.1 million related to the Company`s real estate
portfolio review.
* Favorable pretax contributions of $5.4 million from comparable divested
operations.
As of September 30, 2009, the Company was live with approximately 695,000 client
employees with HR BPO services, compared with approximately 987,000 as of
September 30, 2008.
Consulting
Fourth Quarter 2009
Consulting segment revenues declined 10% to $265.2 million, compared with $295.8
million in the prior-year quarter. Consulting revenues declined 9% after
adjusting for $12.3 million of unfavorable foreign currency translation and a
$6.8 million contribution from an acquisition, both in the current year. The
adjusted decline resulted from revenue decreases related to Talent and
Organizational Consulting services across all regions and Communication and
Health Management services in North America. This was partially offset by growth
in Retirement and Financial Management services in North America and Europe.
Consulting segment income declined 11% to $43.7 million, compared with $49.4
million in the prior-year quarter. Segment margin was 16.5%, compared with 16.7%
in the prior-year quarter. Underlying segment income declined 11% to $43.7
million, compared with $49.3 million in the prior-year quarter, when adjusting
for the impact of the Company`s real estate portfolio review in the prior-year
period. Underlying segment margin was 16.5%, compared with 16.7% in the
prior-year quarter. The underlying margin decrease was principally due to lower
revenues and higher severance expense, partially offset by lower
performance-based compensation and discretionary cost controls.
Fiscal 2009
Consulting segment revenues declined 8% to $1.01 billion, compared with $1.09
billion in the prior year. Revenues decreased 1% after adjusting for $91.8
million of unfavorable foreign currency translation and a $15.8 million
contribution from acquisitions, both in the current year. The adjusted decline
resulted from revenue decreases related to Talent and Organizational Consulting
services across all regions and Communication services in North America. This
was partially offset by growth in Retirement and Financial Management services
in Europe and North America and modest growth in Health Management services.
Consulting segment income was approximately flat at $143.8 million, compared
with $143.2 million in the prior year. Segment margin was 14.2%, compared with
13.1% in the prior year. Underlying segment income decreased 3% to $143.8
million, compared with $147.5 million in the prior year, when adjusting for an
unusual item in the prior year. Underlying segment margin was 14.2%, compared
with 13.5% in the prior year. The underlying margin improvement was principally
due to lower performance-based compensation and discretionary cost controls,
partially offset by higher severance expense.
The prior-year unusual item was a pretax charge of $4.2 million related to the
Company`s real estate portfolio review.
Unallocated Shared Service Costs
Fourth quarter 2009 unallocated shared service costs were $23.0 million, or 3.0%
of net revenues, compared with $40.1 million, or 5.0% of net revenues, in the
prior-year quarter. Underlying prior-year quarter unallocated shared service
costs were $31.7 million, or 4.0% of net revenues, when excluding pretax charges
of $8.4 million related to the Company`s real estate portfolio review. The
decrease in expenses relative to net revenues was principally due to lower
professional services fees and lower performance-based compensation.
Fiscal 2009 unallocated shared service costs were $91.6 million, or 3.0% of net
revenues, compared with $112.4 million, or 3.6% of net revenues, in the prior
year. Underlying prior-year unallocated shared service costs were $102.9
million, or 3.3% of net revenues, when excluding pretax charges of $9.5 million
related to the Company`s real estate portfolio review. The decrease in expenses
relative to net revenues was principally due to lower professional services
fees.
Cash Flow
Cash flow from operations was $433.0 million in fiscal 2009, compared with
$327.9 million in the prior year. Free cash flow, a non-GAAP measure reflecting
cash flow from operations less capital expenditures and capitalized software
costs, was $305.1 million, compared with $210.3 million in the prior year. The
improvement in free cash flow was principally driven by improved receivables
collections and stronger operating performance, partially offset by lower
Outsourcing net deferrals and higher performance-based compensation related to
fiscal 2008 performance.
Adjusted EBITDA, a non-GAAP measure, was $566.6 million in fiscal 2009, compared
with $517.3 million in the prior year. The increase reflects improved HR BPO
operating performance, partially offset by lower Outsourcing net deferrals.
Share Repurchase
During the fourth quarter, the Company repurchased 1.0 million of its
outstanding common shares at an average price of $30.19 per share, or $30.1
million. During fiscal 2009, the Company repurchased 2.6 million of its
outstanding common shares at an average price of $28.91 per share, or $74.2
million. From October 1, 2009 through November 9, 2009, the Company repurchased
an additional 185,000 shares for a total of $6.8 million. At November 9, 2009,
the Company had approximately $219 million remaining under its current $300
million authorization.
Supplemental Information
On October 9, 2009, subsequent to the year ended September 30, 2009, the Company
entered into a three-year $250 million credit facility with a multi-bank
syndicate. This credit facility contains a $25 million sub-limit for the
issuance of letters of credit. This credit facility replaces the previous $200
million five-year credit facility dated May 23, 2005. Borrowings under this
facility accrue interest at LIBOR plus 200-300 basis points or a base rate plus
100 to 200 basis points. Borrowings are repayable at expiration of the facility
on October 9, 2012 and quarterly commitment fees ranging from 30-50 basis points
are charged under the credit facility. The outstanding letters of credit of
$10.4 million under the current credit facility were transferred to this new
credit facility in fiscal 2010. Additional information can be found in the
Company`s Form 8-K dated October 9, 2009.
Business Outlook
In addition to reporting results in accordance with U.S. GAAP, the Company
assesses its performance once unusual items have been removed. The following
guidance reflects the Company`s expectations for fiscal 2010 on this underlying
basis, which excludes the impact of unusual items in the prior-year:
* Low- to mid-single digit total Company net revenue growth, with solid growth
in Consulting, a flat performance in Benefits Outsourcing, and a decline in HR
BPO;
* Diluted earnings per share of $2.85 to $2.95, with operating income growth
moderately exceeding diluted EPS growth, an effective tax rate in the range of
37 to 38 percent, and continued execution against its share repurchase
authorization.
"While we are seeing some positive signs in terms of customer demand, our
guidance is not dependent on a meaningful recovery," said Russ Fradin, chairman
and chief executive officer. "As our clients continue to grapple with how to
succeed in this economy, we are confident that our thinking and our services are
clearly part of the solution. We intend to build on last year`s success and
deliver top- and bottom-line growth in the coming year."
Conference Call
At 7:30 a.m. (CT) today, management will host a conference call with investors
to discuss fiscal 2009 fourth quarter results. The live presentation is
accessible through the Investor Relations section of Hewitt`s website at
www.hewitt.com. The webcast will be archived on the site for approximately one
month.
About Hewitt Associates
Hewitt Associates (NYSE: HEW) provides leading organizations around the world
with expert human resources consulting and outsourcing solutions to help them
anticipate and solve their most complex benefits, talent, and related financial
challenges. Hewitt works with companies to design, implement, communicate, and
administer a wide range of human resources, retirement, investment management,
health care, compensation, and talent management strategies. With a history of
exceptional client service since 1940, Hewitt has offices in more than 30
countries and employs approximately 23,000 associates who are helping make the
world a better place to work. For more information, please visit www.hewitt.com.
Forward-Looking Information
This presentation contains forward-looking statements within the meaning of the
Private Securities Litigation Reform Act of 1995. Such statements are based upon
the current beliefs and expectations of Hewitt's management and are subject to
significant risks and uncertainties. Actual results may differ from those set
forth in the forward-looking statements. Factors that could cause actual results
to differ materially from those expressed or implied include general economic
conditions and the factors discussed under the "Risk Factors" heading in the
Business section of the Company`s most recent annual report on Form 10-K filed
with the Securities and Exchange Commission ("SEC") and available at the SEC's
internet site (www.sec.gov). Hewitt disclaims any obligation to publicly update
or revise any forward-looking statements, whether as a result of new
information, future events, or any other reason.
1 In assessing operating performance, the Company also reviews its results once
unusual adjustments have been removed. The Company believes that doing so
provides a better understanding of underlying operating performance. A
reconciliation of GAAP to underlying net revenues, operating income, net income,
earnings per share, free cash flow, and Adjusted EBITDA (each a non-GAAP
measure) is included in this press release.
2 HR BPO divested assets include Latin America (February 2009), and relocation
services (March 2009). Post-disposition amounts have been excluded from
"underlying" and "as adjusted" amounts for year-over-year comparative purposes.
3 HR BPO divested assets include Cyborg (January 2008), Latin America (February
2009), and relocation services (March 2009). Cyborg prior period results and
Latin America and relocation services comparative post-disposition amounts have
been excluded from "underlying" and "as adjusted" amounts for year-over-year
comparative purposes.
4 Free cash flow, a non GAAP measure, is cash flow from operations less capital
expenditures and capitalized software costs. The Company believes this measure
provides useful information related to the Company`s liquidity, including but
not limited to its ability to reduce debt, make strategic investments, and
repurchase stock. The Company views free cash flow as a supplement to, and not a
substitute for, GAAP measures of liquidity included in its consolidated
statements of cash flows.
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands except for share and per share amounts)
Three Months Ended Year Ended
September 30, September 30,
2009 2008 % Change 2009 2008 % Change
Revenues:
Revenues before reimbursements (net revenues) (1) $ 757,742 $ 806,689 (6.1)% $ 3,003,766 $ 3,151,389 (4.7)%
Reimbursements 16,294 17,840 (8.7)% 69,794 76,259 (8.5)%
Total revenues 774,036 824,529 (6.1)% 3,073,560 3,227,648 (4.8)%
Operating expenses:
Compensation and related expenses 472,210 525,758 (10.2)% 1,875,401 2,042,623 (8.2)%
Goodwill and asset impairment - 1,621 n/m 4,159 4,117 1.0%
Reimbursable expenses 16,294 17,840 (8.7)% 69,794 76,259 (8.5)%
Other operating expenses 145,267 183,282 (20.7)% 558,075 624,989 (10.7)%
Selling, general and administrative expenses 34,436 41,758 (17.5)% 141,361 202,483 (30.2)%
Gain on sale of businesses - - n/m (9,379) (35,667) (73.7)%
Total operating expenses 668,207 770,259 (13.2)% 2,639,411 2,914,804 (9.4)%
Operating income 105,829 54,270 95.0% 434,149 312,844 38.8%
Other (expense) income, net:
Interest expense (9,821) (11,130) (11.8)% (39,979) (24,788) 61.3%
Interest income 170 4,480 (96.2)% 7,410 22,023 (66.4)%
Other income, net 2,016 531 279.7% 8,140 6,365 27.9%
Total other (expense) income, net (7,635) (6,119) 24.8% (24,429) 3,600 n/m
Income before income taxes 98,194 48,151 103.9% 409,720 316,444 29.5%
Provision for income taxes 33,770 16,599 103.4% 144,595 128,302 12.7%
Net income $ 64,424 $ 31,552 104.2% $ 265,125 $ 188,142 40.9%
Earnings per share:
Basic $ 0.70 $ 0.33 $ 2.84 $ 1.90
Diluted (2) $ 0.68 $ 0.32 $ 2.78 $ 1.85
Weighted average shares:
Basic 92,560,989 95,167,179 93,400,271 98,791,739
Diluted 94,707,255 98,163,780 95,390,026 101,970,321
(1) Net revenues include $11,989 and $9,752 of third-party supplier revenues for
the three months ended September 30, 2009 and 2008, respectively, and $42,776
and $40,498 for the year ended September 30, 2009 and 2008, respectively.
Generally, the third-party supplier arrangements are marginally profitable. The
related third-party supplier expenses are included in other operating expenses.
(2) Debt securities convertible into 1,870,748 shares of Class A common stock
were outstanding in the three months and year ended September 30, 2008, but were
not included in the computation of diluted earnings per share because the effect
of including the convertible debt securities would be antidilutive. There were
no convertible debt securities outstanding at September 30, 2009.
HEWITT ASSOCIATES, INC.
UNDERLYING NET REVENUES, OPERATING INCOME, NET INCOME, AND
EARNINGS PER SHARE
(Unaudited)
(In thousands except for share and per share amounts)
In assessing operating performance, the Company also reviews its results once unusual adjustments have been removed. The Company believes that doing so provides a better understanding of underlying operating performance. For the three months and year ended September 30, 2009 and September 30, 2008, underlying net revenues, operating income, net income, and earnings per share were:
Three Months Ended Year Ended
September 30, September 30,
2009 2008 2009 2008
Revenues before reimbursements (net revenues), as reported $ 757,742 $ 806,689 $ 3,003,766 $ 3,151,389
Adjustments:
HR BPO divestitures (1) - (9,640 ) - (31,536 )
HR BPO contract restructurings - - - (23,086 )
Total adjustments - (9,640 ) - (54,622 )
Underlying revenues before reimbursements (net revenues) 757,742 797,049 3,003,766 3,096,767
Operating income, as reported 105,829 54,270 434,149 312,844
Adjustments:
HR BPO divestitures (1) - (783 ) (9,379 ) (40,518 )
Real estate rationalization (2) - 34,429 - 44,775
HR BPO contract restructurings - (1,525 ) - 11,798
Total adjustments - 32,121 (9,379 ) 16,055
Underlying operating income 105,829 86,391 424,770 328,899
% of underlying net revenues 14.0 % 10.8 % 14.1 % 10.6 %
Total other income (expense), net (7,635 ) (6,119 ) (24,429 ) 3,600
HR BPO divestitures (1) - (1,104 ) - (1,131 )
Add A/R interest write-off (3) - - - 273
Underlying other income, net (7,635 ) (7,223 ) (24,429 ) 2,742
Underlying pretax income 98,194 79,168 400,341 331,641
Provision for income taxes (4) 33,770 30,876 145,695 129,340
Underlying net income $ 64,424 $ 48,292 $ 254,646 $ 202,301
Underlying earnings per share:
Basic $ 0.70 $ 0.51 $ 2.73 $ 2.05
Diluted $ 0.68 $ 0.49 $ 2.67 $ 1.98
Shares outstanding:
Basic 92,560,989 95,167,179 93,400,271 98,791,739
Diluted 94,707,255 98,163,780 95,390,026 101,970,321
(1) HR BPO divested assets include Cyborg (January 2008), Latin America
(February 2009), and relocation services (March 2009). Cyborg prior period
results and Latin America and relocation services comparative post-disposition
amounts have been excluded from "underlying" and "as adjusted" amounts for
year-over-year comparative purposes. Adjustments to net revenues for the three
months and year ended September 30, 2008 include third-party supplier revenues
of $193 and $366, respectively, related to HR BPO divested assets. Adjustments
to operating income for the three months and year ended September 30, 2008
reflect a $221 reduction to the $35,667 "gain on sale of business" reported in
the Q2 FY08 Consolidated Statement of Operations. This reduction pertains to
certain Cyborg employee-related expenses recorded in the second quarter of
fiscal 2008. Adjustments to other income (expense), net primarily relate to the
exclusion of interest income and gain on assets, net of interest expense for
divested HR BPO Latin America and relocation services operations.
(2) Charges related to the Company's real estate rationalization initiative were
excluded from operating income in deriving underlying operating income, net
income, EPS, and Adjusted EBITDA for the three months and year ended September
30, 2008. Charges related to ongoing real estate optimization initiatives and
updated real estate sublease rental assumptions of $5,675 and $14,855 are
included in the reported and underlying results for the three months and year
ended September 30, 2009, respectively.
(3) Related to HR BPO contract restructurings and divestitures.
(4) The Company used an effective tax rate of 39.0% for the three months and
year ended September 30, 2008, for its underlying net income calculation. The
Company used an underlying effective tax rate of 36.4% for the year ended
September 30, 2009 to adjust for tax benefits associated with its HR BPO Latin
America divestiture. The Company believes this approximates the normalized
effective tax rate for the period.
HEWITT ASSOCIATES, INC.
BUSINESS SEGMENT RESULTS
(Dollars in thousands)
Business Segments Three Months Ended Year Ended
September 30, September 30,
2009 2008 % Change 2009 2008 % Change
Benefits Outsourcing
Segment net revenues $ 388,665 $ 387,910 0.2% $ 1,549,991 $ 1,550,110 (0.0)%
Segment income 87,205 66,635 30.9% 387,168 365,336 6.0%
Segment income as a percentage of segment revenues 22.4% 17.2% 25.0% 23.6%
HR BPO
Segment net revenues (1) $ 113,862 $ 135,142 (15.7)% $ 479,724 $ 554,854 (13.5)%
Segment loss (2,065) (21,620) (90.4)% (5,223) (83,277) (93.7)%
Segment loss as a percentage of segment revenues (1.8)% (16.0)% (1.1)% (15.0)%
Consulting
Segment net revenues $ 265,176 $ 295,833 (10.4)% $ 1,011,781 $ 1,094,323 (7.5)%
Segment income 43,720 49,350 (11.4)% 143,769 143,217 0.4%
Segment income as a percentage of segment revenues 16.5% 16.7% 14.2% 13.1%
Total Company
Segment net revenues (1) $ 767,703 $ 818,885 (6.3)% $ 3,041,496 $ 3,199,287 (4.9)%
Intersegment revenues (9,961) (12,196) (18.3)% (37,730) (47,898) (21.2)%
Net revenues 757,742 806,689 (6.1)% 3,003,766 3,151,389 (4.7)%
Reimbursements 16,294 17,840 (8.7)% 69,794 76,259 (8.5)%
Total revenues $ 774,036 $ 824,529 (6.1)% $ 3,073,560 $ 3,227,648 (4.8)%
Segment income $ 128,860 $ 94,365 36.6% $ 525,714 $ 425,276 23.6%
Unallocated shared services costs 23,031 40,095 (42.6)% 91,565 112,432 (18.6)%
Operating income $ 105,829 $ 54,270 95.0% $ 434,149 $ 312,844 38.8%
(1) HR BPO net revenues include $11,989 and $9,752 of third-party supplier
revenues for the three months ended September 30, 2009 and 2008, respectively,
and $42,776 and $40,498 for the year ended September 30, 2009 and 2008,
respectively. Generally, the third-party supplier arrangements are marginally
profitable. The related third-party supplier expenses are included in other
operating expenses.
HEWITT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS
(In thousands except for share and per share amounts)
September 30, September 30,
2009 2008
ASSETS
Current Assets:
Cash and cash equivalents $ 581,642 $ 541,494
Short-term investments 60,994 -
Client receivables and unbilled work in process, less allowances of $14,381 and $18,029 at September 30, 2009 and September 30, 2008, respectively 527,272 655,543
Prepaid expenses and other current assets 169,533 129,529
Funds held for clients 131,801 102,518
Short-term deferred contract costs, net 89,919 83,444
Deferred income taxes, net 34,119 34,104
Total current assets 1,595,280 1,546,632
Non-Current Assets:
Deferred contract costs, less current portion 254,905 287,060
Property and equipment, net 384,254 385,885
Other intangible assets, net 191,479 206,822
Goodwill 412,745 364,141
Long-term investments 54,442 124,530
Other non-current assets, net 31,535 63,762
Total non-current assets 1,329,360 1,432,200
Total Assets $ 2,924,640 $ 2,978,832
LIABILITIES
Current Liabilities:
Accounts payable $ 20,790 $ 15,880
Accrued expenses 164,724 239,521
Funds held for clients 131,801 102,518
Advanced billings to clients 137,447 158,238
Accrued compensation and benefits 393,463 403,611
Short-term deferred contract revenues, net 61,356 52,733
Short-term debt - 17,602
Current portion of long-term debt and capital lease obligations 36,282 133,002
Total current liabilities 945,863 1,123,105
Non-Current Liabilities:
Deferred contract revenues, less current portion 192,056 237,648
Debt and capital lease obligations, less current portion 618,561 650,182
Other non-current liabilities 223,835 240,637
Deferred income taxes, net 84,023 77,058
Total non-current liabilities 1,118,475 1,205,525
Total Liabilities $ 2,064,338 $ 2,328,630
HEWITT ASSOCIATES, INC.
CONSOLIDATED BALANCE SHEETS - Continued
(In thousands except for share and per share amounts)
September 30, September 30,
2009 2008
STOCKHOLDERS` EQUITY
Stockholders` Equity:
Class A common stock, par value $0.01 per share, 750,000,000 shares authorized, 132,844,269 and 130,390,880 shares issued, 93,535,270 and 94,227,120 shares outstanding, as of September 30, 2009 and September 30, 2008, respectively $ 1,328 $ 1,304
Additional paid-in capital 1,662,687 1,579,077
Cost of common stock in treasury, 39,308,999 and 36,163,760 shares of Class A common stock as of September 30, 2009 and September 30, 2008, respectively (1,277,815 ) (1,183,427 )
Retained earnings 469,777 206,558
Accumulated other comprehensive income, net 4,325 46,690
Total stockholders` equity 860,302 650,202
Total Liabilities and Stockholders` Equity $ 2,924,640 $ 2,978,832
HEWITT ASSOCIATES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
Year Ended
September 30,
2009 2008
Cash flows from operating activities:
Net income $ 265,125 $ 188,142
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization, including amortization of deferred contract revenues and costs 164,693 174,767
Goodwill and asset impairment 4,159 4,117
Gain on sale of businesses (9,379 ) (35,667 )
Share-based compensation 54,329 48,345
Deferred income taxes 17,332 6,976
Fair value adjustment related to financial assets 18 -
Gain on sale of investments - (2,581 )
Changes in operating assets and liabilities, net of effect of acquisitions and dispositions:
Client receivables and unbilled work in process 102,982 (34,271 )
Prepaid expenses and other current assets (35,441 ) (51,155 )
Deferred contract costs (92,393 ) (102,214 )
Other assets 2,600 (22,646 )
Accounts payable 5,219 (4,962 )
Accrued compensation and benefits (1,899 ) 34,787
Accrued expenses (56,422 ) 22,518
Advanced billings to clients (11,478 ) (1,515 )
Deferred contract revenues 44,607 96,077
Other long-term liabilities (21,054 ) 7,184
Net cash provided by operating activities 432,998 327,902
Cash flows from investing activities:
Purchases of investments - (426,675 )
Proceeds from sales of investments 5,300 513,064
Additions to property and equipment (127,907 ) (117,556 )
Cash paid for acquisitions and transaction costs, net of cash acquired (61,764 ) (134,081 )
Cash received for sale of businesses 1,105 42,420
Net cash used in investing activities (183,266 ) (122,828 )
Cash flows from financing activities:
Proceeds from the exercise of stock options 20,052 43,606
Excess tax benefits from the exercise of share-based awards 7,002 10,227
Proceeds from short-term borrowings 18,119 185,468
Proceeds from long-term borrowings - 539,751
Repayments of short-term borrowings, capital leases and long-term debt (153,062 ) (225,977 )
Purchase of Class A common shares for treasury (94,388 ) (586,227 )
Net cash used in financing activities (202,277 ) (33,152 )
Effect of exchange rate changes on cash and cash equivalents (7,307 ) (9,171 )
Net increase in cash and cash equivalents 40,148 162,751
Cash and cash equivalents, beginning of year 541,494 378,743
Cash and cash equivalents, end of year $ 581,642 $ 541,494
Supplementary disclosure of cash paid during the period:
Interest paid $ 41,708 $ 20,730
Income taxes paid $ 127,592 $ 136,347
Schedule of non-cash financing activities:
Capital leases $ 5,994 $ 13,278
HEWITT ASSOCIATES, INC.
FREE CASH FLOW RECONCILIATION4
(Unaudited)
(Amounts in thousands)
Year Ended
September 30,
2009 2008
Net cash provided by operating activities $ 432,998 $ 327,902
Additions to property and equipment (127,907 ) (117,556 )
Free Cash Flow $ 305,091 $ 210,346
HEWITT ASSOCIATES, INC.
ADJUSTED EBITDA RECONCILIATION
(Unaudited)
(Amounts in thousands)
Year Ended
September 30,
2009 2008
Reported net income $ 265,125 $ 188,142
Depreciation and amortization (1) 164,693 170,847
Provision for income taxes 144,595 128,302
Interest expense, net 32,569 2,765
EBITDA 606,982 490,056
Adjustments:
HR BPO divestitures (2) (9,379 ) (40,518 )
Real estate rationalization (3) - 44,775
HR BPO contract restructuring - 11,798
Underlying adjustments (9,379 ) 16,055
Normalized depreciation and amortization addbacks (1) - (539 )
Other (income) expense, excluding interest (4) (8,140 ) (6,365 )
Total adjustments (17,519 ) 9,151
Adjusted EBITDA before certain non-cash addbacks 589,463 499,207
Certain non-cash addbacks:
Asset impairment 4,159 2,927
Net deferrals (5) (40,087 ) (5,558 )
Deferred internal software development costs (40,379 ) (23,085 )
Share-based compensation (6) 54,324 52,084
Other (loss reserve / provision for bad debt) (867 ) (8,229 )
Total certain non-cash addbacks (22,850 ) 18,139
Adjusted EBITDA $ 566,613 $ 517,346
(1) For the year ended September 30, 2008, depreciation and amortization
includes $539 of adjustments related to HR BPO contract restructurings and
divestitures and real estate rationalization. Additionally, discount accretion
on the Exult convertible debt of $3,920 is excluded from amounts for the year
ended September 30, 2008.
(2) HR BPO divested assets include Cyborg (January 2008), Latin America
(February 2009), and relocation services (March 2009). Cyborg prior period
results and Latin America and relocation services comparative post-disposition
amounts have been excluded from "underlying" and "as adjusted" amounts for
year-over-year comparative purposes. Adjustments to operating income for the
year ended September 30, 2008 reflect a $221 reduction to the $35,667 "gain on
sale of business" reported in the Q2 FY08 Consolidated Statement of Operations.
This reduction pertains to certain Cyborg employee-related expenses recorded in
the second quarter of fiscal 2008.
(3) Charges related to the Company's real estate rationalization initiative were
excluded from operating income in deriving underlying operating income, net
income, EPS, and Adjusted EBITDA for the year ended September 30, 2008. Charges
related to ongoing real estate optimization initiatives and updated real estate
sublease rental assumptions of $14,855 are included in the reported and
underlying results and Adjusted EBITDA for the year ended September 30, 2009.
(4) For the year ended September 30, 2009, other (income) expense, excluding
interest includes a non-cash impairment of $18 related to auction rate
securities.
(5) Net deferrals as presented and the net of revenue and cost deferrals in the
Statements of Cash Flows vary by $7,699 and $579 for the Year Ended September
30, 2009 and 2008, respectively, relating to Balance Sheets and Statements of
Operations reclassifications and the settlement of a client contract dispute in
the current year.
(6) Share-based compensation as presented in the Statements of Cash Flows varies
by $5 and $3,739 for the year ended September 30, 2009 and 2008, respectively,
due to current year amortization expense for a deferred compensation arrangement
related to an acquisition in the prior year, the impact of foreign exchange in
the current year, and the reclassification of certain prior-year amounts to
conform to the current year presentation.
Hewitt Associates, Inc.
Investors:
Sean McHugh, 847-442-4176
sean.mchugh@hewitt.com
Media:
Julie Macdonald, 847-771-0076
julie.macdonald@hewitt.com
Copyright Business Wire 2009
