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		27-0676603
(State or other jurisdiction of		(I.R.S. Employer
incorporation or organization)		Identification No.)

875 Third Avenue
New York, NY		10022
(Address of principal executive offices)		(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 May 12, 2010 there were 42,899,474 outstanding shares of Class A Common Stock and 4,221,096 of Restricted Class A Common Stock at a par value of $0.01 per share; 12,798,118 outstanding shares of Class B-1 Common Stock at a par value of $0.01; 5,561,630 outstanding shares of Class B-2 Common Stock at a par value of $0.01; 5,561,630 outstanding shares of Class B-3 Common Stock at a par value of $0.01; and 5,399,778 outstanding shares of Class B-4 Common Stock at a par value of $0.01.

 

 

TOWERS WATSON & CO.

INDEX TO FORM 10-Q

For the Three and Nine Months Ended March 31, 2010

PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Condensed Consolidated Statements of Operations—Three and Nine Months Ended March 31, 2010 and 2009			1
Condensed Consolidated Balance Sheets—March 31, 2010 and June 30, 2009			2
Condensed Consolidated Statements of Cash Flows—Nine Months Ended March 31, 2010 and 2009			3
Condensed Consolidated Statement of Changes in Stockholders’ Equity—Nine Months Ended March 31, 2010			4
Notes to the Condensed Consolidated Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			33
Item 3. Quantitative and Qualitative Disclosures About Market Risk			67
Item 4. Controls and Procedures			67
PART II. OTHER INFORMATION
Item 1. Legal Proceedings			68
Item 1A. Risk Factors			68
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			69
Item 3. Defaults Upon Senior Securities			69
Item 4. Removed and Reserved			69
Item 5. Other Information			69
Item 6. Exhibits			70
Signatures			72
Certifications
EX-21
EX-31.1
EX-31.2
EX-32

PART I. FINANCIAL INFORMATION

Item 1. Financial Statements (Unaudited)

TOWERS WATSON & CO.

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

		Three months ended March 31,								Nine months ended March 31,
		2010				2009				2010				2009
Revenue		$	803,963			$	416,994			$	1,637,922			$	1,279,509
Costs of providing services:
Salaries and employee benefits			537,706				260,384				1,062,251				787,751
Professional and subcontracted services			52,139				30,939				102,004				91,947
Occupancy			35,735				17,787				73,402				54,529
General and administrative expenses			69,999				38,563				141,454				131,258
Depreciation and amortization			32,834				17,531				69,019				55,265
Transaction and integration expenses			24,405				—				49,697				—
			752,818				365,204				1,497,827				1,120,750
Income from operations			51,145				51,790				140,095				158,759
(Loss)/Income from affiliates			(1,049	)			3,336				(1,213	)			6,398
Interest income			1,169				294				1,708				1,647
Interest expense			(2,273	)			(553	)			(3,326	)			(2,181	)
Other non-operating income			704				1,786				3,604				3,466
Income before income taxes			49,696				56,653				140,868				168,089
Provision for income taxes			40,329				15,927				77,792				52,355
Net income			9,367				40,726				63,076				115,734
Less: Net income attributable to non-controlling interests			552				135				608				432
Net Income attributable to controlling interests		$	8,815			$	40,591			$	62,468			$	115,302
Earnings per share:
Net income — Basic		$	0.12			$	0.95			$	1.16			$	2.70
Net income — Diluted		$	0.12			$	0.95			$	1.16			$	2.69
Weighted average shares of common stock, basic (000)			76,414				42,609				53,777				42,705
Weighted average shares of common stock, diluted (000)			76,416				42,773				53,920				42,869

See accompanying notes to the
condensed consolidated financial statements

TOWERS WATSON & CO.

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

		March 31,				June 30,
		2010				2009
Assets
Cash and cash equivalents		$	474,950			$	209,832
Short-term investments			124,173				—
Receivables from clients:
Billed, net of allowances of $10,182 and $4,452			411,126				190,991
Unbilled, at estimated net realizable value			257,091				111,419
			668,217				302,410
Other current assets			202,063				53,358
Total current assets			1,469,403				565,600
Fixed assets, net			237,599				174,857
Deferred income taxes			162,352				111,912
Goodwill			1,804,128				542,754
Intangible assets, net			708,555				186,233
Other assets			156,645				44,963
Total Assets		$	4,538,682			$	1,626,319
Liabilities
Accounts payable, accrued liabilities and deferred income		$	396,456			$	281,946
Reinsurance payables			153,109				—
Note payable			200,967				—
Other current liabilities			143,470				51,716
Total current liabilities			894,002				333,662
Revolving credit facility			15,000				—
Accrued retirement benefits			908,154				292,555
Professional liability claims reserve			341,323				43,229
Other noncurrent liabilities			153,636				102,237
Total Liabilities			2,312,115				771,683
Commitments and contingencies
Stockholders’ Equity
Class A Common Stock — $.01 par value:
300,000,000 shares authorized; 47,051,134 and 0 issued and 47,051,134 and 0 outstanding			470				—
99,000,000 shares authorized; 0 and 43,813,451 issued and 0 and 42,657,431 outstanding			—				438
Class B Common Stock — $.01 par value:
93,500,000 shares authorized; 29,374,775 and 0 issued and 29,374,775 and 0 outstanding			294				—
Additional paid-in capital			1,750,520				452,938
Treasury stock, at cost - 0 and 1,156,020 shares			—				(63,299	)
Retained earnings			659,007				608,634
Accumulated other comprehensive loss			(195,291	)			(145,073	)
Total Stockholders’ Equity			2,215,000				853,638
Non-controlling interest			11,567				998
Total Equity			2,226,567				854,636
Total Liabilities and Total Equity		$	4,538,682			$	1,626,319

See accompanying notes to the
condensed consolidated financial statements

Condensed Consolidated Statements of Cash Flows
(Thousands of U.S. Dollars)
(Unaudited)

		Nine months ended March 31,
		2010				2009
Cash flows (used in)/from operating activities:
Net income			63,076				115,734
Adjustments to reconcile net income to net cash from operating activities:
Provision for doubtful receivables from clients			6,192				4,113
Depreciation			49,683				44,597
Amortization of intangible assets			19,336				10,668
Provision for deferred income taxes			63,364				7,446
Equity from affiliates			1,605				(6,171	)
Stock based compensation			27,016				2,901
Other, net			(3,117	)			(2,191	)
Changes in operating assets and liabilities (net of business acquisitions)
Receivables from clients			(53,004	)			34,847
Other current assets			(46,470	)			(7,348	)
Other noncurrent assets			(14,627	)			3,603
Accounts payable, accrued liabilities and deferred income			(311,237	)			(47,020	)
Reinsurance payables			37,614				—
Accrued retirement benefits			(6,313	)			(40,789	)
Professional liability claims reserves			14,870				(8,073	)
Other current liabilities			(4,858	)			(14,060	)
Other noncurrent liabilities			(32,698	)			(14,363	)
Cash flows (used in)/from operating activities:			(189,568	)			83,894
Cash flows from/(used in) investing activities:
Cash paid for business acquisitions			(200,025	)			(518	)
Cash acquired from business acquisitions			721,708				—
Purchases of fixed assets			(11,479	)			(29,772	)
Capitalized software costs			(15,638	)			(14,503	)
Purchases of held-to-maturity securities			(17,789	)			—
Redemption of held-to-maturity securities			5,623				—
Investment in affiliates			—				(2,007	)
Contingent proceeds from divestitures			3,336				3,466
Cash flows from/(used in) investing activities:			485,736				(43,334	)
Cash flows used in financing activities:
Borrowings under Credit Facility			15,368				40,223
Dividends paid			(9,562	)			(9,586	)
Repurchases of common stock			(34,922	)			(77,443	)
Issuances of common stock and excess tax benefit			4,447				4,949
Cash flows used in financing activities:			(24,669	)			(41,857	)
Effect of exchange rates on cash			(6,381	)			(5,043	)
Increase/(decrease) in cash and cash equivalents			265,118				(6,340	)
Cash and cash equivalents at beginning of period			209,832				124,632
Cash and cash equivalents at end of period		$	474,950			$	118,292
Supplemental disclosures:
Cash paid for interest		$	1,884			$	2,091
Cash paid for income taxes, net of refunds		$	48,823			$	46,889

See accompanying notes to the
condensed consolidated financial statements

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

		Common
		Stock																				Accumulated
		Outstanding								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			—				—				—				—				62,468				—				62,468
Foreign currency translation adjustment, net of tax			—				—				—				—				—				(50,218	)			(50,218	)
Total comprehensive income																											12,250
Class A common stock:
Cash dividends declared			—				—				—				—				(12,095	)			—				(12,095	)
Repurchases of common stock			(792	)			—				—				(34,922	)			—				—				(34,922	)
Issuances of common stock and excess tax benefit			937				6				21,104				17,640				—				—				38,750
Retirement of treasury stock			—				(16	)			(80,565	)			80,581				—				—				—
Stock issued for consideration of Merger:
Issuance of class A restricted shares			4,249				42				53,617				—				—				—				53,659
Issuance of class B1-B4 shares			29,375				294				1,303,426				—				—				—				1,303,720
Balance at March 31, 2010			76,426			$	764			$	1,750,520			$	—			$	659,007			$	(195,291	)		$	2,215,000

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 subsequently changed its name to Towers Watson & Co. (“Towers Watson”, the “Company” or “we”). Since the consummation of the Merger, Towers Perrin changed its name to Towers Watson Pennsylvania Inc.; and Watson Wyatt changed its name to Towers Watson Delaware Holdings Inc. However, for ease of reference, we continue to use the legacy Towers Perrin and Watson Wyatt names throughout this Report.

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 owned 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 through December 31, 2009 have become those of the new registrant, Towers Watson. Towers Watson’s condensed consolidated financial statements as of and for the three and nine months ended March 31, 2010 include the results of Towers Perrin’s operations beginning January 1, 2010.

The accompanying unaudited quarterly condensed consolidated financial statements of Towers Watson & Co. 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 (now found under the filings of “Towers Watson Delaware Holdings Inc.”) with the SEC and 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. Both of such reports may be accessed via EDGAR on the SEC’s web site at www.sec.gov. Balance sheet data as of June 30, 2009 was derived from Watson Wyatt’s audited financial statements.

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

The results of operations for the nine months ended March 31, 2010 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 those estimates used in calculating Merger consideration and fair value of tangible and intangibles, net assets of Towers Perrin as of January 1, 2010, estimated bonuses and anticipated tax liabilities that affect the amounts reported in the condensed consolidated financial statements and related notes.

Note 2 —Merger with Towers Perrin.

Consideration Exchanged

The consummation of the Merger resulted in the following:

	•		Each share of Watson Wyatt Class A common stock, par value $0.01 per share 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, par value $0.01 per share (the “Class A Common Stock.”). In addition, outstanding deferred rights to receive Watson Wyatt Class A 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 Class A 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 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. Shares of Towers Watson common stock issued to Towers Perrin shareholders (other than 209,013 shares issued to Towers Perrin shareholders located in certain countries (as detailed below) and other than shares issued to Towers Perrin shareholders who 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) 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. Outstanding shares of Towers Watson Class B common stock generally 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 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 (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 generally 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 (“Restricted Towers Watson Class A Common Stock”). At the time of the Merger, the restricted stock units were converted using the Merger Agreement exchange ratio (545.627600377) into Towers Watson Restricted Class A common stock. The restriction on the underlying shares lapses over the service period for the employees, which is from grant date in October 2009 to January 1, 2011 through 2013, annually. The Towers Watson Restricted Class A common stock is held by an administrator or in a trust and the dividends accrue and the shares are voted in blocks according to provisions in the Merger Agreement.

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 were 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 were 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, three years after the Merger, 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.

The Towers Watson common stock and Towers Watson Notes issued in conjunction with the Merger were registered under the Securities Act of 1933, as amended, pursuant to 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 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.

For a more complete description of the Merger Agreement and Amendment No.1 to the Merger Agreement, please see the registration statement on Form S-4/A filed by Towers Watson with the SEC (Registration No. 333-161705) and declared effective on November 9, 2009.

Fair Value of Consideration

The business combination has been accounted for using the acquisition method of accounting as prescribed in Accounting Standards Codification (“ASC”) 805, Business Combinations, (Statement of Financial Accounting Standards No. 141R). The total consideration of $1,757,379,000 is comprised of $200 million of cash and $200 million of notes payable to Class R shareholders and of stock consideration for the following: Class A shares for certain foreign shareholders of $9,932,000, Restricted Class B-1, B-2, B-3 and B-4 shares of $1,303,718,000 and Restricted Class A shares of $43,729,000.

The consideration given in the form of cash and notes payable was measured in the amount of cash paid and notes payable issued. According to ASC 805 the fair value of the securities traded in the market the day before the merger is consummated is used to determine the fair value of the equity consideration. As accounting predecessor, Watson Wyatt’s closing share price on the NYSE on December 31, 2009 of $47.52 was used to determine the fair value of equity consideration. The equity consideration for the Class A shares to certain foreign shareholders of $9,932,000 is valued at $47.52 multiplied by 209,013, the shares issued. The estimated fair value of the restricted Class B1-B4 shares of $1,303,718,000 was calculated at $47.52 multiplied by 29,483,008, the shares issued and using a discount to approximate the fair value of the one, two, three and four-year period of restriction lapse until the shares are converted into freely-tradable Towers Watson Class A common stock. The estimated fair value of the Restricted Class A shares of $43,729,000 includes (i) the vested portion of the Towers Perrin restricted stock units which was earned by employees related to the service condition from grant date in October 2009 until the Merger date January 1, 2010 valued at $47.52 per share and (ii) 10 percent of the unvested portion of the Towers Perrin restricted stock units which is the estimate of forfeitures that will result from employees not fulfilling the service condition during the three year vesting post-Merger which will be proportionately distributed to Class F shareholders, the Towers Perrin shareholders as of the Merger date.

PCIC

As of December 31, 2009, 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 applied the equity method of accounting for its investment in PCIC through December 31, 2009. Towers Watson’s financial statements as of and for the nine month period ended March 31, 2010, included herein, reflect Watson Wyatt’s equity method of accounting for PCIC for the six month period ended December 31, 2009 which resulted in a recording a loss from affiliates of $113 thousand.

As a result of the Merger, Towers Watson has a majority ownership interest in PCIC and consequently retained a majority of the economic risks and rewards of PCIC. As a result, Towers Watson now consolidates PCIC’s financial position and results of operations in its consolidated financial statements beginning January 1, 2010. All intercompany accounts and transactions have been eliminated in consolidation.

Fair value of net assets acquired and intangibles

According to ASC805, the assets acquired and liabilities of Towers Perrin assumed by Towers Watson were recorded at their respective fair values as of the combination date, January 1, 2010. The valuation was performed by a third-party valuation specialist who assisted management in the determination of estimated fair value including significant estimates and assumptions. Management also evaluated the methodology and valuation models to determine the estimated useful lives and amortization method.

Customer relationships

Customer relationship intangible was identified separate from goodwill based on determination of the length, strength and contractual nature of the relationship that Towers Perrin shared with its clients. This customer relationship information was analyzed via the application of the multi-period excess earnings method, an income approach. Several assumptions used in the income approach are revenue growth, retention rate, operating expenses, charge for contributory assets and trade name and the discount rate used to calculate the present value of the cash flows. The customer relationship, valued at $140.8 million, is amortized on an accelerated amortization basis over the estimated useful life of 12 years.

Trademarks and trade names

The Towers Perrin trade name was identified separate from goodwill based on evaluation of the importance of the Towers Perrin trade name to the Towers Perrin business through understanding the brand recognition in the market, importance of the trade name to the customer, and the amount of revenue associated with the trade name. In developing the estimated fair value, the trade name was valued utilizing the relief from royalty method, an income approach. Significant assumptions used in the relief from royalty method were revenue growth, royalty rate, and discount rate used to calculate the present value of cash flows. The Towers Perrin trade name, valued at $275.5 million, has an estimated indefinite lived asset and is not amortized but tested annually for impairment or if factors exist to indicate impairment.

Developed technology

Developed technology identified separately from goodwill consists of intellectual property such as proprietary software used internally for revenue producing activities or by clients. Developed technology can provide significant advantages to the owner in terms of product differentiation, cost advantages and other competitive advantages. Three external-use technologies of Towers Perrin: Moses, EVALUE and the Global Compensation technology are offered for sale or subscription and have associated revenue streams. In addition, twenty-two internally developed technology applications were identified as primary applications used in Towers Perrin’s business but did not have associated revenue streams. The external-use technologies, for which revenue sources were directly identified, were valued by applying the multi-period excess earnings method, an income approach. The internal-use technologies were valued by applying the cost to replicate method, a cost approach. Significant assumptions used in the multi-period excess earnings method were revenue growth, decay rate, cost of revenue, operating expenses, charge for use of contributory assets and trade name and discount rate used to calculate the present value of the cash flows. The external-use technology, valued at $58.2 million, is amortized on an accelerated basis over a weighted-average useful life of 3.6 years. Significant assumptions used in the cost to replicate method were cost to replace including the number and skill level of man hours and cost per hour based on fully burdened salary of staff; profit margin if the work were performed by a third-party; and obsolescence factor. The internal-use technology, valued at $67.2 million, is amortized on a straight-line basis over the weighted-average estimated useful life of 4.2 years.

Favorable and unfavorable lease contracts

Assets and liabilities for favorable and unfavorable lease contracts were identified separately from goodwill related for 39 of Towers Perrin’s material real estate leases agreements. The assets and liabilities were valued by comparing cash obligations for each material lease agreement to the estimated market rent at the time of the transaction. The resulting favorable or unfavorable positions are recorded gross as assets or liabilities on the balance sheet. Significant assumptions used in the valuation were market rent, annual escalation percentages based on current inflation rates and a discount rate used to calculate the present value of the cash flows. Both the assets for favorable lease agreements, valued at $12.1 million, and the liabilities for unfavorable lease agreements, valued at $28.1 million, are amortized on a straight-line basis over the life of the respective lease to occupancy costs. The weighted-average estimated useful life for the leases is 7.1 years.

As of the date of the filing of this quarterly report, the initial accounting for this business combination is not yet complete. Although the Company does not anticipate any significant adjustments, to the extent that the estimates used need to be refined, the Company will do so upon making that determination but not later than one year from the business combination date.

The table below sets forth a preliminary estimate of the Merger consideration transferred to Towers Perrin shareholders and the preliminary estimate of tangible and intangible net assets received in the Merger:

		January 1, 2010
		(In thousands, except share and per share data)
Calculation of Consideration Transferred
Cash paid										$	200,000
Notes payable issued to Towers Perrin shareholders											200,000
Towers Perrin shares converted to Towers Watson shares			42,489,840
Less Class R shares			(8,548,835	)
Less 10% of consideration in RSU’s			(4,248,984	)
Shares of Towers Watson stock issued							29,692,021
Closing price of Watson Wyatt stock, December 31, 2009						$	47.52
Average discount for restricted stock							7	%
Aggregate fair value of the Towers Watson common stock issued											1,313,650
Fair value of RSU’s assumed in the Merger											43,729
Total consideration transferred										$	1,757,379
Estimated Tangible and Intangible Net Assets:
Current assets						$	982,053
Other non-current assets							296,682
Identifiable intangible assets							553,844
Deferred tax asset, net							131,631
Current liabilities							(674,974	)
Other long-term liabilities							(823,212	)
Goodwill							1,291,355
Total estimated tangible and intangible net assets										$	1,757,379

The following unaudited pro forma combined statements of operations have been provided to present illustrative combined unaudited statements of operations for the nine months ended March 31, 2010 and 2009, giving effect to the business combination as if it had been completed on July 1, 2009 and July 1, 2008, respectively. The unaudited historical combined statement of operations for the three month period ended March 31, 2010 reflects the actual financial results of the combined Company. All other periods reflect the pro forma historical financial results from Watson Wyatt and Towers Perrin. The unaudited pro forma combined financial information shows the impact of the business combination on Watson Wyatt and Towers Perrin’s historical results of operations. The unaudited pro forma condensed combined statement of operation are presented for illustrative purposes only and are not indicative of the results of operations that might have occurred had the business combination actually taken place as of the dates specified, or that may be expected to occur in the future. We do not assume any benefits from any cost savings or synergies expected to result from the Merger, except for any cost savings or synergies actually realized by the Company for the three-month period ended March 31, 2010.

		Pro forma, as adjusted,
		Nine Months Ended
		March 31,
		2010				2009
Revenue		$	2,431,008			$	2,484,160
Costs of providing services:
Salaries and employee benefits			1,667,884				1,711,391
Professional and subcontracted services			181,908				229,936
Occupancy, communications and other			111,013				108,725
General and administrative expenses			188,954				255,634
Depreciation and amortization			99,534				102,537
Transaction and integration expenses			49,697				49,697
			2,298,990				2,457,920
Income from operations			132,018				26,240
Loss from affiliates			(1,024	)			(10,326	)
Interest income			3,489				7,231
Interest expense			(7,957	)			(10,252	)
Other non-operating income			8,885				17,320
Income before income taxes			135,411				30,213
Provision for income taxes			60,898				25,642
Net income			74,513				4,571
Less: Net income attributable to non-controlling interests			49				4,351
Net income attributable to controlling interests		$	74,464			$	220
Earnings per share:
Net income — Basic		$	0.97			$	0.00
Net income — Diluted		$	0.97			$	0.00
Weighted average shares of common stock, basic (000)			76,422				76,422
Weighted average shares of common stock, diluted (000)			76,565				76,565

Note 3 — Segment Information.

Towers Watson has three reportable operating segments or practice areas:

(1) Benefits Group
(2) Risk and Financial Services Group
(3) Talent and Rewards Consulting Group

Towers Watson’s chief operating decision maker is the chief executive officer. It was determined that Towers Watson operational data used by the chief operating decision maker is that of the new segments. Management bases strategic goals and decisions on these segments and the data presented below is more useful to assess the adequacy of strategic decisions, the method of achieving these strategies and related financial results. Historically Watson Wyatt had five reportable segments which have been retrospectively adjusted to the new post-Merger segments. The Benefits and Technology and Administrative Solutions segments were combined and reclassified into the Benefits Group. The Investment Consulting and Insurance & Financial Services segments were combined and reclassified into the Risk and Financial Services Group while the Human Capital Group became the Talent and Rewards Consulting 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 specified information about reported segments as of and for the three months ended March 31, 2010:

						Risk and Financial				Talent and Rewards
		Benefits Group				Services Group				Consulting Group				Total
Revenue (net of reimbursable expenses)		$	469,927			$	191,064			$	122,641			$	783,632
Net operating income			151,185				53,792				3,555				208,532
Receivables			421,198				143,457				109,439				674,094

The table below presents specified information about reported segments as of and for the three months ended March 31, 2009:

						Risk and Financial				Talent and Rewards
		Benefits Group				Services Group				Consulting Group				Total
Revenue (net of reimbursable expenses)		$	285,841			$	71,037			$	46,968			$	403,846
Net operating income			90,238				19,727				(1,487	)			108,478
Receivables			251,617				51,197				39,425				342,239

The table below presents specified information about reported segments as of and for the nine months ended March 31, 2010:

						Risk and Financial				Talent and Rewards
		Benefits Group				Services Group				Consulting Group				Total
Revenue (net of reimbursable expenses)		$	1,029,836			$	331,314			$	230,042			$	1,591,192
Net operating income			318,105				84,548				18,291				420,944
Receivables			421,198				143,457				109,439				674,094

The table below presents specified information about reported segments as of and for the nine months ended March 31, 2009:

						Risk and Financial				Talent and Rewards
		Benefits Group				Services Group				Consulting Group				Total
Revenue (net of reimbursable expenses)		$	848,734			$	213,443			$	175,629			$	1,237,806
Net operating income			251,315				51,417				20,637				323,369
Receivables			251,617				51,197				39,425				342,239

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 segment to the historical consolidated amounts follow for the three and nine month periods ended March 31, 2010 and 2009:

		Three Months Ended, March 31								Nine Months Ended, March 31
Revenue:		2010				2009				2010				2009
Total segment revenue		$	783,632			$	403,846			$	1,591,192			$	1,237,806
Reimbursable expenses and other			20,331				13,148				46,730				41,703
Revenue		$	803,963			$	416,994			$	1,637,922			$	1,279,509
Net Operating Income:
Total segment net operating income		$	208,532			$	108,478			$	420,994			$	323,369
Differences in allocation methods (1)			(1,095	)			(1,920	)			4,444				(1,014	)
Amortization of intangible assets			(12,492	)			(3,263	)			(19,336	)			(10,668	)
Transaction and integration expenses			(24,405	)			—				(49,697	)			—
Stock-based compensation restricted A shares			(24,018	)			—				(24,018	)			—
Discretionary compensation			(90,556	)			(45,779	)			(185,384	)			(144,452	)
Other, net			(6,270	)			(863	)			(6,085	)			854
Income before income taxes		$	49,696			$	56,653			$	140,868			$	168,089
Receivables:
Total segment receivables — billed and unbilled (2)		$	674,094			$	342,239			$	674,094			$	342,239
Valuation differences and other			(5,877	)			(15,443	)			(5,877	)			(15,443	)
Total billed and unbilled receivables			668,217				326,796				668,217				326,796
Assets not reported by segment			3,870,465				1,126,783				3,870,465				1,126,783
Total assets		$	4,538,682			$	1,453,579			$	4,538,682			$	1,453,579

Note 4 — Share-based Compensation.

In connection with the Merger, Towers Watson assumed the amended and restated Watson Wyatt 2001 Employee Stock Purchase Plan and the Watson Wyatt 2000 Long-Term Incentive Plan, and created the Towers Watson & Co. 2009 Long Term Incentive Plan. Towers Watson did not assume the Watson Wyatt 2001 Deferred Stock Unit Plan for Selected Employees or the Watson Wyatt Amended Compensation Plan for Outside Directors.

Towers Watson assumed the amended and restated Watson Wyatt 2001 Employee Stock Purchase Plan (the “Stock Purchase Plan”) which enables employees to purchase shares of Towers Watson 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. 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, of which 196,424 shares remained available for issuance immediately prior to the Merger at which time 4,500,000 additional shares were added. Towers Watson filed a Form S-8 Registration Statement in the third quarter of fiscal 2010 registering the 4,696,424 shares available for issuance under the Stock Purchase Plan.

Towers Watson & Co. 2009 Long Term Incentive Plan

In January 2010, Towers Watson filed a Form S-8 Registration Statement to register 12,500,000 shares of Towers Watson Class A common stock that may be issued pursuant to the Towers Watson & Co. 2009 Long Term Incentive Plan (the “2009 Plan”) and 125,648 shares of Class A common stock that may be issued upon exercise of the unvested stock options previously granted under the Watson Wyatt 2000 Long-Term Incentive Plan. The Watson Wyatt 2000 Long-term Incentive Plan was assumed by Towers Watson and the registered shares for the Watson Wyatt 2000 Long-term Incentive Plan are limited to exercise of awards which were outstanding at the time of the Merger. The assumed options were 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. The 2009 Plan was approved by Watson Wyatt shareholders on December 18, 2009.

During the three and nine months ended March 31, 2010, 108,933 fully-vested stock options were granted under the 2009 Plan with an exercise price equal to the grant date fair value of Towers Watson Class A common stock of $45.88. As a result the Company recorded $1.3 million of stock-based compensation in the third quarter of fiscal 2010. During the three and nine months ended March 31, 2010, 0 and 125,648 stock options, respectively, were granted under the Watson Wyatt 2000 Long-term Incentive Plan with an exercise price equal to the grant date market price of Watson Wyatt’s common stock of $42.47. 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. As a result, $1.1 million of the unamortized grant date fair value of the options was expensed in the third quarter of fiscal 2010. There were no grants of stock options during the three and nine months ended March 31, 2009.

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.

		Three Months Ended								Nine Months Ended
		March 31,								March 31,
		2010				2009				2010				2009
Stock option grants:
Risk-free interest rate			1.4	%			—				1.4	%			—
Expected lives in years			3				—				3				—
Expected volatility			37.4	%			—				37.2	%			—
Dividend yield			0.6	%			—				0.7	%			—
Weighted-average grant date fair value of options granted		$	11.96				—			$	11.02				—
Number of shares granted			108,933				—				234,581				—

Former Watson Wyatt Plans and Change of Control Provisions

Amended Compensation Plan for Outside Directors

Under this 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.

Restricted Stock Units

The Watson Wyatt 2001 Deferred Stock Unit Plan for Selected Employees was 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.

Deferred Stock Units

Under the Watson Wyatt 2001 Deferred Stock Unit Plan for Selected Employees there were Performance Share Bonus Incentive Programs (“SBI”) which consisted of grants of deferred stock units 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 was 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 vested 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 were achieved over three fiscal year periods. The financial and strategic performance metrics were 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.

Historically, Watson Wyatt’s management periodically reviewed 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 stated that the Compensation Committee had 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. 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 months ended December 31, 2009. Approximately $3.4 million of compensation expense was recorded relative to the SBI plans during the third quarter of fiscal year 2010 as a result of change of control provisions. In addition, 142,081 of fully vested deferred restricted stock units from the fiscal year 2005 through 2007 plans were distributed subsequent to the Merger as the 2001 Deferred Stock Unit Plan for Selected Employees was not assumed by Towers Watson.

Note 5 — Retirement Benefits.

Defined Benefit Plans

Towers Watson sponsors both qualified and non-qualified defined benefit pension plans and other post-employment benefit or “OPEB” plans in North America and Europe. These funded and unfunded plans represent 90 percent of total Towers Watson’s pension obligations and as a result are disclosed herein. Towers Watson also sponsors funded and unfunded defined benefit pension plans in certain other countries as well, representing the remaining 10 percent of the liability.

Under the legacy Watson Wyatt 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. 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. 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 plan liabilities in Germany were a result of Watson Wyatt’s acquisition of Heissmann GmbH in 2007. A significant percentage of the liabilities represent the grandfathered pension benefit for employees hired prior to a July 1991 plan amendment. The pension plan for those hired after July 1991 is a defined contribution type arrangement. In the Netherlands, the pension benefit is a percentage of service and average salary over the working life of the employee, where salary includes allowances and bonuses up to a set maximum salary and is offset by the current social security benefit. The benefit liability is reflected on the balance sheet. The measurement date for each of the plans is June 30.

The legacy Towers Perrin pension plans in the U.S. accrue benefits under a cash-balance formula for employees hired or rehired after 2002 and for all employees for service after 2007. For employees hired prior to 2003 and active as of January 2003, benefits prior to 2008 are based on a combination of a cash balance formula, for the period after 2002, and a final average pay formula based on years of plan service and the highest five consecutive years of plan compensation prior to 2008. Under the cash balance formula benefits are based on a percentage of each year of the employee’s plan compensation. The Canadian Retirement Plan provides a choice of a defined benefit approach or a defined contribution approach. The non-qualified plans in North America provide for pension benefits that would be covered under the qualified plan in the respective country but are limited by statutory maximums. The non-qualified plans have no assets and therefore are unfunded arrangements. The U.K. Plan provides predominantly lump sum benefits. Benefit accruals under the U.K. Plan ceased on March 31, 2008. The plans in Germany mostly provide benefits under a cash balance benefit formula. Benefits under the Netherlands plan accrue on a final pay basis on earnings up to a maximum amount each year. The benefit assets and liabilities are reflected on the balance sheet. The measurement date for each of the plans has historically been December 31, but will be changed to June 30 as a result of the Merger.

The following tables set forth the components of net periodic benefit cost for the Company’s defined benefit pension plan for North America and Europe for the three and nine month periods ended March 31, 2010 and 2009:

		Three Months Ended March 31,
		2010								2009
		North
		America				Europe				North America				Europe
Service Cost		$	13,107			$	3,217			$	5,315			$	1,337
Interest Cost			35,787				10,037				12,118				3,593
Expected Return on Plan Assets			(35,146	)			(8,659	)			(12,397	)			(3,258	)
Amortization of Net Loss/(Gain)			3,764				671				2,533				(48	)
Amortization of Prior Service (Credit)/Cost			(406	)			10				(576	)			6
Net Periodic Benefit Cost		$	17,106			$	5,276			$	6,993			$	1,630

		Nine Months Ended March 31,
		2010								2009
		North
		America				Europe				North America				Europe
Service Cost		$	25,009			$	7,044			$	18,884			$	5,930
Interest Cost			60,604				21,708				36,489				17,204
Expected Return on Plan Assets			(58,282	)			(18,836	)			(38,045	)			(16,318	)
Amortization of Net Loss/(Gain)			11,080				2,013				6,622				(248	)
Amortization of Prior Service Cost			(1,218	)			31				(1,705	)			32
Net Periodic Benefit Cost		$	37,193			$	11,960			$	22,245			$	6,600

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 Europe plans:

		North America				Europe
Discount rate			6.46	%			6.06	%
Expected long-term rate of return on assets			8.10	%			6.51	%
Rate of increase in compensation levels			3.93	%			4.90	%

Employer Contributions

The Company made $32.4 million in contributions to the North American plans during the first nine months of fiscal year 2010 and anticipates making $1.6 million in contributions over the remainder of the fiscal year. The Company made $15.7 million in contributions to Europe plans during the first nine months of fiscal year 2010 and anticipates making $4.3 million in contributions over the remainder of the fiscal year.

Defined Contribution Plans

Under the Watson Wyatt legacy plan, we sponsor a savings plan that provides benefits to substantially all U.S. associates. The Company matches employee contributions at a rate of 50% of the first 6% 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 the Company’s financial performance during the fiscal year. The Watson Wyatt 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 the Company has paid an equivalent amount as pension contributions. Core contributions amount to 2-6% of pensionable salary with additional matching contributions of a further 2-6%.

The Towers Perrin legacy plans consist of sponsoring savings plans in 21 countries that provide benefits to substantially all employees within those countries. Certain of these plans provide for a Company match to employee contributions at various rates. In the U.S., the company provides a matching contribution of 100% of the first 5% of employee contributions. The Company makes contributions of 10% of pay to the legacy Towers Perrin UK plan.

Health Care Benefits

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

Postretirement Benefits

Under both the Watson Wyatt and Towers Perrin plans, we provide certain health care and life insurance benefits for retired associates. The principal plans cover associates in the U.S. and Canada who have met certain eligibility requirements. Our principal post-retirement benefit plans are primarily unfunded. We accrue a liability 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 the Company’s healthcare and post-retirement plans for the three and nine months ended March 31, 2010 and 2009

		Three Months Ended March 31,								Nine Months Ended March 31,
		2010				2009				2010				2009
Service cost		$	1,400			$	277			$	1,995			$	930
Interest cost			3,721				580				5,034				1,991
Expected return on plan assets			(33	)			—				(33	)			—
Amortization of net gain			(275	)			(267	)			(825	)			(700	)
Amortization of prior service cost			(143	)			(164	)			(428	)			(496	)
Net periodic benefit cost		$	4,670			$	426			$	5,743			$	1,725

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

		North America
Discount rate			6.52	%
Expected long-term rate of return on assets			2.00	%
Rate of increase in compensation levels			4.09	%

Note 6 — Goodwill and Intangible Assets.

The components of goodwill and intangible assets are outlined below for the nine months ended March 31, 2010:

		Benefits				Risk and Financial				Talent and Rewards
		Group				Services Group				Consulting Group				All Other Segments				Total
Balance as of June 30, 2009		$	394,954			$	115,942			$	30,644			$	1,214			$	542,754
Goodwill acquired			785,978				226,126				279,276				—				1,291,380
Translation adjustment			(20,528	)			(8,286	)			(1,192	)			—				(30,006	)
Balance as of March 31, 2010		$	1,160,404			$	333,782			$	308,728			$	1,214			$	1,804,128

The following table reflects changes in the net carrying amount of the components of intangible assets for the nine months ended March 31, 2010:

										Core/
		Trademark &				Customer related				developed				Non-compete				Favorable lease
		trade name				intangible				technology				agreements				agreements				Total
Balance as of June 30, 2009		$	100,511			$	78,843			$	6,757			$	122			$	—			$	186,233
Intangible assets acquired during the period			275,500				140,800				125,400				—				12,144				553,844
Amortization expense			—				(11,019	)			(8,194	)			(123	)			—				(19,336	)
Rent expense			—				—				—				—				(229	)			(229	)
Translation adjustment			(7,758	)			(4,048	)			(152	)			1				—				(11,957	)
Balance as of March 31, 2010		$	368,253			$	204,576			$	123,811			$	—			$	11,915			$	708,555

The intangible unfavorable lease liability recorded as a result of acquisition accounting as of January 1, 2010 was $(28.1) million with an offset to rent expense of $810 thousand for an ending balance of $(27.3) million as of March 31, 2010. The following table reflects the rent offset resulting from the amortization of the net lease intangible assets and liabilities for the remainder of fiscal year 2010 and subsequent fiscal years is as follows:

Fiscal year ending June 30,		Amount
2010		$	(376	)
2011			(1,429	)
2012			(2,786	)
2013			(2,134	)
2014			(1,873	)
Thereafter			(6,784	)
Total		$	(15,382	)

The following table reflects the carrying value of intangible assets as of March 31, 2010 and June 30, 2009:

		March 31, 2010								June 30, 2009
		Gross Carrying				Accumulated				Gross Carrying
		Amount				Amortization				Amount				Accumulated Amortization
Intangible assets:
Trademark and trade name		$	368,655			$	402			$	100,913			$	402
Customer related intangibles			245,774				41,198				108,821				29,978
Developed technology			148,773				24,962				23,525				16,768
Non-compete agreements			1,278				1,278				1,273				1,151
Favorable lease agreements			12,144				229				—				—
Total intangible assets		$	776,624			$	68,069			$	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 March 31, 2010. These intangible assets are denominated in the currencies of our subsidiaries outside the United States, and are translated into our reporting currency, the U.S. dollar, based on exchange rates at the balance sheet date.

The weighted average remaining life of amortizable intangible assets at March 31, 2010 was 8.9 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		$	12,193
2011			47,908
2012			47,874
2013			44,359
2014			37,964
Thereafter			138,089
Total		$	328,387

Note 7 — Short-term investments

Short-term investments are comprised of the following as of March 31, 2010. There were no short term investments as of June 30, 2009.

		March 31, 2010
		Amortized				Unrealized				Estimated
		Cost				Gains				Fair Value
Corporate securities		$	121,586			$	2,587			$	124,173

Note 8 — Earnings Per Share.

The Company adopted guidance under ASC 260, “Earnings per Share”, relating to the two-class method of presenting EPS. This guidance addresses whether awards granted in share-based transactions are participating securities prior to vesting and therefore need to be included in the earning allocation in computing earnings per share using the two-class method. ASC 260-10-45-60 requires nonvested share-based payment awards that have non-forfeitable rights to dividends or dividend equivalents to be treated as a separate class of securities in calculating earnings per share. The Company’s participating securities include nonvested restricted stock. The adoption had no impact on previously reported basic or diluted EPS. The components of basic and diluted earnings per share are as follows:

		Three Months Ended March 31
		2010												2009
										Per Share												Per Share
		Income				Shares				Amount				Income				Shares				Amount
Basic EPS
Net Income		$	8,815											$	40,591
Less: Income allocated to participating securities			(490	)											—
Income available to common shareholders		$	8,325				72,165				0.12			$	40,591				42,609				0.95
Diluted EPS
Share based compensation awards			—				2								—				164
Income available to common shareholders		$	8,325				72,167				0.12			$	40,591				42,773				0.95

		Nine Months Ended March 31
		2010												2009
										Per Share												Per Share
		Income				Shares				Amount				Income				Shares				Amount
Basic EPS
Net Income		$	62,468											$	115,302
Less: Income allocated to participating securities			(1,646	)											—
Income available to common shareholders			60,822				52,361				1.16				115,302				42,705				2.70
Diluted EPS
Share based compensation awards			—				143								—				164
Income available to common shareholders		$	60,822				52,504				1.16			$	115,302				42,869				2.69