Reported net revenues (revenues before reimbursements) for the third quarter were $729.0 million, a decrease of 6%. Net revenues declined 2% after adjusting for foreign currency translation, acquisitions and divestitures, and third-party revenues in both periods. On the same adjusted basis, Benefits Outsourcing grew 1% while HR Business Process Outsourcing (HR BPO) and Consulting both declined 5%.

Reported operating income for the third quarter grew 34%, to $109.1 million. Underlying operating income grew 31% after adjusting for prior-period unusual items1. The HR BPO segment drove most of the improvement, recording a $2.2 million segment profit.

Reported net income increased to $68.4 million, or $0.71 per diluted share, compared with $48.2 million, or $0.48 per diluted share in the prior-year quarter. Underlying net income for the prior-year quarter was $0.53 per diluted share when adjusting for unusual items1.

Free cash flow, a non-GAAP measure, was $192.3 million for the current nine-month period, compared to $81.3 million in the prior-year period.

Adjusted Earnings Before Interest, Taxes, Depreciation and Amortization (EBITDA)2, a non-GAAP measure, were $418.4 million for the current nine-month period, compared to $389.6 million in the prior-year period.

Third Quarter Highlights

"We delivered record-high underlying earnings per share this quarter, highlighted by a small profit in our HR BPO business," said Russ Fradin, chairman and chief executive officer. "Our team did a great job improving our underlying margins in the face of a business environment that remains challenged. We are committed to investing for our future during this recession, and the positive momentum we saw in our Benefits Outsourcing sales and pipeline shows we are on the right track."

Operating Performance

Reported net revenues for the third quarter were $729.0 million, compared with $777.8 million in the prior-year quarter, a decrease of 6%. Net revenues declined 2% when excluding third-party supplier revenues in both periods and adjusting for the following items:

In the current period, $32.8 million in unfavorable foreign currency translation and a $5.3 million contribution from acquisitions.

In the prior-year period, an $8.3 million contribution from HR BPO businesses3 divested in the current fiscal year.

Reported operating income for the third quarter increased 34%, to $109.1 million, compared with $81.2 million in the prior-year quarter. Reported operating margin was 15.0%, compared to 10.4% in the prior-year quarter. Underlying operating income increased 31% in the third quarter, to $109.1 million, compared with $83.4 million in the prior-year quarter, when adjusting for an unusual item in the prior-year period. Underlying operating margin was 15.0%, compared to 10.8% in the prior-year quarter. Lower compensation costs associated with staffing leverage and lower selling, general and administrative expenses, reflecting discretionary cost management and higher charges in the prior-year, drove most of the underlying margin improvement.

The prior-year period unusual item was a pretax charge of $2.3 million related to the Company's previous real estate rationalization initiative.

Current-quarter reported and underlying results include a $2.9 million pretax charge related to ongoing real estate optimization initiatives.

Third quarter reported results reflect an effective tax rate of 34.3%, compared to 43.5% in the prior-year quarter. The lower effective tax rate in the current period reflects the impact of certain discrete items recorded in the current and prior-year quarter. The prior-year quarter underlying effective tax rate was 39.0%.

Business Segment Results

Benefits Outsourcing

Benefits Outsourcing segment revenues increased 1% in the third quarter, to $377.6 million, compared with $375.0 million in the prior-year quarter. Revenues also increased 1% after adjusting for the following items:

A $5.3 million contribution from acquisitions.

$4.8 million of unfavorable foreign currency translation.

The adjusted revenue increase was principally driven by mid-market client growth.

Benefits Outsourcing segment income increased 8% in the third quarter, to $100.0 million, compared with $92.9 million in the prior-year quarter. Segment margin was 26.5%, compared with 24.8% in the prior-year quarter. Underlying segment income increased 6% in the third quarter, to $100.0 million, compared with $94.5 million in the prior-year quarter, when adjusting for an unusual item in the prior-year period. Underlying segment margin was 26.5%, compared to 25.2% in the prior-year quarter. The underlying margin improvement was principally due to infrastructure cost management efforts, foreign currency translation, and lower charges related to disputes and settlements, partially offset by the impact of a prior acquisition and higher healthcare costs.

The prior-year period unusual item was a pretax charge of $1.6 million related to real estate rationalization.

As of June 30, 2009, the Company was live with approximately 20.0 million end-user Benefits Outsourcing participants, compared with approximately 19.6 million as of June 30, 2008.

Human Resources Business Process Outsourcing

HR BPO segment revenues declined 12% in the third quarter, to $115.7 million, compared with $131.0 million in the prior-year quarter. Revenues decreased 5% after excluding third-party supplier revenues in both periods and adjusting for the following items:

$4.1 million of unfavorable foreign currency translation.

An $8.3 million comparable prior-year contribution from divested businesses.

The adjusted revenue decline was driven by expected client losses and liquidations, partially offset by contractual adjustments and the impact of new clients going live with contract services over the last 12 months.

HR BPO segment income was $2.2 million in the third quarter, compared with a loss of $16.2 million in the prior-year quarter. The underlying segment income was $2.2 million in the third quarter, compared with a loss of $15.9 million in the prior-year quarter, when adjusting for an unusual item in the prior-year period. The underlying operating improvement reflects infrastructure cost management efforts, staffing leverage and lower amortization of intangibles.

The prior-year period unusual item was a pretax charge of $0.4 million related to real estate rationalization.

As of June 30, 2009, the Company was live with approximately 711,000 client employees with HR BPO services, compared with approximately 976,000 as of June 30, 2008.

Consulting

Consulting segment revenues declined 14% in the third quarter, to $244.3 million, compared with $283.5 million in the prior-year quarter. Consulting revenues decreased 5% after adjusting for $23.9 million of unfavorable foreign currency translation. The adjusted decline resulted principally from revenue decreases related to Talent and Organizational Consulting services across all regions, and Communication services in North America, both a result of a continued adverse economic environment. This was partially offset by modest revenue growth related to Retirement and Financial Management services in North America, reflecting demand related to economic volatility.

Consulting segment income decreased 7% in the third quarter, to $30.2 million, compared with $32.7 million in the prior-year quarter. Segment margin was 12.4%, compared with 11.5% in the prior-year quarter. Underlying segment income decreased 8% in the third quarter, to $30.2 million, compared with $33.0 million in the prior-year quarter, when adjusting for an unusual item in the prior-year period. Underlying segment margin was 12.4%, compared with 11.7% in the prior-year quarter. The underlying margin improvement was principally due to lower salary and bonus costs and discretionary expense management, partially offset by lower revenues and higher severance expense.

The prior-year period unusual item was a pretax charge of $0.3 million related to real estate rationalization.

Unallocated Shared Service Costs

Unallocated shared service costs were $23.4 million, or 3.2% of net revenues, in the third quarter, compared with $28.2 million, or 3.6% of net revenues, in the prior-year quarter. Underlying unallocated shared service costs as a percent of net revenue were 3.7% in the prior-year quarter. The underlying improvement as a percent of net revenue was principally due to lower professional fees in the current period.

Year-to-Date Results

Consolidated net revenues for the current nine-month period decreased 4%, to $2.25 billion, compared with $2.34 billion in the prior-year nine-month period. Net revenues increased 1% when excluding third-party supplier revenues in both periods and adjusting for the following items:

$111.9 million in unfavorable foreign currency translation.

A $25.7 million contribution from acquisitions.

A $23.1 million benefit related to HR BPO contract restructurings and a $21.9 million contribution from divested HR BPO businesses4, both in the prior-year period.

Current nine-month period underlying revenues include the realization of $20.1 million of deferred revenues related to the settlement of a Benefits Outsourcing contract dispute.

Reported consolidated operating income for the nine-month period increased 27%, to $328.3 million, compared to $258.6 million in the prior-year period. Operating margin was 14.6%, compared to 11.0% in the prior-year period. Underlying operating income increased 32% in the nine-month period, to $318.9 million, compared with $242.5 million in the prior-year period, when adjusting for unusual items in both periods. Underlying operating margin was 14.2%, compared to 10.5% in the prior-year period.

Current nine-month period 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 nine-month period unusual items include the following:

A pretax net gain of $35.4 million related to the divestiture of the Cyborg business.

Pretax net charges of $13.3 million related to HR BPO contract restructurings.

A pretax charge of $10.3 million related to the Company's previous real estate rationalization initiative.

Favorable pretax contributions of $4.3 million from comparable divested HR BPO operations.

Current nine-month period reported and underlying results include $9.6 million in pretax charges related to updated real estate sublease rental assumptions, reflecting worsening commercial real estate market conditions, and ongoing real estate optimization initiatives.

Net income for the nine-month period increased to $200.7 million, or $2.10 per diluted share, compared with $156.6 million, or $1.51 per diluted share in the prior-year nine-month period. Underlying net income increased to $190.2 million, or $1.99 per diluted share, compared with $154.0 million, or $1.48 per diluted share, in the prior year nine-month period, when adjusting for unusual items in both periods.

Cash Flow

Cash flow from operations was $286.3 million in the current nine-month period, compared with $161.1 million in the prior-year nine month period. Free cash flow, a non-GAAP measure reflecting cash flow from operations less capital expenditures and capitalized software costs, was $192.3 million, compared with $81.3 million in the prior-year period. The improvement in free cash flow reflects improved receivables collections and lower tax-related payments, partially offset by a legal settlement payment.

Adjusted EBITDA, a non-GAAP measure5, was $418.4 million in the current nine-month period, compared with $389.6 million in the prior-year period. The increase reflects improved HR BPO operating performance, partially offset by lower HR BPO and Benefits Outsourcing implementation fees.

Share Repurchase

The Company repurchased 778,000 of its outstanding common shares at an average price of $29.33 per share, or $22.8 million, during the third quarter. From July 1, 2009 through August 3, 2009, the Company repurchased an additional 823,000 shares for a total of $23.9 million. At August 3, 2009, the Company had approximately $232 million remaining under its current $300 million authorization.

Supplemental Information

On June 30, 2009, the Company acquired the remaining shares of its former joint venture BodeHewitt AG & Co. KG ("BodeHewitt"), one of the leading pension and benefits consultancies in Germany. As the acquisition closed on June 30, 2009, the assets and liabilities of BodeHewitt have been consolidated into the Company's balance sheet, while the results of operations will be included in the consolidated statements of operations beginning with the Company's fiscal fourth quarter. Prior to this date, the Company accounted for its investment in BodeHewitt under the equity method of accounting.

Business Outlook

"We are leaving our revenue outlook unchanged reflecting some softness in discretionary client spending offset by favorable foreign exchange," said John Park, chief financial officer. "We are maintaining our operating income outlook as we expect continued gains in operating efficiencies to offset the softness in client spending. Finally, our EPS guidance is being raised by 10 cents per share to reflect increased confidence in our operating profit range and favorability in other income and tax."

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 2009 on this underlying basis, which excludes the impact of unusual items:

Low- to mid-single digit percentage decline in consolidated net revenue, unchanged from prior guidance.

Operating income of approximately $420 to $435 million, unchanged from prior guidance.

Diluted earnings per share of $2.55 to $2.65, compared with prior guidance of $2.45 to $2.55.

The Company's fiscal 2009 guidance assumes continued execution of its share repurchase program and an effective tax rate of approximately 37 to 38 percent.

Conference Call

At 7:30 a.m. (CT) today, management will host a conference call with investors to discuss fiscal 2009 third 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, and earnings per share (each a non-GAAP measure) is included in this press release.

2 A reconciliation of reported net income to Adjusted EBITDA (a non-GAAP measure) is included in this press release.

3 HR BPO divested assets include Latin America (February 2009), and relocation services (March 2009). Comparative post-disposition amounts have been excluded from "underlying" and "as adjusted" amounts for year-over-year comparative purposes.

4 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.

5 Adjusted EBITDA is a non-GAAP measure reflecting net income adjusted for depreciation and amortization, income taxes, interest, unusual items, and certain other non-cash items -- such as asset impairment, revenue and cost deferrals, stock-based compensation, deferred internal software development costs, and other costs.

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