United States
                        Securities And Exchange Commission
                               Washington, D.C. 20549

                                     Form 10-Q

(Mark One)

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

        FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 2000

                                       OR

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

         FOR THE TRANSITION PERIOD FROM _____ TO _____

                          Commission File Number: 001-16159

                           WATSON WYATT & COMPANY HOLDINGS
               (Exact name of registrant as specified in its charter)

         Delaware                                               52-2211537
      (State or other                                       (I.R.S. Employer
      jurisdiction of                                      Identificaton No.)
     incorporation or
       organization)

                                 1717 H Street NW
                             Washington, Dc 20006-3900
             (Address of principal executive offices, including zip code)
                                  (202) 715-7000
                  (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 X No

Indicate  the number  of shares outstanding of each of the issuer's  classes of
common stock, as of February 6, 2001.

Class A Common Stock, $.01 Par Value                         6,440,000
------------------------------------                     ----------------
Class B Common Stock, $.01 Par Value                        26,488,710
------------------------------------                     ----------------
                Class                                    Number of Shares
<PAGE>

                         WATSON WYATT & COMPANY HOLDINGS
                               Index To Form 10-Q

                 For the Three Months Ended December 31, 2000


                                                                      Page
PART I.       FINANCIAL INFORMATION

Item 1.       Financial Statements (Unaudited)........................F-1 - F-4
                 Consolidated Statements of Operations--Three
                   months and six months ended December 31,
                   2000 and 1999......................................F-1
                 Consolidated Balance Sheets--June 30, 2000
                   and December 31, 2000 .............................F-2
                 Consolidated Statements of Cash Flows--Six
                   months ended December 31, 2000 and 1999............F-3
                 Consolidated Statements of Changes in Permanent
                   Stockholders'  Equity and Redeemable Common Stock..F-4
                 Notes to the Consolidated Financial Statements.......5
Item 2.       Management's Discussion and Analysis of Financial
                 Condition and Results of Operations..................10
Item 3.       Quantitative and Qualitative Disclosures
                 About Market Risk ...................................18



PART II.      OTHER INFORMATION

Item 1.       Legal Proceedings.......................................18
Item 2.       Changes in Securities and Use of Proceeds...............19
Item 3.       Defaults Upon Senior Securities.........................20
Item 4.       Submission of Matters to a Vote of Security Holders.....21
Item 5.       Other Information.......................................21
Item 6.       Exhibits and Reports on Form 8-K........................22
Signatures    ........................................................23

<PAGE>
<TABLE>
<CAPTION>
                                          WATSON WYATT & COMPANY HOLDINGS
                                       CONSOLIDATED STATEMENTS OF OPERATIONS
                              (THOUSANDS OF U.S. DOLLARS, EXCEPT PER SHARE AMOUNTS)

                                                       Three Months Ended December 31,           Six Months Ended December 31,
                                                       --------------------------------           -----------------------------
                                                           2000                1999                   2000             1999
                                                       ------------        ------------           ------------     ------------
                                                                  (Unaudited)                              (Unaudited)
<S>                                                    <C>                 <C>                    <C>              <C>

Revenue                                                $    168,781        $    152,411           $    339,474     $    298,734
                                                       ------------        ------------           ------------     ------------

Costs of providing services:
     Salaries and employee benefits                          91,661              80,950                181,424          160,753
     Stock incentive bonus plan                                   -               9,000                      -           15,000
     Professional and subcontracted services                 15,576              15,131                 26,755           24,927
     Occupancy, communications and other                     26,850              24,707                 53,494           46,723
     General and administrative expenses                     17,920              14,724                 33,051           27,902
     Depreciation and amortization                            6,119               4,610                 12,036            9,519
                                                       ------------        ------------           ------------     ------------
                                                            158,126             149,122                306,760          284,822
                                                       ------------        ------------           ------------     ------------

Income from operations                                       10,655               3,289                 32,714           13,912

Other:
     Interest income                                            847                 216                  1,424            1,252
     Interest expense                                          (742)               (698)                (1,015)          (1,088)

Income from affiliates                                        1,162               1,155                  2,178            2,143
                                                       ------------        ------------           ------------     ------------


Income before income taxes and minority interest             11,922               3,962                 35,301           16,219


Provision for income taxes                                    5,113               1,916                 15,144            7,835
                                                       ------------        ------------           ------------     ------------

Income before minority interest                               6,809               2,046                 20,157            8,384


Minority interest in net (income) loss of consolidated
     subsidiaries                                               (72)                158                    (85)             176
                                                       ------------        ------------           ------------     ------------

Net income                                             $      6,737        $      2,204           $     20,072     $      8,560
                                                       ============        ============           ============     ============



Basic earnings per share, net income                   $       0.21        $       0.07           $       0.64     $       0.28
                                                       ============        ============           ============     ============
Diluted earnings per share, net income                 $       0.20        $       0.07           $       0.64     $       0.28
                                                       ============        ============           ============     ============
Weighted average shares of Common Stock, basic               32,755              29,834                 31,190           30,280
                                                       ============        ============           ============     ============
Weighted average shares of Common Stock, diluted             33,146              29,834                 31 386           30,280
                                                       ============        ============           ============     ============



                                               See accompanying notes
                                                         F-1
</TABLE>
<PAGE>
<TABLE>
<CAPTION>


                                            WATSON WYATT & COMPANY HOLDINGS
                                              CONSOLIDATED BALANCE SHEETS
                                              (THOUSANDS OF U.S. DOLLARS)

                                                                                  December 31,         June 30,
                                                                                      2000               2000
                                                                                  -------------     -------------
                                                                                   (Unaudited)


<S>                                                                               <C>               <C>

                                                         ASSETS

Cash and cash equivalents                                                         $      61,829     $     41,410
Receivables from clients:
     Billed, net of allowances of $7,888 and $2,832                                      96,896           76,729
     Unbilled, net of allowances of $3,038 and $676                                      59,991           66,009
                                                                                  -------------     ------------
                                                                                        156,887          142,738
Other current assets                                                                     12,315           11,705
                                                                                  -------------     ------------
Total current assets                                                                    231,031          195,853

Investment in affiliates                                                                 16,700           16,615
Fixed assets, net of accumulated depreciation of $89,774 and $83,211                     43,535           45,237
Deferred income taxes                                                                    53,355           53,355
Intangible assets, net of accumulated amortization of $16,357 and $15,288                13,503            8,721
Other assets                                                                             10,425           10,179
                                                                                  -------------     ------------

Total Assets                                                                      $     368,549     $    329,960
                                                                                  =============     ============

                                          LIABILITIES AND STOCKHOLDERS' EQUITY

Accounts payable and accrued liabilities                                          $     147,250     $    167,803
Line of credit and book overdrafts                                                           24               30
Income taxes payable                                                                     17,394           11,843
                                                                                  -------------     ------------
Total current liabilities                                                               164,668          179,676

Accrued retirement benefits                                                              80,573           79,462
Deferred rent and accrued lease losses                                                    4,215            5,456
Other noncurrent liabilities                                                             23,116           23,657
Minority interest in subsidiaries                                                           585              498

Redeemable Common Stock - $1 par value:
     50,000,000 shares authorized;
     14,845,145 issued and outstanding;
     at redemption value                                                                115,480
Permanent stockholders' equity:
Adjustment for redemption value less
     than amounts paid in by shareholders                                                                 (6,097)

Preferred Stock - No par value:
     1,000,000 shares authorized;
     None issued and outstanding                                                              -
Class A Common Stock - $.01 par value:
     69,000,000 shares authorized;
     6,440,000 issued and outstanding                                                        64
Class B-1 Common Stock - $.01 par value:
     15,000,000 shares authorized;
     13,244,355 issued and outstanding                                                      132
Class B-2 Common Stock - $.01 par value:
     15,000,000 shares authorized;
     13,244,355 issued and outstanding                                                      132
Additional paid-in capital                                                              145,007
Retained deficit                                                                        (44,257)          (64,223)
Cumulative translation adjustment (accumulated other comprehensive loss)                 (5,686)           (3,949)
Commitments and contingencies
                                                                                  -------------     -------------

Total Liabilities and Stockholders' Equity                                        $     368,549     $     329,960
                                                                                  =============     =============




                                                 See accompanying notes
                                                          F-2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
                                                WATSON WYATT & COMPANY HOLDINGS
                                             CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                 (THOUSANDS OF U.S. DOLLARS)


                                                                                            Six Months Ended December 31,
                                                                                           --------------------------------
                                                                                               2000               1999
                                                                                           -------------      -------------
                                                                                                     (Unaudited)

<S>                                                                                        <C>                <C>

Cash flows from (used for) operating activities:
     Net income                                                                            $      20,072      $       8,560
     Adjustments to reconcile net income to net cash
       provided by operating activities:

         Provision for doubtful receivables from clients                                           9,514              7,779
         Depreciation                                                                             10,827              8,651
         Non cash compensation charge                                                                751                  -
         Amortization of intangible assets                                                         1,209                866
         Income from affiliates                                                                   (2,178)             2,143)
         Minority interest in net income (loss) of consolidated subsidiaries                          85               (176)
         (Increase) decrease in assets (net of discontinued operations):
             Receivables from clients                                                            (23,664)           (19,458)
             Other current assets                                                                   (610)             1,100
             Other assets                                                                          1,655                634
         (Decrease) increase in liabilities (net of discontinued operations):
             Accounts payable and accrued liabilities                                            (20,156)            (8,550)
             Income taxes payable                                                                  5,551             (8,511)
             Accrued retirement benefits                                                           1,111             (2,907)
             Deferred rent and accrued lease losses                                               (1,241)            (1,642)
             Other noncurrent liabilities                                                           (402)               279
          Other, net                                                                                 512               (584)
          Discontinued operations, net                                                              (146)              (637)
                                                                                           -------------      -------------
          Net cash from (used for) operating activities                                            2,890            (16,739)
                                                                                           -------------      -------------
Cash flows used in investing activities:
     Purchases of fixed assets                                                                   (11,716)            (3,636)
     Proceeds from sales of fixed assets and investments                                             445                  -
     Acquisitions and contingent consideration payments                                           (6,851)            (2,800)
     Distributions from affiliates                                                                 1,826                594
                                                                                           -------------      -------------
Net cash used in investing activities                                                            (16,296)            (5,842)
                                                                                           -------------      -------------

Cash flows from (used in) financing activities:
     Borrowings and book overdrafts                                                                   (6)             8,153
     Issuances of Common Stock in the initial public offering                                     35,225                  -
     Other issuances of Redeemable Common Stock                                                      134                  -
     Repurchases of Redeemable Common Stock                                                         (252)            (8,656)
                                                                                           -------------      -------------
          Net cash from (used in) financing activities                                            35,101               (503)
                                                                                           -------------      -------------
Effect of exchange rates on cash                                                                  (1,276)               787
                                                                                           -------------      -------------

Increase (decrease) in cash and cash equivalents                                                  20,419            (22,297)

Cash and cash equivalents at beginning of period                                                  41,410             35,985
                                                                                           -------------      -------------

Cash and cash equivalents at end of period                                                 $      61,829      $      13,688
                                                                                           =============      =============





                                                   See accompanying notes
                                                             F-3
</TABLE>
<PAGE>
<TABLE>
<CAPTION>



                                              WATSON WYATT & COMPANY HOLDINGS
              CONSOLIDATED STATEMENTS OF CHANGE IN PERMANENT STOCKHOLDERS' EQUITY AND REDEEMABLE COMMON STOCK
                                                (THOUSANDS OF U.S. DOLLARS)
                                                        (Unaudited)


                                                          Adjustment for
                                                          Redemption Value
                                                          Greater Than
                                              Cumulative  Amounts       Par Value    Par Value     Par Value    Additional
                     Redeemable   Retained    Translation Paid in by    Class A      Class B-1     Class B-2    Paid in
                     Common Stock Deficit     Loss        Stockholders  Common Stock Common Stock  Common Stock Capital       Total
                     ------------ ----------- ----------  ------------  ------------ ------------  ------------ -------   ---------
<S>                  <C>          <C>         <C>         <C>           <C>          <C>           <C>          <C>       <C>

Balance at June 30,
 2000                $    115,480 $   (64,223)$   (3,949) $     (6,097)                                                   $(74,269)

Comprehensive Income
 for the quarter ended
 September 30, 2000:
Net income                             13,335                                                                                13,335
Foreign currency
 translation
 adjustment                                       (1,224)                                                                    (1,224)
                                                                                                                           --------
Total Comprehensive
 Income for the quarter
 ended September 30, 2000                                                                                                    12,111
Effect of repurchases of
 17,839 shares of
 Redeemable Common Stock     (146)       (106)                     106                                                            -
Effect of issuance of
 20,000 shares of
 Redeemable Common Stock      134                                                                                                 -
Adjustment of redemption
 value for change in
 Formula Book Value per
 share                                                            (118)                                                        (118)
                      ----------- ----------- ----------  ------------ ------------- ------------   ----------- -------   ---------

Balance prior to the
 reorganization           115,468     (50,994)    (5,173)       (6,109)$           - $          -   $         - $     -     (62,276)


Elimination of
 redeemable feature of
 Common Stock and 2-for-1
 share exchange (see
 Note 2)                 (115,468)                               6,109                        148           148 109,063     115,468
Reclassification for
 sale of 3,118,500 shares
 by existing stockholders                                                         32          (16)          (16)                  -
Proceeds from sales of
 3,321,500 shares by
 the Company, net of
 offering costs                                                                   32                             35,193      35,225
Non cash compensation
 charge related to the
 sale of 44,796 shares
 of Redeemable Common
 Stock prior to the initial
 public offering                                                                                                    751         751

Comprehensive Income for the
 quarter ended December 31,
 2000:
Net income                              6,737                                                                                 6,737
Foreign currency translation
 adjustment                                         (513)                                                                      (513)
                                                                                                                           --------
Comprehensive Income for the
 quarter ended December 31,
 2000:                                                                                                                        6,224

                      -----------  ---------- ----------  ------------  ------------ ------------  ------------ --------  ---------
Balance at December
 31, 2000             $         -  $  (44,257)$   (5,686) $          -  $         64 $        132  $        132 $145,007  $  95,392
                      ===========  ========== ==========  ============  ============ ============  ============ ========  =========
</TABLE>

                                                  See accompanying notes
                                                           F-4

<PAGE>



                            WATSON WYATT & COMPANY HOLDINGS
                     NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
                                     (Unaudited)

 1.  The accompanying unaudited quarterly  consolidated financial statements of
     Watson  Wyatt  &  Company  Holdings  and our  subsidiaries,  (collectively
     referred to as "we," "Watson  Wyatt" or the  "Company"),  are presented in
     accordance  with the rules and  regulations of the Securities and Exchange
     Commission  ("SEC")  and do not include  all of the  disclosures  normally
     required by Generally Accepted  Accounting  Principles.  In the opinion of
     management,  these statements  reflect all adjustments which are necessary
     for a fair presentation of the consolidated  financial  statements for the
     interim periods.  The consolidated  financial statements should be read in
     conjunction with the audited  consolidated  financial statements and notes
     thereto  contained in the  Company's  Annual Report on Form 10-K/A for the
     fiscal  year ended  June 30,  2000,  and the  Company's  prospectus  dated
     October 11, 2000, both of which are filed with the SEC and may be accessed
     via EDGAR on the SEC's web site at www.sec.gov.

     The results of operations  for the three and six months ended December 31,
     2000 are not  necessarily  indicative  of the results that can be expected
     for the entire  fiscal  year  ending June 30,  2001.  The results  reflect
     anticipated tax rates and bonuses  ultimately accrued at the discretion of
     the  Company's  Board of  Directors.  Certain prior year amounts have been
     reclassified to conform to the current year's presentation.

 2.  In October  2000, we completed an initial  public  offering ("IPO") of our
     class A common stock.  In conjunction  with this offering,  on October 16,
     2000 we completed changes in our corporate  structure involving the merger
     of Watson  Wyatt & Company  with WW Merger  Subsidiary,  Inc.,  a wholly -
     owned subsidiary of Watson Wyatt & Company Holdings.  As a result,  Watson
     Wyatt & Company is now a wholly-owned subsidiary of Watson Wyatt & Company
     Holdings.

     At the time of the reorganization,  each share of Watson Wyatt & Company's
     Redeemable  Common Stock was converted  into one share of class B-1 common
     stock and one share of class B-2  common  stock of Watson  Wyatt & Company
     Holdings.  The  class B  common  stock is  divided  into  two  classes  to
     accommodate  different transfer  restriction periods. The class B-1 shares
     are subject to a transfer  restriction  period of 12 months  following the
     public offering date, while the class B-2 shares are subject to a transfer
     restriction period of 24 months following the public offering date, unless
     waived  by the  Board of  Directors.  The Board of  Directors  waived  the
     transfer  restrictions  on a total of  1,559,250  class B-1 and  1,559,250
     class B-2 shares to allow for  conversion  into the class A shares sold by
     selling  stockholders  in the initial  public  offering  described  below.
     Following the expiration or waiver of the respective transfer  restriction
     periods,  the remaining class B-1 and class B-2 shares will  automatically
     convert into class A common stock.

     In  conjunction  with  our  initial  public  offering,   we  entered  into
     agreements  providing  for  additional  transfer  restrictions  with major
     stockholders,   executive  officers  and  employee   directors   affecting
     approximately  36% of our remaining  class B common stock.  The agreements
     restrict  transfers  of  all  shares  held  by  such  persons  immediately
     following the offering,  and the restrictions  terminate as to 25% of such
     shares on each of the first, second, third and fourth anniversaries of the
     consummation of the public offering.

                                     -5-
<PAGE>

     The  two-for-one  share  conversion,  the  elimination  of the  redeemable
     feature  of  Watson  Wyatt &  Company's  Redeemable  Common  Stock and the
     reclassification  of  stock to  permanent  stockholders'  equity  has been
     reflected in the  Consolidated  Balance Sheet as of December 31, 2000, and
     also has been reflected in all earnings per share data on the Consolidated
     Statements of Operations  for the three and six months ended  December 31,
     2000 and 1999,  as if the  conversion  were  effective at the beginning of
     each period.

     A total of  5,600,000  shares of class A common stock was offered and sold
     in our initial  public  offering at an offering price of $12.50 per share.
     Of the  shares  included  in this  transaction,  Watson  Wyatt  &  Company
     Holdings   offered   2,800,000   newly-issued   shares  and  the   selling
     stockholders  offered the remaining 2,800,000 shares. On November 8, 2000,
     our underwriters  exercised their over-allotment  option. As a result, the
     underwriters  purchased 840,000 shares of class A common stock from us and
     from the selling  stockholders  at the initial  public  offering  price of
     $12.50 per share less the underwriting discount. Of the shares included in
     this   transaction,   Watson  Wyatt  &  Company   Holdings   sold  521,500
     newly-issued shares and the selling stockholders sold 318,500 shares.

     Net proceeds to the Company from these  transactions  were $35.2  million,
     net of underwriting discounts,  commissions and other offering, merger and
     restructuring  costs.  We did not  receive any  proceeds  from the sale of
     shares by the selling  stockholders.  We also paid $2.7 million to selling
     stockholders as reimbursement for commission  payments  resulting from the
     sale of their  shares.  This  amount  was  recorded  in the  salaries  and
     employee benefits line for the three and six month-periods  ended December
     31, 2000.

3.   In the  third quarter  of fiscal year  1998, we discontinued  our benefits
     administration  outsourcing  business,  including  our  investment  in our
     affiliate,  Wellspring Resources,  LLC ("Wellspring").  We believe we have
     adequate   provisions  for  any  remaining   costs   associated  with  our
     obligations related to the benefits  administration  outsourcing business.
     All  Wellspring  related  activity is reflected on the  Statements of Cash
     Flows as discontinued operations.

4.   We have adopted SFAS No. 131, "Disclosures about Segments of an Enterprise
     and Related  Information."  During the second quarter of fiscal year 2001,
     we changed the  structure  of our internal  organization  in a manner that
     caused the composition of our reportable  segments to change.  In order to
     better  position the Company to deliver the integrated,  global  solutions
     that have the largest impact on our growth,  management  consolidated  our
     three  U.S.   regions  into  a  single   region.   As  a  result  of  this
     consolidation,  and  because we also use a  practice-based  matrix form of
     organization  for  our  North  American  regions,   we  have  changed  our
     reportable  segments to reflect our  practice-based  structure.  After the
     change, we have five reportable segments:

         (1)   Benefits Group
         (2)   HR Technologies Group
         (3)   Human Capital Group
         (4)   International
         (5)   Other (including Data Services and Communications)

     The Company  evaluates  the  performance  of its  segments  and  allocates
     resources to them based on net  operating  income.  Prior and current year
     data has been restated to be consistent with current  classifications  for
     comparative purposes.

                                      -6-
<PAGE>

     The table below presents specified  information about reported segments as
     of and for the three months ended December 31, 2000 (in thousands):
<TABLE>
<CAPTION>
                    Benefits      HR Technologies    Human Capital
                       Group                Group            Group    International       Other        Total
                    --------      ---------------    -------------    -------------    --------    ---------

<S>                 <C>                  <C>              <C>              <C>         <C>         <C>
Revenue (net of
  reimbursable
  expenses)         $ 86,004             $ 24,589         $ 14,519         $ 17,537    $ 17,646    $ 160,295
Net operating
  income              16,865                7,158            2,444            1,502       1,904       29,873
Receivables           90,368               19,394           15,713           19,322      14,376      159,173

     The table below presents specified  information about reported segments as
     of and for the three months ended December 31, 1999 (in thousands):

                    Benefits      HR Technologies    Human Capital
                       Group                Group            Group    International       Other        Total
                    --------      ---------------    -------------    -------------    --------    ---------
Revenue (net of
  reimbursable
  expenses)         $ 79,275             $ 20,745         $ 12,885         $ 15,049    $ 15,787    $ 143,741
Net operating
  income              14,167                5,615            1,990            1,146         583       23,501
Receivables           83,470               21,295           13,555           17,350      12,903      148,573

     The table below presents specified  information about reported segments as
     of and for the six months ended December 31, 2000 (in thousands):

                    Benefits      HR Technologies    Human Capital
                       Group                Group            Group    International       Other        Total
                    --------      ---------------    -------------    -------------    --------    ---------
Revenue (net of
  reimbursable
  expenses)         $172,921             $ 49,441         $ 28,486         $ 35,914    $ 37,183    $ 323,945
Net operating
  income              38,748               15,834            5,179            5,052       5,964       70,777
Receivables           90,368               19,394           15,713           19,322      14,376      159,173

     The table below presents specified  information about reported segments as
     of and for the six months ended December 31, 1999 (in thousands):

                    Benefits      HR Technologies    Human Capital
                       Group                Group            Group    International       Other        Total
                    --------      ---------------    -------------    -------------    --------    ---------
Revenue (net of
  reimbursable
  expenses)         $158,649             $ 40,492         $ 23,601         $ 30,126    $ 30,863    $ 283,731
Net operating
  income              31,999               10,572            2,514            2,446       3,303       50,834
Receivables           83,470               21,295           13,555           17,350      12,903      148,573

                                                               -7-
</TABLE>
<PAGE>

     Information  about  interest  income and tax expense is not presented as a
     segment  expense  because it is not  considered  a  responsibility  of the
     segments' operating management.

     A   reconciliation   of  the  information   reported  by  segment  to  the
     consolidated  amounts  follow for the three and  six-month  periods  ended
     December 31, 2000 and 1999 (in thousands):
<TABLE>

                                   Three Months Ended December 31,         Six Months Ended December 31,
                                   -------------------------------         ------------------------------
                                          2000             1999                  2000                1999
                                    ----------       ----------            ----------          ----------
<S>                                 <C>              <C>                   <C>                 <C>
Revenue:
--------
Total segment revenue               $  160,295       $  143,741            $  323,945          $  283,731
Reimbursable expenses not
   included in total segment revenue     9,656            9,154                16,673              15,381
Other, net                              (1,170)            (484)               (1,144)               (378)
                                    ----------       ----------            ----------          ----------
Consolidated revenue                $  168,781       $  152,411            $  339,474          $  298,734
                                    ==========       ==========            ==========          ==========


Net Operating Income:
---------------------
Total segment net operating income  $   29,873       $   23,501            $   70,777          $   50,834
Income from affiliates                   1,162            1,155                 2,178               2,143

Differences in allocation methods
   for depreciation, G&A and
   pension costs                        (3,562)             726                (3,694)              2,515
Gain on sale of business units             296                -                   696                   -
Discretionary compensation
   (including stock incentive bonus
   plan during the three and six
   months ended December 31, 1999
   only)                               (14,000)         (20,550)              (33,100)            (41,750)
IPO-related compensation charge         (3,480)               -                (3,480)                  -
Other, net                               1,633             (870)                1,924               2,477
                                   -----------       ----------            ----------          ----------
Consolidated pretax income from
   continuing operations           $    11,922       $    3,962            $   35,301          $   16,219
                                   ===========       ==========            ==========          ==========

Receivables:
------------
Total segment receivables - billed
   and unbilled                    $   159,173       $  148,573            $  159,173          $  148,573
Net valuation differences               (2,286)          (1,028)               (2,286)             (1,028)
                                   -----------       ----------            ----------          ----------
Total billed and unbilled
   receivables                         156,887          147,545               156,887             147,545
Assets not reported by segment         211,662          153,479               211,662             153,479
                                   -----------       ----------            ----------          ----------

Consolidated assets                $   368,549       $  301,024            $  368,549          $  301,024
                                   ===========       ==========            ==========          ==========
</TABLE>


5.   In December  1999, the  SEC issued  Staff Accounting  Bulletin ("SAB") No.
     101,  "Revenue  Recognition  in Financial  Statements,"  which  summarizes
     certain  of  the  staff's  views  on  revenue  recognition.   Our  revenue
     recognition  policies have been and continue to be in accordance  with SAB
     101.

                                      -8-
<PAGE>

6.   In June  1998, the Financial  Accounting Standards  Board issued Statement
     ("FAS")  No.  133  "Accounting  for  Derivative  Instruments  and  Hedging
     Activities,"  which  requires an entity to recognize  all  derivatives  as
     either  assets or  liabilities  in the  Consolidated  Balance  Sheets  and
     measure  those  instruments  at fair  value.  Effective  July 1, 2000,  we
     adopted FAS 133,  and it has no impact on fair values or  earnings.  We do
     not use  derivative  instruments  as a hedging  strategy  or for any other
     purpose.

7.   Basic  earnings  per  share is  calculated  on the  basis of  the weighted
     average number of common shares outstanding. Diluted earnings per share is
     calculated  on the basis of the weighted  average  number of common shares
     outstanding  plus the  effect  of  outstanding  stock  options  using  the
     "treasury stock" method.  The components of basic and diluted earnings per
     share are as follows:

<TABLE>
<CAPTION>

                                       Three Months Ended December 31,       Six Months Ended December 31,
                                       -------------------------------       -----------------------------
                                             2000              1999                2000              1999
                                        ---------         ---------          ----------         ---------
<S>                                     <C>               <C>                <C>                <C>

Net income                              $   6,737         $   2,204          $   20,072         $   8,560
                                        ---------         ---------          ----------         ---------

Weighted average outstanding
   shares of common stock                  32,755            29,834              31,190            30,280
Dilutive effect of employee stock
   options                                    391                 -                 196                 -
                                        ---------         ---------          ----------         ---------
Common stock and stock
   equivalents                             33,146            29,834              31,386            30,280
                                        =========         =========          ==========         =========

Earnings per share:
Basic                                   $   0.21          $    0.07          $     0.64         $    0.28
                                        ========          =========          ==========         =========
Diluted                                 $   0.20          $    0.07          $     0.64         $    0.28
                                        ========          =========          ==========         =========

</TABLE>

     Earnings per share data for the three and six-month periods ended December
     31,  2000  and  1999  have  been   restated   to  reflect  the   corporate
     reorganization  and  two-for-one  share  conversion  as if  the  corporate
     reorganization  and  two-for-one  share  conversion  were effective at the
     beginning  of  each  period.  See  Note  2 of the  Consolidated  Financial
     Statements for further information regarding the initial public offering.

 8.  We are a defendant in  certain  lawsuits  arising in the normal  course of
     business, some of which are in their earliest stages.  Management believes
     that  these  matters  will  not  have a  material  adverse  impact  on our
     financial statements,  but claims which are possible in our business could
     be material to the financial results for a particular period.

     We carry substantial  professional liability insurance with a self-insured
     retention  of $1 million  per  occurrence,  which  provides  coverage  for
     professional liability claims including the cost of defending such claims.
     We also carry employment practices liability insurance.

                                      -9-

<PAGE>

Item 2.  Management's  Discussion  and  Analysis  of  Financial  Condition  and
         Results of Operations.


General

Watson Wyatt is a global  provider of human  capital  consulting  services.  We
operate from 59 offices in 18 countries throughout North America,  Asia-Pacific
and Latin  America.  We provide  services in three  principal  practice  areas:
benefits,  human resources  technologies and human capital  consulting.  Watson
Wyatt & Company,  which  became a  wholly-owned  subsidiary  of Watson  Wyatt &
Company Holdings as a result of our corporate reorganization,  was incorporated
in  Delaware  on  February  17,  1958.  Watson  Wyatt &  Company  Holdings  was
incorporated  in Delaware on January 7, 2000.  Including our  predecessors,  we
have  been in  business  since  1946.  In 1995,  we  entered  into an  alliance
agreement  with  R.  Watson  & Sons  (now  Watson  Wyatt  Partners),  a  United
Kingdom-based  actuarial,  benefits and human resources consulting  partnership
that was founded in 1878.  We  conducted  business as The Wyatt  Company  until
changing our corporate  name to Watson Wyatt & Company in  connection  with the
establishment  of the Watson  Wyatt  Worldwide  alliance.  Since 1995,  we have
marketed our services globally under the Watson Wyatt Worldwide brand,  sharing
resources, technologies, processes and business referrals.

In October 2000, we moved our principal  executive offices to 1717 H Street NW,
Washington,  DC 20006, from 6707 Democracy Boulevard,  Suite 800, Bethesda,  MD
20817. Our web site is www.watsonwyatt.com.

Global Operations

We employ approximately 4,100 associates as follows:

         Benefits Group                                                1,480
         HR Technologies Group                                           380
         Human Capital Group                                             255
         International                                                   860
         Other (Including Data Services and Communications)              835
         Corporate                                                       290
                                                                       -----
         Total                                                         4,100
                                                                       =====

Principal Services

Within the past four fiscal years, we have divested several non-core businesses
-  including  benefits   administration   outsourcing,   defined   contribution
record-keeping and risk management  consulting  services - in order to focus on
our core consulting areas. These core areas are as follows:

Benefits Consulting: The Benefits Consulting practice provides analysis, design
and  implementation of retirement  programs,  including  actuarial services and
required  reporting  of plan  contributions  and funding  levels,  group health
benefit plan design and provider selection and defined contribution plan design
and related services.

                                      -10-
<PAGE>

HR Technologies  Consulting:  The HR Technologies  Consulting practice develops
technology-based  solutions  to  reduce  employer  costs and  improve  employee
service in human resources administration, including web-based applications.

Human  Capital  Consulting:  The Human  Capital  Consulting  practice  provides
comprehensive  consulting in compensation plan design,  executive compensation,
salary management and organizational effectiveness consulting.

International:   Our  consultants,   working  internationally,   operate  on  a
geographic  basis  from 23  offices  in 16  countries  and  provide  consulting
services in the practice areas mentioned herein.

Other:  While we focus our consulting  services in the areas  described  above,
management  believes  that one of our primary  strengths is our ability to draw
upon consultants from our different practices to deliver integrated services to
meet the needs of our clients. Examples include:

     (1)  Communications:  Our Communications  practice  provides  research  on
     employee    attitudes   and    communication    effectiveness,    conducts
     communications  audits, facilitates  research and focus  groups,  provides
     communications  planning  and  implementation  and  assists  employers  in
     complying with disclosure requirements.
     (2) Data Services: Watson Wyatt Data Services produces custom and standard
     compensation and benefits surveys and human resource  reference  materials
     for  use by  global  and  local  companies  in 70  countries.  Over  7,500
     companies  participate  in our surveys and our  products  include over 100
     compensation,  benefits and  employment  practices  references  and survey
     reports.


Watson Wyatt Worldwide Alliance

Recognizing that a global organization is essential to service the needs of our
clients,  we  established  operations  throughout  Europe in the late 1970's by
acquiring  local  firms and  opening  new  offices.  Responding  to the rapidly
increasing  globalization of the world economy, we made a strategic decision in
1995 to  strengthen  our  European  capabilities  significantly  and extend our
global reach by entering into an alliance  agreement with R. Watson & Sons (now
Watson Wyatt Partners),  a United Kingdom-based  actuarial,  benefits and human
resources consulting  partnership that was founded in 1878. Since 1995, we have
marketed our services globally under the Watson Wyatt Worldwide brand,  sharing
resources, technologies, processes and business referrals.

The Watson Wyatt Worldwide global alliance maintains 84 offices in 30 countries
and employs over 5,800 employees. Watson Wyatt & Company operates 59 offices in
18 countries in North America,  Asia-Pacific  and Latin  America.  Watson Wyatt
Partners  operates 11 offices in the United  Kingdom,  Ireland and Africa.  The
alliance operates 14 offices in 9 continental  European  countries  principally
through a  jointly  owned  holding  company,  Watson  Wyatt  Holdings  (Europe)
Limited,  which is 25%  owned by Watson  Wyatt  and 75%  owned by Watson  Wyatt
Partners.

                                      -11-
<PAGE>

Financial Statement Overview

Watson Wyatt's fiscal year ends June 30. The financial  statements contained in
this quarterly report reflect a Consolidated Balance Sheet as of the end of the
second quarter of fiscal year 2001 (December 31, 2000),  reflecting the changes
in our capital structure as a result of our  reorganization  and initial public
offering,  a Consolidated Balance Sheet as of the end of fiscal year 2000 (June
30, 2000),  Consolidated  Statements of Operations  for the three and six-month
periods ended December 31, 2000 and 1999, Consolidated Statements of Cash Flows
for the six-month  periods ended  December 31, 2000 and 1999 and a Consolidated
Statement of Changes in Permanent  Stockholders'  Equity and Redeemable  Common
Stock for the six-month period ended December 31, 2000,  reflecting the changes
in our capital structure as a result of our  reorganization  and initial public
offering.

Although we operate  globally as an alliance with our affiliates,  the revenues
and operating  expenses in the  Consolidated  Statements of Operations  reflect
solely the results of operations of Watson Wyatt & Company Holdings.  Our share
of the  results  of  our  affiliates,  recorded  using  the  equity  method  of
accounting  is reflected in the "Income from  affiliates"  line.  Our principal
affiliates  are Watson  Wyatt  Partners,  in which we hold a 10%  interest in a
defined  distribution  pool,  and Watson Wyatt  Holdings  (Europe)  Limited,  a
holding company through which we conduct continental  European  operations.  We
own 25% of Watson Wyatt  Holdings  (Europe)  Limited and Watson Wyatt  Partners
owns the remaining 75%.

We derive  substantially all of our revenue from fees for consulting  services,
which  generally are billed at standard  hourly rates or on a fixed-fee  basis;
management believes the approximate  percentages are 60% and 40%, respectively.
Clients are typically  invoiced on a monthly  basis with revenue  recognized as
services are  performed.  For the most recent three fiscal years,  revenue from
U.S.  consulting  operations have comprised  approximately  80% of consolidated
revenue.  No  single  client  accounted  for more  than 5% of our  consolidated
revenue for any of the most recent three fiscal years.

In delivering  consulting  services,  our principal  direct  expenses relate to
compensation  of  personnel.  Salaries and employee  benefits are  comprised of
wages paid to  associates,  related  taxes,  benefit  expenses such as pension,
medical and insurance costs and fiscal year-end incentive bonuses. In addition,
professional and subcontracted services represent fees paid to external service
providers for legal,  marketing and other services,  approximately 50% of which
are specifically reimbursed by our clients and included in revenue.

Occupancy,  communications  and other  expenses  represent  expenses  for rent,
utilities,  supplies  and  telephone  to operate  office  locations  as well as
non-client-reimbursed  travel  by  associates,  publications  and  professional
development.  General and administrative expenses include the operational costs
and professional fees paid by corporate management, general counsel, marketing,
human resources, finance, research and technology support.

Historically,  we have paid  incentive  bonuses  to  associates  under a fiscal
year-end  bonus program.  Beginning in fiscal year 1999 and continuing  through
fiscal year 2000, in addition to annual fiscal  year-end  bonuses,  we provided
supplemental  bonus compensation to our employee  stockholders  pursuant to our
stock incentive bonus plan in an amount  representing all income in excess of a
targeted amount.  The  supplemental  bonus  compensation  pursuant to our stock
incentive  bonus plan was accrued in fiscal year 1999 and fiscal year 2000. The
payment of the amount  accrued in fiscal year 2000 was made in January 2001. We
terminated  the stock  incentive  bonus plan in  conjunction  with our  initial
public offering.

                                      -12-
<PAGE>

Results of Operations.  The table below sets forth  Consolidated  Statements of
Operations data as a percentage of revenue for the periods indicated:

<TABLE>
<CAPTION>
                                       Three Months Ended December 31,        Six Months Ended December 31,
                                          2000                1999               2000                1999
                                         -----               -----              -----               -----
<S>                                      <C>                 <C>                <C>                 <C>

Revenue                                  100.0%              100.0%             100.0%              100.0%
                                         -----               -----              -----               -----

Costs of providing services:
Salaries and employee
   benefits                               54.3                53.1               53.4                53.9
Stock incentive bonus plan                  --                 5.9                 --                 5.0
Professional and
   subcontracted services                  9.3                 9.9                7.9                 8.3
Occupancy, communications
   and other                              15.9                16.2               15.8                15.6
General and administrative
   expenses                               10.6                 9.7                9.7                 9.3
Depreciation and amortization              3.6                 3.0                3.6                 3.2
                                         -----               -----              -----               -----
                                          93.7                97.8               90.4                95.3
                                         -----               -----              -----               -----

Income from operations                     6.3                 2.2                9.6                 4.7

Other:
   Interest income                         0.5                 0.1                0.4                 0.4
   Interest expense                       (0.4)               (0.5)              (0.3)               (0.4)


Income from affiliates                     0.7                 0.8                0.7                 0.7
                                         -----               -----              -----               -----

Income before income taxes
   and minority interest                   7.1                 2.6               10.4                 5.4

Provision for income taxes                 3.1                 1.2                4.5                 2.5
                                         -----               -----              -----               -----

Income before minority interest            4.0                 1.4                5.9                 2.9


Minority interest in net
   (income) loss of
   consolidated subsidiaries                --                  --                 --                  --
                                         -----               -----              -----               -----

Net income                                 4.0%                1.4%               5.9%                2.9%
                                         =====               =====              =====               =====
</TABLE>

                                                              -13-
<PAGE>

Six Months Ended  December 31, 2000  Compared to Six Months Ended  December 31,
1999 and Three  Months Ended  December 31, 2000  Compared to Three Months Ended
December 31, 1999

Revenue.  Revenue from  continuing  operations was $339.5 million for the first
six months of fiscal year 2001,  compared  to $298.7  million for the first six
months of fiscal year 2000, an increase of $40.8 million,  or 14%. This revenue
growth was comprised of a $14.3 million,  or 9% increase in our Benefits Group,
an $8.9 million,  or 22% increase in our HR Technologies Group, a $4.9 million,
or 21% increase in our Human Capital Group, a $5.8 million,  or 19% increase in
International  and a $6.3 million,  or 20% increase in Other  practice areas in
North America.  The revenue  increase for the North American  practices was due
primarily  to  the   realization   of  net  rate   increases,   accounting  for
approximately $24.8 million,  increased  chargeable hours,  accounting for $6.1
million and improved  management  of the scope of  projects,  resulting in $3.6
million additional revenue.  Revenue for the second quarter of fiscal year 2001
was $168.8 million, compared to $152.4 million for the second quarter of fiscal
year 2000,  an increase of $16.4  million,  or 11%.  The revenue  increase  was
comprised  of a $6.7  million,  or 8% increase in our  Benefits  Group,  a $3.9
million,  or 19% increase in our HR Technologies  Group, a $1.6 million, or 12%
increase  in our Human  Capital  Group,  a $2.5  million,  or 17%  increase  in
International  and a $1.8 million,  or 11% increase in Other  practice areas in
North America.  The revenue  increase for the North American  practices was due
primarily  to  the   realization   of  net  rate   increases,   accounting  for
approximately $11.4 million and increased chargeable hours, accounting for $2.4
million higher revenue.

Salaries and Employee Benefits.  Salaries and employee benefit expenses for the
first six months of fiscal  year 2001 were $181.4  million,  compared to $160.8
million  for the first six months of fiscal  year 2000,  an  increase  of $20.6
million,  or 13%. Salaries and employee benefit expenses for the current period
include the $3.5 million  compensation  charge the Company  incurred  resulting
from  agreements with our employee  stockholders  related to our initial public
offering.  The remaining increase was mainly due to a $16.4 million increase in
compensation,  which is partly the result of annual salary increases  averaging
6% coupled  with a 6%  increase in  headcount  and a $0.6  million  increase in
expenses  associated  with employee  savings plans. As a percentage of revenue,
salaries and employee benefits  decreased to 53.4% from 53.9%. The $3.5 million
compensation  charge  mentioned  above  accounted  for 1.0% of revenue  for the
six-month  period  ended  December 31,  2000.  Salaries  and  employee  benefit
expenses  for the  second  quarter  of fiscal  year 2001  were  $91.7  million,
compared  to $81.0  million  for the  second  quarter of fiscal  year 2000,  an
increase of $10.7 million,  or 13%.  Salaries and employee benefit expenses for
the current  quarter  include the $3.5 million  compensation  charge  mentioned
above.  The  remaining  increase was mainly due to a $7.1  million  increase in
compensation,  which is partly the result of annual salary increases  averaging
6% coupled  with a 7%  increase in  headcount  and a $0.3  million  increase in
expenses  associated  with employee  savings plans. As a percentage of revenue,
salaries and employee benefits  increased to 54.3% from 53.1%. The $3.5 million
compensation  charge  mentioned  above  accounted  for 2.1% of revenue  for the
three-month period ended December 31, 2000.

Stock Incentive Bonus Plan. The stock incentive bonus plan was  discontinued in
conjunction with our initial public offering. Accordingly, there was no accrued
bonus under this plan for the three or six months ended December 31, 2000.

Professional  and  Subcontracted   Services.   Professional  and  subcontracted
services  used in  consulting  operations  were $26.8 million for the first six
months of fiscal year 2001,  compared to $24.9 million for the first six months
of fiscal year 2000,  an  increase of $1.9  million,  or 8%.  Professional  and
subcontracted services used in consulting operations were $15.6 million for the
second  quarter of fiscal year 2001,  compared to $15.1  million for the second
quarter of fiscal year 2000, an increase of $0.5  million,  or 3%. The variance
in both periods is primarily due to an increase in our  consulting  offices use
of resources  from our national  practice  groups.  As a percentage of revenue,
professional  and  subcontracted  services  decreased to 7.9% from 8.3% for the
year and to 9.3% from 9.9% for the quarter, as we leveraged these expenses over
a larger revenue base.

                                     -14-
<PAGE>

Occupancy,  Communications  and  Other.  Occupancy,  communications  and  other
expenses  were  $53.5  million  for the first six  months of fiscal  year 2001,
compared  to $46.7  million  for the first six months of fiscal  year 2000,  an
increase of $6.8 million, or 15%. The increase was mainly due to a $3.2 million
increase in rent  expense,  attributable  to an increase in the amount of space
required to support  our  expanding  operations  and higher real estate tax and
operating expenses,  a $1.8 million increase in travel expenses incurred in the
first quarter of fiscal year 2001 relative to our annual leadership  conference
held in Europe this year, a $1.0 million investment in a strategic relationship
and a $0.7 million increase in general office expenses, which are evenly spread
throughout  our  consulting  offices.  As a percentage  of revenue,  occupancy,
communications  and other  expenses  increased  slightly  to 15.8% from  15.6%.
Occupancy,  communications and other expenses were $26.9 million for the second
quarter of fiscal year 2001,  compared to $24.7 million for the second  quarter
of fiscal year 2000,  an  increase of $2.2  million,  or 9%. The  increase  was
mainly due to higher rent expense,  attributable  to  an increase in the amount
of space  required to support our expanding  operations  and higher real estate
tax  and  operating   expenses.   As  a  percentage   of  revenue,   occupancy,
communications and other expenses decreased to 15.9% from 16.2%.

General and Administrative  Expenses.  General and administrative  expenses for
the first six months of fiscal year 2001 were $33.1 million,  compared to $27.9
million  for the first six months of fiscal  year  2000,  an  increase  of $5.2
million,  or 19%. The increase  was mainly due to higher  compensation  of $2.4
million and higher professional services of $1.4 million, both of which are due
to the  planning and  implementation  of corporate  initiatives  involving  our
knowledge sharing and systems infrastructure. The remainder of the increase can
be attributed to higher travel and hotel costs of $0.6 million, which is mainly
due to higher costs related to our annual client conference,  increased rent of
$0.4 million and  increased  insurance  of $0.4  million.  As a  percentage  of
revenue,  general  and  administrative  expenses  increased  to 9.7% from 9.3%.
General and administrative  expenses for the second quarter of fiscal year 2001
were $17.9 million,  compared to $14.7 million for the second quarter of fiscal
year 2000, an increase of $3.2 million,  or 22%. The increase was mainly due to
higher compensation of $0.9 million and professional  services of $0.9 million,
both  of  which  are  due to  the  planning  and  implementation  of  corporate
initiatives  involving our knowledge  sharing and systems  infrastructure.  The
remainder of the increase can be attributed to higher travel and hotel costs of
$0.6 million,  which is mainly due to higher costs related to our annual client
conference,  increased  rent of $0.2  million and  increased  insurance of $0.2
million.  As a  percentage  of  revenue,  general and  administrative  expenses
increased to 10.6% from 9.7%.

Depreciation and  Amortization.  Depreciation and amortization  expense for the
first six  months of fiscal  year  2001 was  $12.0  million,  compared  to $9.5
million  for the first six months of fiscal  year  2000,  an  increase  of $2.5
million, or 26%.  Depreciation and amortization  expense for the second quarter
of fiscal year 2001 was $6.1  million,  compared to $4.6 million for the second
quarter of fiscal year 2000, an increase of $1.5 million,  or 33%. The variance
in both periods is primarily due to increased additions to our capital base and
an  increase  in  amortization  of  intangibles,  which is mainly due to recent
acquisitions.  As  a  percentage  of  revenue,  depreciation  and  amortization
expenses increased to 3.6% from 3.2% for the year and to 3.6% from 3.0% for the
second quarter.

Interest  Income.  Interest income for the first six months of fiscal year 2001
was $1.4  million,  compared to $1.3 million for the first six months of fiscal
year 2000, an increase of $0.1 million, or 8%. The increase was attributable to
interest earned on a higher  investment  balance during the first six months of
fiscal year 2001,  partially  offset by the receipt of interest of $0.5 million
related to a federal  tax refund  received  during the first  quarter of fiscal
year 2000.  Interest income for the second quarter of fiscal year 2001 was $0.8
million,  compared to $0.2 million for the second  quarter of fiscal year 2000,
an increase of $0.6 million, or 300%. The increase is due to interest earned on
a higher investment  balance during the quarter.  The higher investment balance
can be attributed to proceeds received from the initial public offering.

                                      -15-
<PAGE>

Interest Expense. Interest expense for the first six months of fiscal year 2001
was $1.0  million,  compared to $1.1 million for the first six months of fiscal
year 2000,  a decrease of $0.1  million,  or 9%. The  decrease is mainly due to
lower  borrowings  against  our  line  of  credit,  partially  offset  by  fees
associated  with the  amendment  to our  Line of  Credit  Agreement  due to our
initial public offering. Interest expense for the second quarter of fiscal year
2001 was $0.7 million, unchanged from the prior year.

Income  from  Affiliates.  Income from  affiliates  for the first six months of
fiscal year 2001 was $2.2  million,  compared to $2.1 million for the first six
months of fiscal year 2000,  an increase of $0.1  million,  or 5%.  Income from
affiliates  for the  second  quarter  of  fiscal  year  2001 was $1.2  million,
unchanged from the prior year.

Provision  for Income  Taxes.  Income  taxes for the first six months of fiscal
year 2001 were $15.1 million, compared to $7.8 million for the first six months
of fiscal year 2000. Our effective tax rate was 42.9% for the second quarter of
fiscal year 2001, compared to 48.3% for the second quarter of fiscal year 2000.
The  change  was due to a  decrease  in  operating  losses of  certain  foreign
affiliates,  a decrease in non-deductible expenses and higher pre-tax earnings.
Our  effective  tax rate was also  affected by  differing  foreign tax rates in
various  jurisdictions.  We record a tax benefit on foreign net operating  loss
carryovers  and foreign  deferred  expenses  only if it is more likely than not
that a benefit will be realized.

Net  Income.  Net income for the first six months of fiscal year 2001 was $20.1
million, compared to $8.6 million for the first six months of fiscal year 2000,
an increase of $11.5 million,  or 134%. As a percentage of revenue,  net income
increased to 5.9% from 2.9%.  Net income for the second  quarter of fiscal year
2001 was $6.7  million,  compared  to $2.2  million  for the second  quarter of
fiscal year 2000,  an increase of $4.5  million,  or 205%.  As a percentage  of
revenue,  net income increased to 4.0% from 1.4% for the quarter.  The increase
in both  periods is mainly  due to our  revenue  growth and the  absence of the
stock  incentive  bonus plan  accrual in fiscal  year 2001.  Net income for the
three and  six-month  periods  ended  December  31, 2000 also  include the $3.5
million charge the Company incurred resulting from agreements with our employee
stockholders related to our initial public offering.

Liquidity and Capital Resources

Our cash and cash  equivalents  at December  31, 2000  totaled  $61.8  million,
compared to $41.4 million at June 30, 2000. The $20.4 million  increase in cash
from June 30,  2000 to  December  31,  2000 was  mainly  attributable  to $66.5
million in cash generated from our ongoing  operations,  before bonuses,  taxes
and  stockholder  reimbursements,  and $35.2  million of net proceeds  from the
initial public offering,  partially offset by fiscal year end bonus payments of
$51.3  million,  $18.6 million spent for  acquisitions  and fixed assets,  $8.2
million of corporate  tax payments and the $2.7 million that we paid to selling
stockholders as reimbursement for commission  payments  resulting from the sale
of their shares.

                                      -16-
<PAGE>

Cash From (Used for) Operating  Activities.  Cash from operating activities for
the first six months of fiscal  year 2001 was $2.9  million,  compared  to cash
used for  operating  activities  of $16.7  million  for the first six months of
fiscal  year 2000.  The  variance  is  primarily  due to $9.0  million in lower
corporate  tax  payments,  $5.1  million in higher tax accruals and net accrued
retirement benefits of $4.0 million.

The allowance for doubtful  accounts  increased  $5.1 million and the allowance
for work in process  increased  $2.4 million from June 30, 2000 to December 31,
2000. The number of days of accounts receivable and work in process outstanding
was 89 at  December  31,  2000 and 94 at  December  31,  1999.  Typically,  our
receivables,  work in process and related allowances are substantially  reduced
at year end  from an  increased  emphasis  on  billings  and  collections.  The
receivable  and work in process  balances  and the related  allowances  usually
decrease in the last three months of the fiscal year.

Cash Used in Investing  Activities.  Cash used in investing  activities for the
first six  months of fiscal  year  2001 was  $16.3  million,  compared  to $5.8
million  for the first six months of fiscal  year 2000.  The  increase  in cash
usage can be  attributed  to higher  fixed asset  purchases of $8.1 million and
higher  acquisition  costs of $4.1 million  compared to the prior  period.  The
higher  acquisition  costs are mainly due  to higher  contingent  consideration
payments associated with recent acquisitions and a strategic investment made in
conjunction  with our business  initiative  targeted  towards  emerging  growth
companies,  partially  offset by higher  distributions  from affiliates of $1.2
million.

Cash From (Used for) Financing  Activities.  Cash from financing activities was
$35.1  million for the first six months of fiscal  year 2001,  compared to $0.5
million used for financing  activities  for the first six months of fiscal year
2000. This change reflects the sale of stock in our initial public offering.

We have a $109.3 million senior secured credit  facility,  of which $95 million
is revolving for working capital needs, and the remainder of which is available
for  stockholder  loans.  Of the  $95.0  million  of the  credit  line  that is
allocated  for  operating  needs,  $3.0 million is  unavailable  as a result of
support required for letters of credit issued under the credit line. The credit
facility  was amended on October 6, 2000 to reflect  changes due to the initial
public offering.  There were no borrowings  outstanding at December 31, 2000 or
June 30, 2000.

Anticipated  commitments  of funds for capital  expenditures  are  estimated at
$26.8  million  for the  remainder  of fiscal  year 2001,  mainly for  computer
hardware purchases, office relocations and renovations, development and upgrade
of  financial  and  knowledge  management  systems,  and  acquisition - related
payments.  Capital  expenditures  will be required in  conjunction  with office
lease  renewals  and  relocations  required  to support  our  growth  strategy.
Additionally, our consultants require access to hardware and software that will
support servicing our clients. In a rapidly changing technological environment,
management  anticipates  we  will  need to make  continued  investments  in our
knowledge  sharing and financial  systems  infrastructure.  We expect cash from
operations  in  conjunction  with  the net  proceeds  from our  initial  public
offering and our existing credit facility to adequately  provide for these cash
needs.

Our foreign operations do not materially impact liquidity or capital resources.
At December 31, 2000,  $17.5 million of the total cash balance of $61.8 million
was held  outside  of North  America,  which we have  the  ability  to  readily
utilize, if necessary. There are no significant repatriation restrictions other
than local or U.S. taxes associated with  repatriation.  Our foreign operations
in total are substantially self-sufficient for their working capital needs.

                                      -17-
<PAGE>

The Company  continues  to  guarantee  certain  leases for office  premises and
equipment for Wellspring.  Minimum  remaining  payments  guaranteed under these
leases at December 31, 2000 total $44.1 million, not including sublease income,
which expire at various dates  through 2007.  These leases are also jointly and
severally  guaranteed  by the Company's  former  partner in  Wellspring,  State
Street Bank and Trust Company.  The estimated loss from the potential  exercise
of these  guarantees  was  included in the fiscal year 1998 loss on disposal of
the benefits administration outsourcing business.

Disclaimer Regarding Forward-Looking Statements

This filing contains certain statements that are  "forward-looking  statements"
within the meaning of the  Private  Securities  Litigation  Reform Act of 1995,
including, but not limited to the following: Note 2 on pages 5 and 6; Note 3 on
page 6; Note 8 on page 9; Financial  Statement Overview on page 12; the seventh
paragraph under Liquidity and Capital Resources on page 17; the first paragraph
of Part II, Item 1 "Legal  Proceedings"  on page 18 and 19; and Part II, Item 2
"Changes  in  Securities  and Use of  Proceeds"  on pages  19 and  20.  In some
cases, you can identify these statements and other  forward-looking  statements
in  this  filing  by  words  such as  "may,"  "will,"  "expect,"  "anticipate,"
"believe,"  "estimate,"  "plan,"  "intend,"  "continue," or similar words.  You
should read these statements  carefully because they contain projections of our
future   results  of  operations  or  financial   condition,   or  state  other
"forward-looking"  information. A number of risks and uncertainties exist which
could cause actual results to differ  materially from the results  reflected in
these forward-looking  statements. Such factors include, but are not limited to
our  continued  ability to  recruit  and retain  highly  qualified  associates,
outcomes of litigation, a significant decrease in the demand for the consulting
services we offer as a result of changing economic conditions or other factors,
actions by competitors offering human resources consulting services,  including
public  accounting  and  consulting  firms,  technology  consulting  firms  and
internet/intranet development firms, regulatory,  legislative and technological
developments  that may affect the demand for or costs of our services and other
factors  discussed  under "risk  factors" in our  prospectus  dated October 11,
2000,  which is filed with the SEC and may be  accessed  via EDGAR on the SEC's
web site at www.sec.gov. These statements are based on assumptions that may not
come true. All  forward-looking  disclosure is  speculative by its nature.  The
Company  undertakes  no  obligation  to  update  any  of  the   forward-looking
information  included in this release,  whether as a result of new information,
future events, changed expectations or otherwise.

Item 3.  Quantitative and Qualitative Disclosures About Market Risk

We are exposed to market risks in the ordinary course of business.  These risks
include interest rate risk and foreign currency exchange risk. We have examined
our exposure to these risks and  concluded  that none of our exposures in these
areas are material to fair values, cash flows or earnings.

PART II. OTHER INFORMATION

Item 1.  Legal Proceedings

From  time to  time,  we are a  party  to  various  lawsuits,  arbitrations  or
mediations  that  arise in the  ordinary  course of  business.  These  disputes
typically  involve  claims  relating to employment  matters or the rendering of
professional  services.  The five  matters  reported on below  involve the most
significant  pending or potential claims against us. We are  incorporating,  by
reference,  the  descriptions  of the legal  proceedings  that appear under the
caption  "Legal  Proceedings"  beginning on page 17 of the Quarterly  Report on
Form 10-Q of the Company for the period ended  September  30, 2000.  Management
believes,  based on currently  available  information,  that the results of all
such proceedings,  in the aggregate, will not have a material adverse effect on
our financial condition, but claims which are possible in our business could be
material to the financial results for a particular period.

                                      -18-
<PAGE>

Regina,  Saskatchewan  Police. The trial in this case began on January 8, 2001,
and is continuing.

City of Milwaukee,  Wisconsin. In November 2000, the Circuit Court in Milwaukee
County approved a settlement among other parties to the underlying  dispute. No
proceedings are pending against the Company.

Connecticut  Carpenters Pension Fund. Plaintiff's punitive damages claim, which
was previously dismissed,  was reinstated;  punitive damages in Connecticut are
limited to litigation costs (including  attorney's fees). A jury trial began on
January 30, 2001.

Societe Internationale de Telecommunications Aeronautique S.C. (SITA). Suit was
filed on November  15,  2000,  in the High Court of Justice  Chancery  Division
against  Watson Wyatt  Partners and The Wyatt Company (UK) Limited,  one of our
subsidiaries.  SITA's specific damage claim is  indeterminate,  but could be in
the $90  million  range.  With our  respective  insurers,  we and Watson  Wyatt
Partners  have  entered  into a joint  defense  agreement.  The  case is in its
earliest  stages;  we will be  filing  our  statement  of  defense  on or about
February 7, 2001.

Pacific  Group  Medical  Association.  In connection  with the  insolvency  and
liquidation  of the Pacific Group  Medical  Association  (PGMA),  a provider of
health care  insurance  benefits  and a former  group and health care  practice
client,  the Insurance  Commissioner  of the State of Hawaii has brought claims
against  the  former  officers,  directors,  accountants,  attorneys  and other
service   providers  of  PGMA.  Late  in  2000,  a  lawsuit  by  the  Insurance
Commissioner  against Watson Wyatt and others was consolidated  with an earlier
lawsuit  brought by the  Insurance  Commissioner  against the PGMA officers and
directors.  The  Insurance  Commissioner  has alleged  that PGMA's  liabilities
exceeded its assets by approximately  $15 million when it was shut down in 1997
and is seeking to recover  damages  from all of the  defendants.  Discovery  is
proceeding  and a trial is scheduled for February  2002.

We carry  substantial  professional  liability  insurance  with a  self-insured
retention  of  $1  million  per   occurrence,   which  provides   coverage  for
professional  liability claims including the cost of defending such claims.  We
also carry employment practices liability insurance.

Item 2.  Changes in Securities and Use of Proceeds

On  October  10,  2000,  our  Registration  Statement  on Form  S-3  (File  No.
333-94973), registering for sale up to 6,440,000 shares of class A common stock
at  $12.50  per  share to be  issued  in  connection  with our  initial  public
offering, was declared effective.  On October 16, 2000, we completed changes in
our corporate  structure in conjunction with the initial public  offering.  The
changes in  corporate  structure  involved the merger of Watson Wyatt & Company
with WW Merger  Subsidiary,  Inc., a wholly owned  subsidiary of Watson Wyatt &
Company  Holdings.  Watson Wyatt & Company is now a wholly owned  subsidiary of
Watson Wyatt & Company Holdings.

                                      -19-
<PAGE>

At the time of the  reorganization,  each  share of  Watson  Wyatt &  Company's
Redeemable  Common Stock was converted into one share of class B-1 common stock
and one share of class B-2 common stock of Watson Wyatt & Company Holdings. The
class B common  stock is  divided  into two  classes to  accommodate  different
transfer  restriction  periods.  The class B-1 shares are subject to a transfer
restriction  period of 12 months  following the public offering date, while the
class B-2 shares are  subject  to a  transfer  restriction  period of 24 months
following the public  offering  date,  unless waived by the Board of Directors.
The Company waived the transfer  restrictions on a total of 1,559,250 class B-1
and 1,559,250  class B-2 shares to allow for conversion into the class A shares
sold by selling  stockholders in the initial public offering  described  below.
Following  the  expiration  or waiver of the  respective  transfer  restriction
periods,  the  remaining  class  B-1 and class B-2  shares  will  automatically
convert into class A common stock.

In conjunction  with our initial public  offering,  we entered into  agreements
providing  for  additional  transfer   restrictions  with  major  stockholders,
executive  officers and employee directors  affecting  approximately 36% of our
remaining class B common stock. The agreements restrict transfers of all shares
held by such persons immediately  following the offering,  and the restrictions
terminate  as to 25% of such  shares on each of the  first,  second,  third and
fourth anniversaries of the consummation of the public offering.

A total of  5,600,000  shares of class A common  stock were offered and sold in
our initial public  offering at an offering  price of $12.50 per share,  for an
aggregate  offering  price of $70.0  million.  Of the shares  included  in this
transaction,  Watson Wyatt & Company  Holdings offered  2,800,000  newly-issued
shares and the selling  stockholders offered the remaining 2,800,000 shares. On
November 8, 2000, our underwriters  exercised their over-allotment option. As a
result, the underwriters  purchased 840,000 shares of class A common stock from
us and from the selling  stockholders  at the initial public  offering price of
$12.50 per share less the  underwriting  discount,  for an  aggregate  offering
price of $10.5  million.  Of the shares  included in this  transaction,  Watson
Wyatt & Company  Holdings  sold  521,500  newly-issued  shares and the  selling
stockholders  sold 318,500  shares.  The managing  underwriters of the offering
were Deutsche Banc Alex. Brown,  Banc of America  Securities LLC, and Robert W.
Baird & Co.

As a result of these  transactions  and upon  completion  of the  offering,  we
received gross proceeds of $41.5 million, and the selling stockholders received
gross  proceeds  of $39.0  million.  Net  proceeds  to the  Company  were $35.2
million,  which is net of $6.3 million in underwriting  discounts,  commissions
and other offering costs. Also, we paid $2.7 million to selling stockholders as
reimbursement for commission payments resulting from the sale of their shares.

From the time of receipt through December 31, 2000,  proceeds from the offering
of $17.7 million were applied to the  repayment of  short-term  debt and a $0.8
million  installment  payment  was made for an  acquisition  related  to our HR
Technologies  practice.  The  remainder  of the net  proceeds  is  invested  in
high-grade  interest-bearing   securities.  The  Company  intends  to  use  the
remainder  of the net proceeds for capital  expenditures,  working  capital and
other general corporate purposes.  In addition, a portion of the proceeds could
be used for future strategic acquisitions of complementary businesses.


Item 3.  Defaults Upon Senior Securities

None.

                                      -20-
<PAGE>

Item 4.  Submission of Matters to a Vote of Security Holders

Our first annual meeting of stockholders following our corporate reorganization
and our initial  public  offering was held on December 18, 2000.  At the annual
meeting,  the  stockholders  elected  sixteen  (16)  nominees  to the  Board of
Directors.  Pursuant  to  the  Company's  Certificate  of  Incorporation,   the
directors are divided into three classes,  Class I, Class II and Class III. The
initial  term of  office of Class I  directors  will  expire  as of the  annual
stockholders'  meeting in 2001 and every  three years  thereafter.  The initial
term of office of Class II directors will expire as of the annual stockholders'
meeting in 2002 and every three years thereafter. The initial term of office of
Class III directors will expire as of the annual stockholders'  meeting in 2003
and every three years  thereafter.  As the initial terms of each of the classes
of  directors  expire,  directors of the Company will be elected to serve for a
three-year period and until their respective  successors have been duly elected
and qualified.

Proxies representing  22,027,782 shares were received (total shares outstanding
as of the Record Date were  32,928,710)  and the results of the meeting were as
follows:
      Nominees for Class I Directors                   For             Withheld
      ------------------------------             ----------           ---------
      Paula A. DeLisle                           21,725,646             302,136
      David B. Friend, M.D.                      19,790,013           2,237,769
      R. Michael McCullough                      21,712,583             315,199
      Gail E. McKee                              21,281,769             746,013
      Paul N. Thornton                           21,961,799              65,983

      Nominees for Class II Directors                   For            Withheld
      -------------------------------            ----------           ---------
      Thomas W. Barratt                          20,826,995           1,200,787
      John J. Gabarro                            21,454,309             573,473
      John J. Haley                              21,949,131              78,651
      Eric P. Lofgren                            21,182,199             845,583
      Kevin L. Meehan                            21,558,449             469,333
      Charles P. Wood, Jr.                       21,417,019             610,763

      Nominees for Class III Directors                  For            Withheld
      --------------------------------           ----------           ---------
      Elizabeth M. Caflisch                      21,246,593             781,189
      Barbara Hackman Franklin                   21,811,795             215,987
      David P. Marini                            20,659,635           1,368,147
      J. P. Orbeta                               21,515,403             512,379
      Gilbert T. Ray                             21,932,285              95,497


Item 5.  Other Information

None.

                                      -21-
<PAGE>


Item 6.  Exhibits and Reports on Form 8-K

a.       Exhibits
     3.1      Amended and Restated Certificate of Incorporation of Watson Wyatt
              & Company Holdings1
     3.2      Amended and Restated Bylaws of  Watson Wyatt & Company  Holdings1
     4        Form of Certificate Representing Common Stock1
     10.1     Amended  Credit Agreement  Among Bank of America, N.A. and Others
              dated October 6, 20002
     10.2     Form of agreement among  Watson  Wyatt & Company,  Watson Wyatt &
              Company  Holdings and employee directors, executive  officers and
              significant  stockholders  restricting  the transfer  of  shares1
     22       Definitive Proxy Statement on Schedule 14A, filed on November 17,
              20003

b.       Reports on Form 8-K
         None.



--------
1     Incorporated  by reference  from Registrant's  Form S-3,  Amendment No. 5
      (File No. 33-394973), filed on September 14, 2000
2     Incorporated by reference from Registrant's Form 10-Q, filed
      on November 14, 2000
3     Incorporated by reference from Registrant's Form DEF 14A, filed on
      November 17, 2000


                                      -22-
<PAGE>

Signatures


Pursuant to the  requirements  of the  Securities and Exchange Act of 1934, the
registrant  has duly  caused  this  report to be  signed  on its  behalf by the
undersigned thereunto duly authorized.

Watson Wyatt & Company Holdings
(Registrant)




/S/ John J. Haley                                             February 6, 2001
-----------------                                             ----------------
Name:      John J. Haley                                      Date
Title:     President and Chief
           Executive Officer

/S/ Carl D. Mautz                                             February 6, 2001
-----------------                                             ----------------
Name:      Carl D. Mautz                                      Date
Title:     Vice President and Chief
           Financial Officer

/S/ Peter L. Childs                                           February 6, 2001
-------------------                                           ----------------
Name:      Peter L. Childs                                    Date
Title:     Controller



                                      -23-
<PAGE>