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SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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FORM 10-Q



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



For the quarterly period ended June 30, 2003



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 000-50161



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HEWITT HOLDINGS LLC

(Exact name of registrant as specified in its charter)



|Delaware                                                       |  | 36-3974824                          
|-------------------------------------------------------------- |  | ------------------------------------
|(State or other jurisdiction of incorporation or organization) |  | (I.R.S. Employer Identification No.)



100 Half Day Road;
Lincolnshire, Illinois 60069; 847-295-5000

(Address, including zip code, and telephone number, including area code, of
registrants principal executive offices)



N/A

(Former Name, Former Address & Former Fiscal Year, if changed since last report)



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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 periods as 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 by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).  Yes ̈No  x



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##### Table of Contents

HEWITT HOLDINGS LLC



FORM 10-Q

FOR THE PERIOD ENDED

JUNE 30, 2003



INDEX



|           |  |                                                                                                      |  | PAGE
|---------- |  | ---------------------------------------------------------------------------------------------------- |  | ----
|           |  |                                                                                                     
|PART I.    |  | FINANCIAL INFORMATION                                                                                |  |     
|           |  |                                                                                                     
|ITEM 1.    |  | Financial Statements:                                                                                |  |     
|           |  |                                                                                                     
|           |  | Consolidated Balance Sheets September 30, 2002, and June 30, 2003 (Unaudited)                       |  | 3   
|           |  |                                                                                                     
|           |  | Consolidated Statements of OperationsThree and Nine Months Ended June 30, 2002 and 2003 (Unaudited) |  | 5   
|           |  |                                                                                                     
|           |  | Consolidated Statements of Cash FlowsNine Months Ended June 30, 2002 and 2003 (Unaudited)           |  | 6   
|           |  |                                                                                                     
|           |  | Notes to Consolidated Financial Statements                                                           |  | 8   
|           |  |                                                                                                     
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                |  | 21  
|           |  |                                                                                                     
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                           |  | 44  
|           |  |                                                                                                     
|ITEM 4.    |  | Controls and Procedures                                                                              |  | 45  
|           |  |                                                                                                     
|PART II.   |  | OTHER INFORMATION                                                                                    |  |     
|           |  |                                                                                                     
|ITEM 1.    |  | Legal Proceedings                                                                                    |  | 46  
|           |  |                                                                                                     
|ITEM6.     |  | Exhibits and Reports on Form 8-K                                                                     |  | 46  
|           | 
|SIGNATURES |  | 46                                                                                                  



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##### Table of Contents

Part I. FINANCIAL INFORMATION



Item 1. Financial Statements



HEWITT HOLDINGS LLC

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands)



|                                                                                                                               |  | September 30,2002 |           | June 30,2003
|------------------------------------------------------------------------------------------------------------------------------ |  | ----------------- | --------- | ------------
|                                                                                                                               |  |                   |           | (Unaudited) 
|ASSETS                                                                                                                         |  |                   |           |             
|Current Assets                                                                                                                 |  |                   |           |             
|Cash and cash equivalents                                                                                                      |  | $                 | 173,736   |             
|Client receivables and unbilled work in process, less allowances of $18,960 at September 30, 2002 and $18,432 at June 30,
2003 |  |                   | 401,700   |             
|Prepaid expenses and other current assets                                                                                      |  |                   | 34,483    |             
|Deferred income taxes, net                                                                                                     |  |                   | 16,976    |             
|                                                                                                                               |  |                   |           |             
|Total current assets                                                                                                           |  |                   | 626,895   |             
|                                                                                                                               |  |                   |           |             
|Non-Current Assets                                                                                                             |  |                   |           |             
|Property and equipment, net                                                                                                    |  |                   | 499,265   |             
|Goodwill, net                                                                                                                  |  |                   | 201,286   |             
|Intangible assets, net                                                                                                         |  |                   | 170,854   |             
|Other assets, net                                                                                                              |  |                   | 40,087    |             
|                                                                                                                               |  |                   |           |             
|Total non-current assets                                                                                                       |  |                   | 911,492   |             
|                                                                                                                               |  |                   |           |             
|Total Assets                                                                                                                   |  | $                 | 1,538,387 |             
|                                                                                                                               |  |                   |           |             
|LIABILITIES                                                                                                                    |  |                   |           |             
|Current Liabilities                                                                                                            |  |                   |           |             
|Accounts payable                                                                                                               |  | $                 | 23,345    |             
|Accrued expenses                                                                                                               |  |                   | 180,951   |             
|Advanced billings to clients                                                                                                   |  |                   | 73,965    |             
|Current portion of long-term debt                                                                                              |  |                   | 45,076    |             
|Current portion of capital lease obligations                                                                                   |  |                   | 11,375    |             
|Employee deferred compensation and accrued profit sharing                                                                      |  |                   | 56,481    |             
|                                                                                                                               |  |                   |           |             
|Total current liabilities                                                                                                      |  |                   | 391,193   |             
|                                                                                                                               |  |                   |           |             
|Long-Term Liabilities                                                                                                          |  |                   |           |             
|Debt , less current portion                                                                                                    |  |                   | 361,046   |             
|Capital lease obligations, less current portion                                                                                |  |                   | 65,166    |             
|Other long-term liabilities                                                                                                    |  |                   | 54,844    |             
|Deferred income taxes, net                                                                                                     |  |                   | 19,265    |             
|                                                                                                                               |  |                   |           |             
|Total long-term liabilities                                                                                                    |  |                   | 500,321   |             
|                                                                                                                               |  |                   |           |             
|Total Liabilities                                                                                                              |  | $                 | 891,514   |             
|                                                                                                                               |  |                   |           |             
|Minority Interest                                                                                                              |  | $                 | 150,716   |             



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HEWITT HOLDINGS LLC

CONSOLIDATED BALANCE SHEETS  (Continued)

(Dollars in thousands)



|                                                         |  | September 30,2002 |           | June 30,2003
|-------------------------------------------------------- |  | ----------------- | --------- | ------------
|                                                         |  |                   |           | (Unaudited) 
|OWNERS CAPITAL                                          |  |                   |           |             
|Owners Capital                                          |  |                   |           |             
|Accumulated earnings and paid-in-capital                 |  | $                 | 480,469   |             
|Accumulated other comprehensive income                   |  |                   | 15,688    |             
|                                                         |  |                   |           |             
|Total owners capital                                    |  |                   | 496,157   |             
|                                                         |  |                   |           |             
|Total Liabilities, Minority Interest and Owners Capital |  | $                 | 1,538,387 |             
|                                                         |  |                   |           |             



The accompanying notes
are an integral part of these statements.



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HEWITT HOLDINGS LLC

CONSOLIDATED STATEMENTS OF OPERATIONS (1) (2)

(Unaudited)

(Dollars in thousands)



|                                                                        |  | Three Months EndedJune 30, |         |   | Nine Months EndedJune 30, |  
|----------------------------------------------------------------------- |  | -------------------------- | ------- | - | ------------------------- | -
|                                                                        |  | 2002                       |         |   | 2003 (1) (2)              |  
|Revenues:                                                               |  |                            |         |   |                           |  
|Revenue before reimbursements (net revenues)                            |  | $                          | 430,083 |   |                           | $
|Reimbursements                                                          |  |                            | 8,508   |   |                           |  
|                                                                        |  |                            |         |   |                           |  
|Total revenues                                                          |  |                            | 438,591 |   |                           |  
|                                                                        |  |                            |         |   |                           |  
|Operating expenses:                                                     |  |                            |         |   |                           |  
|Compensation and related expenses, excluding restricted stock awards    |  |                            | 273,009 |   |                           |  
|Restricted stock award compensation                                     |  |                            | 1,105   |   |                           |  
|Reimbursable expenses                                                   |  |                            | 8,508   |   |                           |  
|Other operating expenses                                                |  |                            | 85,248  |   |                           |  
|Selling, general and administrative expenses                            |  |                            | 21,661  |   |                           |  
|                                                                        |  |                            |         |   |                           |  
|Total operating expenses                                                |  |                            | 389,531 |   |                           |  
|                                                                        |  |                            |         |   |                           |  
|Operating income                                                        |  |                            | 49,060  |   |                           |  
|                                                                        |  |                            |         |  
|Other expenses, net:                                                    |  |                            |         |   |                           |  
|Interest expense                                                        |  |                            | (10,137 | ) |                           |  
|Interest income                                                         |  |                            | 497     |   |                           |  
|Other income (expense), net                                             |  |                            | 3,348   |   |                           |  
|                                                                        |  |                            |         |   |                           |  
|Total other expenses, net                                               |  |                            | (6,292  | ) |                           |  
|                                                                        |  |                            |         |   |                           |  
|Income before taxes, minority interest and owner distributions          |  |                            | 42,768  |   |                           |  
|                                                                        |  |                            |         |  
|Provision for income taxes                                              |  |                            | 24,640  |   |                           |  
|                                                                        |  |                            |         |   |                           |  
|Income after taxes and before minority interest and owner distributions |  |                            | 18,128  |   |                           |  
|                                                                        |  |                            |         |  
|Minority interest                                                       |  |                            | (957    | ) |                           |  
|                                                                        |  |                            |         |   |                           |  
|Income after taxes and minority interest and before owner distributions |  | $                          | 19,085  |   |                           | $
|                                                                        |  |                            |         |   |                           |  

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|(1) |  | On May 31, 2002, one of the Companys subsidiaries, Hewitt Associates, completed its transition to a corporate structure and the owners of Hewitt Holdings who worked in the
business of Hewitt Associates became employees of the subsidiary. As a result, operating expenses after May 31, 2002 include the compensation expense related to these owners and income after taxes and minority interest and before owner distributions
includes the corporate income taxes of Hewitt Associates for the period after May 31, 2002. Income after taxes and minority interest and before owner distributions does not include income taxes on the Companys remaining operations, as these
taxes are the responsibility of Hewitt Holdings owners. Prior to May 31, 2002, Hewitt Associates operated as a group of limited liability companies and as such, no income taxes nor owner compensation expense were recorded as owners were
compensated through distributions of Hewitt Associates earnings and were personally responsible for the income taxes on those earnings.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | On June 5, 2002, Hewitt Associates acquired the benefits consulting business of Bacon & Woodrow and its results are included in the Companys results from the acquisition
date of June 5, 2002.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are
an integral part of these statements.



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HEWITT HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)



|                                                                                                                                               |  | Nine Months EndedJune 30, |         
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------------------- | --------
|                                                                                                                                               |  | 2002                      |         
|Cash flows from operating activities:                                                                                                          |  |                           |         
|Income after taxes and minority interest and before owner distributions                                                                        |  | $                         | 172,141 
|Adjustments to reconcile income after taxes and minority interest and before owner distributions to net cash provided by operating
activities: |  |                           |         
|Depreciation                                                                                                                                   |  |                           | 53,635  
|Amortization                                                                                                                                   |  |                           | 23,851  
|Net unrealized loss (gain) on securities                                                                                                       |  |                           | 3,653   
|Restricted stock awards (Note 12)                                                                                                              |  |                           | 1,105   
|Owner compensation charge (Note 3)                                                                                                             |  |                           | 17,843  
|Establishment of owner vacation liability (Note 3)                                                                                             |  |                           | 8,300   
|Deferred income taxes                                                                                                                          |  |                           | 21,711  
|Hewitt Associates director stock compensation                                                                                                  |  |                           |        
|Minority interest                                                                                                                              |  |                           | (957    
|Gain on sales of property (Note 8)                                                                                                             |  |                           |        
|Changes in operating assets and liabilities:                                                                                                   |  |                           |         
|Client receivables and unbilled work in process                                                                                                |  |                           | 21,179  
|Prepaid expenses and other current assets                                                                                                      |  |                           | (1,692  
|Other assets                                                                                                                                   |  |                           | (1,068  
|Accounts payable                                                                                                                               |  |                           | (4,987  
|Accrued expenses                                                                                                                               |  |                           | 7,476   
|Advanced billings to clients                                                                                                                   |  |                           | 7,764   
|Due to former owners                                                                                                                           |  |                           | (5,927  
|Employees deferred compensation and accrued profit sharing                                                                                    |  |                           | (17,418 
|Other long-term liabilities                                                                                                                    |  |                           | 5,089   
|                                                                                                                                               |  |                           |         
|Net cash provided by operating activities                                                                                                      |  |                           | 311,698 
|                                                                                                                                               |  |                          
|Cash flows from investing activities:                                                                                                          |  |                           |         
|Additions to property and equipment                                                                                                            |  |                           | (57,167 
|Cash paid for acquisition, net of cash received                                                                                                |  |                           | (887    
|Proceeds from sale of property                                                                                                                 |  |                           | 64,278  
|Increase in other assets                                                                                                                       |  |                           | (14,437 
|                                                                                                                                               |  |                           |         
|Net cash provided by (used in) investing activities                                                                                            |  |                           | (8,213  
|                                                                                                                                               |  |                          
|Cash flows from financing activities:                                                                                                          |  |                           |         
|Capital distributions, net                                                                                                                     |  |                           | (240,525
|Proceeds from the exercise of Hewitt Associates stock options                                                                                  |  |                           |        
|Short-term borrowings                                                                                                                          |  |                           | 56,225  
|Refund of tax deposits for owners                                                                                                              |  |                           |        
|Repayments of short-term borrowings                                                                                                            |  |                           | (21,765 
|Repayments of long-term debt                                                                                                                   |  |                           | (40,637 
|Repayments of capital lease obligations                                                                                                        |  |                           | (10,446 
|Hewitt Associates purchase of treasury stock                                                                                                   |  |                           |        
|Payment of offering costs                                                                                                                      |  |                           | (4,791  
|                                                                                                                                               |  |                           |         
|Net cash used in financing activities                                                                                                          |  |                           | (261,939



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HEWITT HOLDINGS LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS  (Continued)

(Unaudited)

(Dollars in thousands)



|                                                             |  | Nine Months EndedJune 30, |        
|------------------------------------------------------------ |  | ------------------------- | -------
|                                                             |  | 2002                      |        
|Effect of exchange rate changes on cash and cash equivalents |  |                           | (1,456 
|                                                             |  |                           |        
|Net increase (decrease) in cash and cash equivalents         |  |                           | 40,090 
|                                                             |  |                          
|Cash and cash equivalents, beginning of period               |  |                           | 69,393 
|                                                             |  |                           |        
|Cash and cash equivalents, end of period                     |  | $                         | 109,483
|                                                             |  |                           |        
|Supplementary disclosure of cash paid during the period:     |  |                           |        
|Interest paid                                                |  | $                         | 23,909 
|Income taxes paid                                            |  | $                         | 4,266  



The accompanying notes
are an integral part of these statements.



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HEWITT HOLDINGS LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

JUNE 30, 2002 AND 2003

(Unaudited)

(Amounts in thousands except for share and per share amounts)



1. Description of Business:



Hewitt Holdings LLC and Subsidiaries (Hewitt Holdings or the Company) consists of Hewitt Associates, Inc. and its subsidiaries or its predecessor,
Hewitt Associates LLC and Affiliates (Hewitt Associates) and the Property Entities which consist of Hewitt Properties I LLC, Hewitt Properties II LLC, Hewitt Properties III LLC, Hewitt Properties IV LLC, Hewitt Properties V
LLC, Hewitt Properties VI LLC, Hewitt Properties VII LLC and The Bayview Trust.



Hewitt Associates is the principal operating subsidiary of the Company and provides human resources outsourcing and consulting services. During the three and nine months ended June 30, 2002 and 2003, Hewitt Associates represented all of the
Companys total revenues and Hewitt Holdings third-party rental income was insignificant.



Hewitt Holdings owns significant real estate assets directly and through its Property Entities. Substantially all of the activities of the Property Entities involve assets that are leased to Hewitt Associates on terms
comparable to those which would have been obtained in an arms length transaction. The investments in these properties were funded through capital contributions of Hewitt Holdings owners and third-party debt. The debt is an obligation of
Hewitt Holdings Property Entities and is not an obligation of nor guaranteed by Hewitt Associates. The properties the Company owns are located in Illinois, Florida and Texas.



On March 1, 2002, Hewitt Associates, Inc., a Delaware corporation, was formed as a subsidiary of Hewitt Holdings so as to effect an
incorporation of Hewitt Associates LLC and Affiliates prior to its planned initial public offering.



On May 31, 2002, Hewitt Holdings transferred all of its ownership interests in Hewitt Associates LLC and Affiliates to Hewitt Associates, Inc. Hewitt Holdings remaining capital in the business was converted and
Hewitt Holdings received shares of Hewitt Associates common stock in exchange.



On June 5, 2002, Hewitt Associates acquired the actuarial and benefits consulting business of Bacon & Woodrow in the United Kingdom. The results of operations for Bacon & Woodrow are included in the Companys results from the
acquisition date.



On June 27, 2002, Hewitt Associates sold 11,150,000 shares
of its Class A common stock at $19.00 per share in its initial public offering. In July 2002, the underwriters exercised their over-allotment option to purchase an additional 1,672,500 shares of the Class A common stock at $19.00 per share. The
combined transactions generated approximately $219 million in net cash proceeds for Hewitt Associates after offering expenses.



On June 5, 2003, Hewitt Associates acquired Cyborg Worldwide, Inc., the parent of Cyborg Systems, Inc. (Cyborg), a global provider of human resources
management software and payroll services. The results of operations for Cyborg are included in the Companys results and the Outsourcing segments results from the acquisition date (see Note 6).



On June 15, 2003, the Company acquired the benefits administration and retirement consulting
and actuarial businesses of Northern Trust Corporation. The results of the benefits administration and retirement consulting and actuarial businesses of Northern Trust Corporation are included in the Companys results and the Outsourcing and
Consulting segments results from the acquisition date (see Note 6).



On July 1, 2003, Hewitt Holdings distributed the shares of Class B common stock of Hewitt Associates to its owners, with the exception of certain owners resident outside the United States who will continue to hold their shares through
Hewitt Holdings.



On August 6, 2003, the owners, the Bacon & Woodrow
partners and the key employees of Hewitt Associates and Bacon & Woodrow sold 9,852,865 shares of Hewitt Associates Class A common stock in a registered secondary offering. On August 11, 2003, Hewitt Associates underwriters exercised
their over-allotment option to purchase an additional 1,477,929 shares from the selling stockholders. The offering was initiated pursuant to a request under a registration rights agreement which Hewitt Associates and the Company entered into at the
time of Hewitt Associates initial public offering.



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The term owner refers to the individuals who are current or retired members of Hewitt Holdings.



2. Summary of Significant Accounting Policies:



Basis of Presentation



The accompanying unaudited interim consolidated financial statements have been prepared pursuant to the rules and regulations of the
Securities and Exchange Commission. In the opinion of management, these financial statements include all adjustments necessary to present fairly the Companys financial position as of June 30, 2003 and the results of operations and cash flows
for the three and nine months then ended, and for all periods presented. All adjustments made have been of a normal and recurring nature. Certain information and footnote disclosures normally included in financial statements prepared in accordance
with accounting principles generally accepted in the United States of America have been condensed or omitted. The Company believes that the disclosures included are adequate and provide a fair presentation of interim period results. Interim
financial statements are not necessarily indicative of the financial position or operating results for an entire year. These interim financial statements should be read in conjunction with the audited financial statements and the notes thereto,
together with Managements Discussion and Analysis of Financial Condition and Results of Operations, included in the Companys Form 10 as filed with the Securities and Exchange Commission. Prior period amounts have been reclassified to
conform to the current period presentation.



The consolidated financial
statements are prepared on the accrual basis of accounting. The significant accounting policies are summarized below:



Principles of Consolidation



The accompanying consolidated financial statements reflect the operations of the Company and its majority owned subsidiaries after elimination of intercompany accounts
and transactions. Significant eliminating entries include the elimination of intercompany capital leases and the reversal of intercompany rent income and expense and the recognition of depreciation and interest expense related to real estate under
operating leases. As such, on a consolidated basis, the Companys financial statements reflect the Companys owned real estate assets and related third-party debt and exclude intercompany lease obligations and related activities.
Investments in less than 50%- owned affiliated companies over which the Company has the ability to exercise significant influence are accounted for using the equity method of accounting. The Company applies the equity method of accounting and does
not consolidate its 51% equity interest in Overlook Associates, an Illinois partnership, as Hewitt Holdings does not exercise control over this company. Overlook Associates owns and operates commercial office buildings and develops and sells vacant
land in Lincolnshire, Illinois.



Revenue Recognition



Revenues include fees generated from outsourcing contracts and from consulting services
provided to the Companys clients. Revenues from sales of software or other types of revenue were not material. Under the Companys outsourcing contracts, which typically have a three- to five-year term, clients generally pay an
implementation fee and an ongoing service fee. In accordance with the Securities and Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements, the Company recognizes revenues for
non-refundable, upfront implementation fees evenly over the period between the initiation of ongoing services through the end of the contract term (on a straight-line basis). Most indirect costs of implementation are expensed as incurred. However,
incremental direct costs of implementation are deferred and recognized as expense over the same period that deferred implementation fees are recognized. If a client terminates an outsourcing contract prematurely, both the deferred implementation
revenues and related costs are recognized in the period in which the termination occurs.



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Revenues related to ongoing service fees and to services provided outside the scope of outsourcing contracts are
recognized when persuasive evidence of an arrangement exists, services have been rendered, our fee is determinable and collectibility of our fee is reasonably assured. Ongoing service fees are typically billed and recognized on a monthly basis,
typically based on the number of plan participants or services. Services provided outside the scope of our outsourcing contracts are billed and recognized on a time-and-material or fixed fee basis.



Losses on outsourcing contracts are recognized during the period in which the loss becomes
probable and the amount of the loss is reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and a portion of indirect costs of the contract exceed the estimated total revenues that will be generated by
the contract.



The Companys clients typically pay for consulting services
either on a time-and-materials or, to a lesser degree, on a fixed-fee basis. Revenues are recognized under time-and-material based arrangements as services are provided. On fixed-fee engagements, revenues are recognized as the services are
performed, which is measured by hours incurred in proportion to total hours estimated to complete a project. Losses on consulting agreements are recognized during the period in which the loss becomes probable and the amount of the loss is reasonably
estimable. Losses are determined to be the amount by which the estimated direct and indirect costs of the project exceed the estimated total revenues that will be generated for the work.



Revenues earned in excess of billings are recorded as unbilled work in progress. Billings in excess of revenues earned are recorded as
advanced billings to clients, a deferred revenue liability, until services are rendered.



The Company considers the criteria established by Emerging Issues Task Force (EITF) Issue No. 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent, in determining whether revenue
should be recognized on a gross versus a net basis. In consideration of these criteria, the Company recognizes revenue primarily on a gross basis. Factors considered in determining if gross or net recognition is appropriate include whether the
Company is primarily responsible to the client for the services, further changes the product delivered or performs part of the service delivered, has discretion on vendor selection, or bears credit risk. In accordance with EITF Issue No. 01-14,
Income Statement Characterization of Reimbursements Received for Out-of- Pocket Expenses Incurred, reimbursements received for out-ofpocket expenses incurred are characterized as revenues and are shown as a separate
component of total revenues. Similarly, related reimbursable expenses are also shown separately within operating expenses.



Performance-Based Compensation



The Companys compensation program includes a performance-based component that is determined by management. Performance-based compensation is discretionary and is
based on individual, team, and total Company performance. Performance-based compensation is paid once per fiscal year after the Companys annual operating results are finalized. The amount of expense for performance-based compensation
recognized at interim and annual reporting dates involves judgment, is based on our quarterly and annual results as compared to our internal targets, and takes into account other factors, including industry-wide results and the general economic
environment. Annual performance-based compensation levels may vary from current expectations as a result of changes in the actual performance of the individual, team, or Company. As such, accrued amounts are subject to change in future periods if
actual future performance varies from performance levels anticipated in prior interim periods.



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Goodwill and Other Intangible Assets



On October 1, 2002, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other
Intangible Assets,for acquisitions made prior to July 1, 2001. The Company evaluates its goodwill and indefinite lived intangibles for impairment whenever indicators of impairment exist with reviews at least annually. The goodwill evaluation is
based upon a comparison of the estimated fair value of the line of business to which the goodwill has been assigned to the sum of the carrying value of the assets and liabilities of that line of business. The fair values used in this evaluation are
estimated based upon discounted future cash flow projections for the line of business. The indefinite lived intangible asset impairment evaluation is based upon discounted future cash flow projections.



Income Before Taxes, Minority Interest and Owner Distributions



Prior to May 31, 2002, the Company operated as a group of affiliated limited liability
companies and recorded income before taxes, minority interest and owner distributions in accordance with accounting principles generally accepted in the United States of America. Income before taxes, minority interest and owner distributions is not
comparable to income after taxes and minority interest and before owner distributions because the Company incurred no income taxes in its historical results prior to May 31, 2002 and compensation and related expenses for services rendered by owners
were not reflected as expenses but as distributions of earnings to owners. Operating results after May 31, 2002, however, do include compensation expense related to owners who worked in the Hewitt Associates business and became its employees on that
date. Additionally, income after taxes and minority interest and before owner distributions for the period after May 31, 2002 also reflect income taxes of the Companys subsidiary, Hewitt Associates, but does not include any income taxes on the
Companys remaining operations which are the responsibility of the Hewitt Holdings owners.



As of June 30, 2003, the Company owns approximately 72% of the outstanding common stock of Hewitt Associates. For financial reporting purposes, all of the assets, liabilities, and earnings of Hewitt Associates and its
subsidiaries are consolidated in the Companys financial statements, and the non-affiliated investors Class A, Class B and Class C common stock interests in Hewitt Associates are recorded as a Minority Interest on the
consolidated balance sheet and statement of operations.



Income Taxes



On May 31, 2002, Hewitt Associates became subject to federal and state
income taxes and began to apply the asset and liability method described in Statement of Financial Accounting Standards (SFAS) No.109, Accounting for Income Taxes.Deferred tax assets and liabilities are recognized for the future
tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases and operating loss and tax credit carryforwards. Deferred tax assets and liabilities are
measured using tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in
income in the period that includes the enactment date. Prior to May 31, 2002, the Company and its subsidiaries were not subject to income taxes because they operated as limited liability companies. Taxes on income earned prior to May 31, 2002 were
the responsibility of Hewitt Holdings owners.



Use of Estimates



The preparation of financial statements and related disclosures in
conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the amounts reported in the consolidated financial statements and accompanying notes.
Estimates are used for, but not limited to, the accounting for contract and project loss reserves, performance-based compensation, the allowance for doubtful accounts, depreciation and amortization, impairment, taxes, and any contingencies. Although
these estimates are based on managements best knowledge of current events and actions that the Company may undertake in the future, actual results may be different from the estimates.



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Stock-Based Compensation



The Company applies the intrinsic value method for accounting for stock-based compensation as outlined in Accounting Principles Board (APB) Opinion No. 25,
Accounting for Stock Issued to Employeesand provides the pro forma disclosures required by SFAS No. 123, Accounting for Stock-Based Compensationas amended by SFAS No. 148, Accounting for Stock-Based CompensationTransition
and Disclosure. Restricted stock awards, including restricted stock and restricted stock units, are measured using the fair market value of the stock as of the grant date and are recorded as unearned compensation on the balance sheet. As the
restricted stock awards vest, the unearned compensation is amortized to compensation expense on a straight-line basis. Employer payroll taxes are also recorded as expense when they become due over the vesting period. The shares are subject to
forfeiture and restrictions on sale or transfer for six months to four years from the grant date.



Hewitt Associates also grants nonqualified stock options at an exercise price equal to the fair market value of Hewitt Associates stock on the grant date. Since the stock options have no intrinsic value on the
grant date, no compensation expense is recorded in connection with the stock option grants. Generally, stock options vest 25 percent on each anniversary of the grant date, are fully vested four years from the grant date and have a term of ten years.



For purposes of pro forma disclosures, the estimated fair value of the stock
options is amortized to compensation expense over the stock options vesting period. The Companys pro forma income after taxes and minority interest and before owner distributions would have been as follows:



|                                                                                 |  | Three Months EndedJune 30, |        |      | Nine Months EndedJune 30, |       
|-------------------------------------------------------------------------------- |  | -------------------------- | ------ | ---- | ------------------------- | ------
|                                                                                 |  | 2002                       |        | 2003 |                           |       
|Income after taxes and minority interest and before owner distributions:         |  |                            |        |      |                           |       
|As reported                                                                      |  | $                          | 19,085 |      | $                         | 28,989
|Pro forma stock option compensation expense, net of tax and minority interest    |  |                            |       |      |                           | (757  
|                                                                                 |  |                            |        |      |                           |       
|Adjusted income after taxes and minority interest and before owner distributions |  | $                          | 19,085 |      | $                         | 28,232
|                                                                                 |  |                            |        |      |                           |       



New Accounting Pronouncements



In November 2002, the FASBs Emerging Issues Task Force reached a
consensus on EITF No. 00-21, Accounting for Revenue Arrangements with Multiple Deliverables. EITF No. 00-21 addresses the accounting treatment for arrangements that provide the delivery or performance of multiple products or services where
the delivery of a product, system or performance of services may occur at different points in time or over different periods of time. EITF No. 00-21 requires the separation of the multiple deliverables that meet certain requirements into individual
units of accounting that are accounted for separately under the appropriate authoritative accounting literature. EITF No. 00-21 is applicable to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is
currently evaluating the requirements and impact of this issue on its consolidated results of operations and financial position.



In January 2003, the FASB issued FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest Entities, to expand upon and strengthen
existing accounting guidance that addresses when a company should include in its financial statements the assets, liabilities and activities of another entity. Until now, a company generally has included another entity in its consolidated financial
statements only if it controlled the entity through voting interests. FIN No. 46 changes that by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the
variable interest entitys activities or entitled to receive a majority of the entitys residual returns or both. The adoption of FIN No. 46 is not expected to have a material impact on the Companys consolidated financial statements.



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3. Incorporation of Hewitt Associates



In connection with Hewitt Holdings exchange of interests in Hewitt Associates, as discussed in Note 1, and in conjunction with Hewitt
Associates transition to a corporate structure, the Company incurred a non-recurring compensation expense resulting from certain Hewitt Holdings owners receiving more Hewitt Associates common stock than their proportional share of
total owners capital, without offset for those owners who received less than their proportional share in the issuance of Hewitt Associates Class B common stock. The amount of this one-time charge was $17,843. On May 31, 2002, as a result
of owners who worked in the business becoming employees of Hewitt Associates, the Company began to record their related compensation expense. The Company incurred an additional non-recurring compensation expense resulting from the establishment of a
vacation liability for these owners in the amount of $8,300. Hewitt Associates also became subject to income taxes subsequent to its transition to a corporate structure. As a result, Hewitt Associates (and the Company, on a consolidated basis)
incurred a non-recurring income tax expense of $21,711 to initially record deferred tax assets and liabilities under the provisions of SFAS No. 109, Accounting for Income Taxes.



4. Initial Public Offering of Hewitt Associates



On June 27, 2002, Hewitt Associates sold 11,150,000 shares of its Class A common stock at $19.00 per share in its initial public offering.
In July 2002, the underwriters exercised their over-allotment option to purchase an additional 1,672,500 shares of Hewitt Associates Class A common stock at $19.00 per share. The net proceeds from the offering were $218,502 after the
underwriting discounts and estimated offering expenses.



Of the $218,502
million in net proceeds received in July 2002, $52,000 was used to repay the outstanding balance on Hewitt Associates lines of credit. The Company used $8,341 to pay income taxes resulting from its transition to a corporate structure. The
balance was used for working capital and general corporate purposes.



In
connection with the initial public offering, Hewitt Associates granted to employees restricted stock, restricted stock units and nonqualified stock options on its common stock. (See Note 12, Stock-Based Compensation Plans)



5. Other Comprehensive Income



The following table presents the pre-tax and after-tax components of the Companys
other comprehensive income for the periods presented:



|                                                                        |  | Three Months EndedJune 30, |        | Nine Months EndedJune 30,
|----------------------------------------------------------------------- |  | -------------------------- | ------ | -------------------------
|                                                                        |  | 2002                       |        | 2003                     
|Income after taxes and minority interest and before owner distributions |  | $                          | 19,085 |                          
|Other comprehensive income (loss):                                      |  |                            |        |                          
|Foreign currency translation adjustments                                |  |                            | 13,081 |                          
|                                                                        |  |                            |        |                          
|Total comprehensive income                                              |  | $                          | 32,166 |                          
|                                                                        |  |                            |        |                          



6. Acquisitions



Bacon & Woodrow



On June 5, 2002, Hewitt Associates acquired the actuarial and benefits consulting business of Bacon & Woodrow (Bacon &
Woodrow) in the United Kingdom. The purchase price totaled $259,009 and was comprised of $219,240 of Hewitt Associates common stock, $38,882 in assumed Bacon & Woodrow net liabilities and $887 of



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acquisition-related costs. Bacon & Woodrows results of operations are included within the Companys consolidated historical results from the
acquisition date of June 5, 2002.



Pursuant to the purchase agreement, the
former partners and employees of Bacon & Woodrow initially received an aggregate of 1,400,000 shares of Hewitt Associates Series A mandatorily redeemable preferred stock which was redeemable for shares of Hewitt Associates common
stock. Effective as of August 2, 2002, the Bacon & Woodrow former partners and employees elected to exchange their shares of preferred stock for common stock. Of the 9,417,526 shares of Hewitt Associates common stock issued, the former partners
of Bacon & Woodrow received 2,906,904 shares of Hewitt Associates Class B common stock and 5,568,869 shares of Hewitt Associates Class C common stock, and a trust for the benefit of the non-partner employees of Bacon & Woodrow
received 941,753 shares of Hewitt Associates Class A common stock.



The
preliminary allocation of the $259,009 purchase price to acquired net assets resulted in the allocation of $178,124 to goodwill, $65,874 to identifiable intangible assets (primarily customer relationships) with indefinite lives, $15,011 to
identifiable intangible assets with estimated five-year lives, $61,521 to identifiable assets which includes $40,445 of client receivables and unbilled work in process), and $100,403 to assumed liabilities (which includes $22,687 of accounts payable
and accrued expenses and $36,071 of short term borrowings).



In the quarter
ending September 30, 2003, the Company will begin to amortize the customer relationships intangible asset, by taking a charge for the year then ending. The customer relationships intangible asset totaled £45,200, or $65,874 as of the
acquisition date and $74,843 at the current exchange rate at June 30, 2003. The Company will amortize the intangible asset in two classes on a straight-line basis over 15 and 30 years. The allocation between the two classes was based primarily on
customer revenue size. The useful life for each class was based primarily on historical customer turnover, the relative difficulty in the ability of customers to switch service providers and the nature and complexity of the customers. The Company
estimates that it will record recurring non-cash, pre-tax amortization expense of approximately £408 ($676 at a June 30, 2003 exchange rate) per quarter for the next 15 years and approximately £345 ($572 at a June 30, 2003 exchange rate)
per quarter thereafter through the end of the 30 year period.



Assuming the
acquisition of the actuarial and benefits consulting business of Bacon & Woodrow occurred on October 1, 2001, pro forma net revenues for the three and nine months ended June 30, 2002 would have been approximately $454,000 and $1,334,000,
respectively, and pro forma income before taxes, minority interest and owner distributions would have been approximately $48,000 and $209,000, respectively. These pro forma results, which are unaudited, give effect to Hewitt Associates
incorporation and initial public offering on the dates such events actually occurred, on May 31, 2002 and June 27, 2002, respectively. The pro forma results are not necessarily indicative of what would have occurred if the acquisition had been
consummated on October 1, 2001, nor are they necessarily indicative of future consolidated operating results.



Cyborg Worldwide, Inc.



On June 5,
2003, Hewitt Associates purchased Cyborg Worldwide, Inc., the parent of Cyborg Systems, Inc. (Cyborg), a global provider of human resources management software and payroll services. Cyborg will operate within the Companys
Outsourcing segment. The purchase price totaled $43,580, and was comprised of $43,000 of cash and $580 of acquisition related costs, plus the potential for additional performance-based consideration of up to $30,000 payable through 2006. The
preliminary allocation of the $43,580 purchase price to acquired net assets resulted in the allocation of $14,565 to goodwill, $30,715 to identifiable intangible assets, which includes $17,806 to customer relationships with an estimated twelve year
useful life and $12,209 to capitalized software with an estimated five-year life, $9,138 to identifiable assets, and $10,838 to assumed liabilities.



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Benefits Administration and Actuarial Business of the Northern Trust Corporation



On June 15, 2003, Hewitt Associates acquired substantially all of the assets of Northern
Trust Retirement Consulting LLC, Northern Trust Corporations retirement consulting and administration business (NTRC), which provides retirement consulting and actuarial services and defined benefit, defined contribution and
retiree health and welfare administration services. The benefit administration business will operate within the Companys Outsourcing segment and the retirement consulting and actuarial business within the Consulting segment. The purchase price
was comprised of $17,600 in cash for the assignment of client, vendor and third party contract rights and obligations applicable to the acquired business; computer equipment, furniture and leasehold improvements owned or leased by NTRC in its
Atlanta, Georgia facility and the assumption of NTRCs real estate lease obligation for its Atlanta, Georgia facility. As part of the acquisition agreement, Hewitt Associates has agreed with the Northern Trust Corporation to, on a non-exclusive
basis, recommend Northern Trust Corporations custody, trustee and benefit payment services to Hewitt Associates clients and prospective clients and Northern Trust Corporation has agreed to recommend Hewitt Associates outsourcing
services to their clients and prospective clients.



7. Client Receivables
and Unbilled Work in Process



Client receivables and unbilled work in
process, net of allowances, for work performed through September 30, 2002 and June 30, 2003, consisted of the following:



|                         |  | September 30,2002 |         | June 30,2003
|------------------------ |  | ----------------- | ------- | ------------
|Client receivables       |  | $                 | 226,642 |             
|Unbilled work in process |  |                   | 175,058 |             
|                         |  |                   |         |             
|                         |  | $                 | 401,700 |             
|                         |  |                   |         |             



8. Sale of Property



On March 7, 2003, the Company, through its subsidiary, The Bayview Trust, sold a building
located in Newport Beach, California to an independent third party resulting in a gain of $39,930. Proceeds from the sale totaled $67,283. One of the Companys other subsidiaries, Hewitt Associates, leases office space at the property. As a
result of Hewitt Associates lease for a portion of this property, the Company has accounted for the sale as a sale-leaseback transaction and will defer $22,746 of the gain on the sale and amortize it into income over the life of the Hewitt
Associates lease. The remaining $17,184 of the gain was recognized as other income.



On May 7, 2003, the Company sold an office building located in Rowayton, Connecticut to an independent third party resulting in a gain of $10,116. Proceeds from the sale totaled $16,744.



9. Goodwill and Intangible Assets



In July 2001, the FASB issued SFAS No. 142, Goodwill and Other Intangible Assets.
SFAS No. 142 requires that goodwill and intangible assets with indefinite useful lives no longer be amortized but instead tested for impairment at least annually. SFAS No. 142 also requires that intangible assets with definite useful lives be
amortized over their respective estimated useful lives to their estimated residual values. The Company fully adopted the provisions of SFAS No. 142 effective October 1, 2002.



Under SFAS No. 142, the Company was required to perform transitional impairment tests for its goodwill and certain intangible assets as of
the date of adoption. During the three months ended December 31, 2002 and March 31, 2003, no impairments were recognized as a result of the intangible asset and goodwill transitional impairment testing that was performed.



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The following is a summary of income after taxes and minority interest and before owner distributions for the three and
nine months ended June 30, 2002, as adjusted to remove the amortization of goodwill:



|                                                                                 |  | Three Months Ended June 30, 2002 |        | Nine Months Ended June 30, 2002
|-------------------------------------------------------------------------------- |  | -------------------------------- | ------ | -------------------------------
|Income after taxes and minority interest and before owner distributions:         |  |                                  |        |                                
|As reported                                                                      |  | $                                | 19,805 |                                
|Goodwill amortization, net of tax and minority interest                          |  |                                  | 209    |                                
|                                                                                 |  |                                  |        |                                
|Adjusted income after taxes and minority interest and before owner distributions |  | $                                | 20,014 |                                
|                                                                                 |  |                                  |        |                                



The following is a summary of changes
in the carrying amount of goodwill by segment for the nine months ended June 30, 2003:



|                                  |  | OutsourcingSegment |        | ConsultingSegment |   | Total  
|--------------------------------- |  | ------------------ | ------ | ----------------- | - | -------
|Balance at September 30, 2002     |  | $                  |       |                   | $ | 201,286
|Additions                         |  |                    | 28,299 |                   |   | 14,288 
|Changes in foreign exchange rates |  |                    |       |                   |   | 12,756 
|                                  |  |                    |        |                   |   |        
|Balance at June 30, 2003          |  | $                  | 28,299 |                   | $ | 228,330
|                                  |  |                    |        |                   |   |        



Goodwill additions during the nine
months ended June 30, 2003, resulted from the acquisitions of Cyborg Worldwide, Inc., Northern Trust Corporations retirement consulting and administration business, the remaining interest in a joint venture investment in The Netherlands, the
controlling interest in a joint venture investment in India and an adjustment to the purchase price allocation related to another acquisition in Switzerland.



Intangible assets with definite useful lives are amortized over their respective estimated useful lives. Effective October 1, 2002, intangible assets with indefinite
useful lives are not amortized but instead tested for impairment at least annually. The following is a summary of intangible assets at September 30, 2002 and June 30, 2003:



|                                   |  | September 30, 2002  |         | June 30, 2003          
|---------------------------------- |  | ------------------- | ------- | -----------------------
|Definite useful lives              |  | GrossCarryingAmount |         | AccumulatedAmortization
|Capitalized software               |  | $                   | 183,030 |                        
|Trademarks                         |  |                     | 10,196  |                        
|Customer relationships             |  |                     |        |                        
|Deferred loan costs                |  |                     | 1,217   |                        
|                                   |  |                     |         |                        
|Total                              |  | $                   | 194,443 |                        
|                                   |  |                     |         |                        
|Indefinite useful life             |  |                     |         |                        
|Contractual customer relationships |  |                     |         |                        
|                                   |  |                     |         |                        
|Total intangible assets            |  |                     |         |                        
|                                   |  |                     |         |                        



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Amortization expense related to definite lived intangible assets for the three and nine months ended June 30, 2002 and
2003, are as follows:



|                       |  | Three Months EndedJune 30, |       | Nine Months EndedJune 30,
|---------------------- |  | -------------------------- | ----- | -------------------------
|                       |  | 2002                       |       | 2003                     
|Capitalized software   |  | $                          | 5,759 |                          
|Trademarks             |  |                            |      |                          
|Customer relationships |  |                            |      |                          
|Deferred loan costs    |  |                            | 15    |                          
|                       |  |                            |       |                          
|Total                  |  | $                          | 5,774 |                          
|                       |  |                            |       |                          



Estimated amortization expense for
intangible assets as of September 30, 2002, and for each of the next five years thereafter is as follows:



|Fiscal year ending:                        |  | 2003 |        | 2004 |   | 2005   |  | 2006 |        | 2007 |   | 2008 andthereafter |  | Total
|------------------------------------------ |  | ---- | ------ | ---- | - | ------ |  | ---- | ------ | ---- | - | ------------------ |  | -----
|Estimated intangibles amortization expense |  | $    | 29,707 |      | $ | 26,302 |  | $    | 19,458 |      | $ | 14,437             |  | $    



Please see Note 6 for information on
recent acquisitions.



10. Debt



On November 26, 2002, Hewitt Holdings obtained a $55 million line of credit facility. The
facility expired on June 30, 2003. Borrowings under the facility accrue interest at adjusted LIBOR plus 175 basis points or the prime rate, at the Companys option. At June 30, 2003, there was no outstanding balance on this facility.



11. Legal Proceedings



The Company is not a party to any material legal proceedings. Hewitt Associates is
occasionally subject to lawsuits and claims arising in the normal conduct of business. The Company does not expect the outcome of these pending claims to have a material adverse affect on the business, financial condition or results of operations of
Hewitt Associates or the Company.



12. Stock-Based Compensation Plan



In 2002, Hewitt Associates adopted the Hewitt Associates, Inc. Global
Stock and Incentive Compensation Plan (the Plan) for employees and directors. The Plan is administered by the Compensation and Leadership Committee of the Board of Directors of Hewitt Associates (the Committee). Under the
Plan, employees and directors may receive awards of nonqualified stock options, stock appreciation rights, restricted stock, restricted stock units, performance shares, performance units, and cash-based awards, and employees can also receive
incentive stock options. As of June 30, 2003, only restricted stock and restricted stock units and nonqualified stock options have been granted. A total of 25,000,000 shares of Hewitt Associates Class A common stock has been reserved for
issuance under the Plan. As of June 30, 2003, there were 15,613,211 shares available for grant under the Plan.



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Restricted Stock and Restricted Stock Units



In connection with its initial public offering, Hewitt Associates granted 5,789,908 shares of its Class A restricted stock and restricted
stock units at $19.03 per weighted share to employees. The restricted stock and restricted stock units have substantially the same terms, except the holders of restricted stock units do not have voting rights.



During the three and nine months ended June 30, 2003, $5,649 and $35,193, respectively, of
compensation and payroll tax expense was recorded for Hewitt Associates initial public offering-related awards. On December 31, 2002, 1,967,843 shares of restricted stock vested and 91,458 of restricted stock units vested and such restricted
stock units were converted to Hewitt Associates Class A common stock and cash. Additionally, on June 27, 2003, 833,091 shares of restricted stock vested and 48,827 restricted stock units vested and such restricted stock units were converted to
Hewitt Associates Class A common stock and cash.



Stock Options



The Committee may grant both incentive stock options and nonqualified
stock options to purchase shares of Hewitt Associates Class A common stock. Subject to the terms and provisions of the Plan, options may be granted to participants in such number, and upon such terms, as determined by the Committee, provided
that incentive stock options may not be granted to non-employee directors. The option price is determined by the Committee, provided that for options issued to participants in the United States, the option price may not be less than 100% of the fair
market value of the shares on the date the option is granted and no option may be exercisable later than the tenth anniversary of its grant. The nonqualified stock options granted in conjunction with Hewitt Associates initial public offering
vest over a period of four years. As of June 30, 2003, Hewitt Associates has 4,041,393 options outstanding with a weighted average exercise price of $19.45. On July 1, 2003, Hewitt Associates granted nonqualified stock options to acquire 3,767,476
shares of Hewitt Associates Class A common stock to its employees.



13. Segment Data



Under SFAS No. 131, Disclosures about
Segments of an Enterprise and Related Information, the Company has determined that it has two reportable segments based on similarities among the operating units including homogeneity of services, service delivery methods, and use of technology.
The two segments are Outsourcing and Consulting.



| |  |  | OutsourcingHewitt Associates applies its human resources expertise and employs its integrated technology systems to administer its clients human resource programs:
benefits, payroll and workforce management. Benefits outsourcing includes the administration of health and welfare (such as medical plans), defined contribution (such as 401(k) plans), and defined benefit (such as pension plans). Hewitt
Associates recent acquisition of Cyborg expands Hewitt Associates outsourcing service offering to include payroll administration, allows Hewitt to provide clients with a stand-alone payroll service and, importantly, enables Hewitt
Associates to offer a comprehensive range of human resources services. Hewitt Associates payroll services include installed payroll software and fully outsourced processing. Hewitt Associates workforce management services include
workforce administration, compensation, recruiting and staffing, talent management, performance management, and learning and development.
| | - |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | ConsultingHewitt Associates provides a wide array of consulting and actuarial services covering the design, implementation, communication and operation of
health and welfare,
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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| | compensation and retirement plans, and broader human resources programs and processes.
| | --------------------------------------------------------------------------------------



The Company operates many of the administrative functions of its business through the use of
centralized shared service operations to provide an economical and effective means of supporting the Outsourcing and Consulting businesses. These shared services include information systems, human resources, general office support and space
management, overall corporate management, and financial and legal services. Additionally, Hewitt Associates utilizes a client development group that markets the entire spectrum of its services and devotes resources to maintaining existing client
relationships. The compensation and related expenses, other operating expenses, and selling, general and administrative expenses of the administrative and marketing functions are not allocated to the business segment, rather, they are included in
unallocated shared costs. The costs of information systems and human resources, however, are allocated to the Outsourcing and Consulting Segments on a specific identification basis or based on usage and headcount.



The table below presents information about the Companys reportable segments for the
periods presented:



|                                                    |  | Three Months EndedJune 30, |         | Nine Months EndedJune 30,
|--------------------------------------------------- |  | -------------------------- | ------- | -------------------------
|Business Segments                                   |  | 2002                       |         |                          
|Outsourcing                                         |  |                            |         |                          
|Revenues before reimbursements (net revenues)       |  | $                          | 277,124 |                          
|Segment income (1)                                  |  |                            | 61,382  |                          
|                                                    |  |                            |         |                          
|Consulting (2)                                      |  |                            |         |                          
|Revenues before reimbursements (net revenues)       |  | $                          | 152,959 |                          
|Segment income (1)                                  |  |                            | 51,921  |                          
|                                                    |  |                            |         |                          
|Total Company                                       |  |                            |         |                          
|Revenues before reimbursements (net revenues)       |  | $                          | 430,083 |                          
|Reimbursements                                      |  |                            | 8,508   |                          
|                                                    |  |                            |         |                          
|Total revenues                                      |  | $                          | 438,591 |                          
|                                                    |  |                            |         |                          
|Segment income (1)                                  |  | $                          | 113,303 |                          
|Charges not recorded at the Segment level:          |  |                            |         |                          
|One-time charges (3)                                |  |                            | 26,143  |                          
|Initial public offering restricted stock awards (4) |  |                            | 1,105   |                          
|Unallocated shared costs (1)                        |  |                            | 36,413  |                          
|                                                    |  |                            |         |                          
|Operating income  Hewitt Associates (1)            |  |                            | 49,642  |                          
|Other operating income (expenses)                   |  |                            |         |                          
| Hewitt Holdings LLC and Property Entities (5)     |  |                            | (582    | )                        
|                                                    |  |                            |         |                          
|Operating income (1)                                |  | $                          | 49,060  |                          
|                                                    |  |                            |         |                          

---

|(1) |  | Prior to May 31, 2002, owners were compensated through distributions of income. In connection with Hewitt Associates transition to a corporate structure on May 31, 2002,
owners who worked in the business became employees and Hewitt Associates began to record their compensation in compensation and related expenses in arriving at segment income.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) |  | On June 5, 2002, Hewitt Associates acquired the actuarial and benefits consulting business of Bacon & Woodrow. As such, the results of Bacon & Woodrow have been included in
the Companys Consulting segment results from the acquisition date of June 5, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | In connection with Hewitt Associates transition to a corporate structure, Hewitt Associates incurred one-time charges which included an $8,300 non-recurring compensation
expense related to the establishment of a vacation liability for its former owners, and a $17,843 non-recurring, non-cash compensation expense resulting from certain owners receiving more than their proportional share of total capital, without
offset for those owners who received less than their proportional share.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Compensation expense of $1,105 and $5,649 for the three months ended June 30, 2002 and 2003, respectively, and $1,105 and $35,193 for the nine months ended June 30, 2002 and 2003,
respectively, related to the amortization of the initial public offering restricted stock awards.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The Company reviews segment results at the Hewitt Associates operating level. At that level, as well as on a consolidated basis, the majority of the occupancy costs under operating
and capital leases are reflected within Hewitt Associates operating income. Incremental other operating expenses at Hewitt Holdings LLC and Property Entities are not allocated to the segments. Also, included in other operating income (expense)
is the elimination of intercompany rent charges included in the segment results.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



14. Subsequent Event



On July 1, 2003,
Hewitt Holdings distributed the shares of Class B common stock of Hewitt Associates to its owners, with the exception of certain owners resident outside the United States who will continue to hold their shares through Hewitt Holdings. The shares
will continue to be subject to the same restrictions with respect to voting, transfer and book to market phase-in, following the distribution. The distribution will reduce Hewitt Holdings majority interest in Hewitt Associates to less than 50%
so that the Company will no longer consolidate the results of Hewitt Associates, but account for the remaining investment in Hewitt Associates using the equity method of accounting.



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ITEM 2. Managements Discussion and Analysis of Financial Condition and Results of Operations



The following information should be read in conjunction with the information contained in our Consolidated Financial Statements and related notes included elsewhere in
this Quarterly Report on Form 10-Q. Please also refer to our Consolidated Financial Statements and related notes and the information under the heading Managements Discussion and Analysis of Financial Condition and Results of
Operations included in our Annual Report on Form 10 filed with the Securities and Exchange Commission for additional information. This Quarterly Report on Form 10-Q contains forward-looking statements that involve risks and uncertainties. We
refer you to the discussion within the Notes Regarding Forward-Looking Statements.



We use the terms Hewitt Holdings and the Company to refer to Hewitt Holdings LLC and its subsidiaries. We use the term Hewitt Associates to refer to the business of Hewitt
Associates, Inc. and its subsidiaries and, with respect to the period prior to Hewitt Associates transition to a corporate structure on May 31, 2002, the businesses of Hewitt Associates LLC and its subsidiaries and its then affiliated
companies, Hewitt Financial Services LLC and Sageo LLC (Hewitt Associates LLC and Affiliates). We use the term Property Entities to refer to Hewitt Holdings wholly-owned subsidiaries, Hewitt Properties I LLC, Hewitt
Properties II LLC, Hewitt Properties III LLC, Hewitt Properties IV LLC, Hewitt Properties V LLC, Hewitt Properties VI LLC, Hewitt Properties VII LLC and The Bayview Trust.



We use the term owner to refer to the individuals who are current or retired members of Hewitt Holdings. These individuals
(with the exception of our retired owners) became employees of Hewitt Associates upon the completion of Hewitt Associates transition to a corporate structure on May 31, 2002.



All references to years, unless otherwise noted, refer to our fiscal years, which end on September 30. For example, a reference to
2002or fiscal 2002 means the twelve-month period that ended September 30, 2002. All references to percentages contained in Managements Discussion and Analysis of Financial Condition and Results of Operations
refer to calculations based on the amounts in our consolidated financial statements, included elsewhere in this Quarterly Report on Form 10-Q. Prior period amounts have been reclassified to conform with the current year presentation.



Overview



Prior to July 1, 2003, Hewitt Holdings held 72% of the outstanding common stock of its principal operating subsidiary, Hewitt Associates,
for the benefit of Hewitt Holdings owners. On July 1, 2003, Hewitt Holdings distributed the shares of Class B common stock to its owners, with the exception of certain owners resident outside the United States who will continue to hold their
shares through Hewitt Holdings. Following the distribution of the shares of Class B common stock, Hewitt Holdings only business is to own, finance and lease real estate assets which are primarily used by Hewitt Associates in operating its
business.



During fiscal 2002, Hewitt Associates revenues represented all
of Hewitt Holdings total revenues and Hewitt Holdings third-party rental income was insignificant. Hewitt Associates is the principal operating business of the Company.



On May 31, 2002, Hewitt Associates completed its transition to a corporate structure. Hewitt Associates, Inc. was formed as a subsidiary of
Hewitt Holdings and Hewitt Holdings transferred all of its ownership interests in Hewitt Associates LLC and Affiliates to Hewitt Associates, Inc. In Hewitt Associates limited liability company form, Hewitt Holdings owners were
compensated through distributions of income rather than through salaries, benefits and performance-based bonuses, and Hewitt Associates did not incur any income tax. Upon the transition to a corporate structure, owners who worked in the business
became employees of Hewitt Associates and their compensation was then recorded within compensation and related expenses and Hewitt Associates became subject to corporate income taxes.



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On June 5, 2002, Hewitt Associates acquired the benefits consulting business of Bacon & Woodrow (Bacon &
Woodrow), an actuarial and benefits consulting firm in the United Kingdom. The purchase price totaled $259 million and consisted of 9.4 million shares of Hewitt Associates common stock valued at $219 million, $39 million of assumed net
liabilities and approximately $1 million of acquisition-related costs. For additional information on the Bacon & Woodrow acquisition, we refer you to Note 6 to our consolidated financial statements. The results of operations for Bacon &
Woodrows benefits consulting business are included in the Companys historical results from the date of the acquisition, June 5, 2002.



On June 27, 2002, Hewitt Associates sold 11,150,000 shares of its Class A common stock at $19.00 per share in its initial public offering. In July 2002, the underwriters
exercised their over-allotment option to purchase an additional 1,672,500 shares of the Class A common stock at $19.00 per share. The combined transactions generated approximately $219 million in net cash proceeds for Hewitt Associates after
offering expenses.



For a pro forma presentation of results had these events
occurred at the beginning of the periods presented, we refer you to the Pro Forma Results of Operations section.



On June 5, 2003, we acquired Cyborg Worldwide, Inc., the parent of Cyborg Systems, Inc. (Cyborg), a global provider of human resources management software and
payroll services. The results of operations for Cyborg are included in our results and the results of the Outsourcing segment from the acquisition date (see Note 6 to the consolidated financial statements).



On June 15, 2003, we acquired the benefits administration and retirement consulting and
actuarial businesses of the Northern Trust Corporation. The results of the benefits administration and retirement consulting and actuarial businesses of the Northern Trust Corporation are included in our results and the results of the Outsourcing
and Consulting segments from the acquisition date (see Note 6 to the consolidated financial statements.



On July 1, 2003, Hewitt Holdings distributed the shares of Class B common stock of Hewitt Associates to its owners, with the exception of certain owners resident outside the United States who will continue to hold
their shares through Hewitt Holdings.



On August 6, 2003, the owners, the Bacon
& Woodrow partners and the key employees of Hewitt Associates and Bacon & Woodrow sold 9,852,865 shares of Hewitt Associates Class A common stock in a registered secondary offering. On August 11, 2003, Hewitt Associates
underwriters exercised their over-allotment option to purchase an additional 1,477,929 shares from the selling stockholders. The offering was initiated pursuant to a request under a registration rights agreement which Hewitt Associates and the
Company entered into at the time of Hewitt Associates initial public offering.



Segments



We have two reportable segments:



| |  | OutsourcingWe apply our human resources expertise and employ our integrated technology systems to administer our clients human resources programs: benefits, payroll and
workforce management. Our benefit outsourcing services include health and welfare (such as medical plans), defined contribution (such as 401(k) plans), and defined benefit (such as pension.plans). Our recent acquisition of Cyborg expands our
outsourcing service offering to include payroll administration, allows us to provide our clients with a stand-alone payroll service and, importantly, enables us to offer a comprehensive range of human resources outsourcing services. Our payroll
services include installed payroll software and fully outsourced processing. Our workforce management services include workforce administration, compensation, recruiting and staffing, talent management, performance management, and learning and
development.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  | ConsultingWe provide actuarial services and a wide array of other consulting services covering the design, implementation, communication and operation of health
and welfare, compensation and retirement plans and broader human resources programs and processes.
|- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



While we report revenues and direct expenses based on these two segments, we present our offering to clients as a continuum of human resources services.



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Critical Accounting Policies and Estimates



Revenues



Revenues include fees generated from outsourcing contracts and from consulting services provided to our clients. Revenues from sales of software or other types of revenue
were not material. Of our $1.7 billion of net revenues for fiscal 2002, 65% was generated in our Outsourcing segment and 35% was generated in our Consulting segment. In the nine months ended June 30, 2003, with the acquisition of the benefits
consulting business of Bacon & Woodrow in June 2002, net revenues from the Consulting segment increased such that 62% of net revenues were generated in our Outsourcing segment and 38% in our Consulting segment.



Under our outsourcing contracts, our clients generally agree to pay us an implementation fee
and an ongoing service fee. The implementation fee covers only a portion of the costs we incur to transfer the administration of a clients plan onto our systems, including costs associated with gathering, converting, inputting and testing the
clients data, tailoring our systems and training our employees. The amount of the ongoing service fee is a function of the complexity of the clients benefit plans or human resource programs or processes, the number of participants or
personnel, and the scope of the delivery model.



In accordance with the
Securities and Exchange Commissions Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements,we recognize revenues for non-refundable, upfront implementation fees evenly over the period between the initiation of
ongoing services through the end of the contract term (on a straight-line basis). Most indirect costs of implementation are expensed as incurred. However, incremental direct costs of implementation are deferred and recognized as expense over the
same period that deferred implementation fees are recognized. If a client terminates an outsourcing contract prematurely, both the deferred implementation revenues and related costs are recognized in the period in which the termination occurs.



Revenues related to ongoing service fees and to services provided outside the
scope of outsourcing contracts are recognized when persuasive evidence of an arrangement exists, services have been rendered, our fee is determinable and collectibility of our fee is reasonably assured. Ongoing service fees are typically billed and
recognized on a monthly basis, typically based on the number of plan participants or services. There is often an agreement that the ongoing service fee will be adjusted prospectively if the number of participants changes materially. However, a
weakening of general economic conditions or the financial condition of our clients, which could lead to workforce reductions (and potentially participant reductions) or competitive pressure, could have a negative effect on our outsourcing revenues.
Services provided outside the scope of our outsourcing contracts are billed and recognized on a time-and-material or fixed fee basis.



Our outsourcing contracts typically have three- to five-year terms. However, a substantial portion of our outsourcing contracts may be terminated by our clients,
generally upon 90 to 180 days notice. Normally, if a client terminates a contract or project, the client remains obligated to pay for services performed (including unreimbursed implementation costs), and for any commitments we have made on behalf of
our clients to pay third parties.



Losses on outsourcing contracts are
recognized during the period in which the loss becomes probable and the amount of the loss is reasonably estimable. Contract losses are determined to be the amount by which the estimated direct and a portion of indirect costs of the contract exceed
the estimated total revenues that will be generated by the contract. Estimates are continuously monitored during the term of the contract and any changes to estimates are recorded in the current period and can result in either increases or decreases
to income.



Our clients pay for our consulting services either on a
time-and-materials basis or, to a lesser degree, on a fixed-fee basis. We recognize revenues under time-and-materials based arrangements as services are provided. On fixed-fee engagements, we recognize revenues as the services are performed, which
is measured by hours incurred in proportion to total hours estimated to complete a project. Losses on consulting projects are recognized during the period in which the loss becomes probable and the amount of the loss is reasonably estimable. Losses
are determined to be the amount by which the estimated direct and a portion of indirect costs of the project exceed the estimated total revenues that will be generated for the work. Each project has different terms based on the scope, deliverables



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and complexity of the engagement, the terms of which frequently require us to make judgments and estimates about overall profitability and stage of project
completion which impacts how we recognize revenue. Estimates are continuously monitored during the term of the engagement and any changes to estimates are recorded in the current period and can result in either increases or decreases to income.



Performance-Based Compensation



Our compensation program includes a performance-based component that is determined by
management. Performance-based compensation is discretionary and is based on individual, team, and total Company performance. Performance-based compensation is paid once per fiscal year after our annual operating results are finalized. The amount of
expense for performance-based compensation recognized at interim and annual reporting dates involves judgment, is based on our quarterly and year to date results as compared to our internal targets, and takes into account other factors, including
industry-wide results and the general economic environment. Annual performance-based compensation levels may vary from current expectations as a result of changes in the actual performance of the individual, team, or Company. As such, accrued
amounts are subject to change in future periods if actual future performance varies from performance levels anticipated in prior interim periods.



Goodwill and Other Intangible Assets



On October 1, 2002, we adopted Statement of Financial Accounting Standards (SFAS) No. 142, Goodwill and Other Intangible Assets, for acquisitions made
prior to July 1, 2001. We evaluate our goodwill for impairment whenever indicators of impairment exist with reviews at least annually. The evaluation is based upon a comparison of the estimated fair value of the reporting unit to which the goodwill
has been assigned to the sum of the carrying value of the assets and liabilities for that reporting unit. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the reporting unit. Our estimate
of future cash flows will be based on our experience, knowledge and typically third-party advice or market data. However, these estimates can be affected by other factors and economic conditions that can be difficult to predict.



Client Receivables and Unbilled Work In Process



We periodically evaluate the collectibility of our client receivables and unbilled work in
process based on a combination of factors. In circumstances where we are aware of a specific clients difficulty in meeting its financial obligations to us (e.g., bankruptcy filings, failure to pay amounts due to us or to others), we record an
allowance for doubtful accounts to reduce the client receivable to what we reasonably believe will be collected. For all other clients, we recognize an allowance for doubtful accounts based on past write-off history and the length of time the
receivables are past due. Facts and circumstances may change that would require us to alter our estimates of the collectibility of client receivables and unbilled work in progress. Factors mitigating this risk include our servicing a diverse client
base such that we do not have significant industry concentrations among our clients. Also, for the nine months ended June 30, 2003, no single client accounted for more than 10% of our total revenues.



Long-Lived Assets Held and Used



We review long-lived assets for impairment whenever events or changes in circumstances
indicate that the carrying value of an asset may not be recoverable. If the undiscounted future cash flows from the long-lived asset are less than the carrying value, we recognize a loss equal to the difference between the carrying value and the
discounted future cash flows of the asset.



Our estimate of future cash flows
will be based on our experience, knowledge, and typically third-party advice or market data. However, these estimates can be affected by other factors and economic conditions that can be difficult to predict.



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Stock-Based Compensation



Our stock-based compensation program is a long-term retention and incentive program that is intended to attract, retain and motivate talented employees and align
stockholder and employee interests. The program allows for the granting of restricted stock, restricted stock units, and nonqualified stock options as well as other forms of stock-based compensation. For additional information on this plan, we refer
you to Note 12 to the consolidated financial statements for the nine months ended June 30, 2003.



We account for our stock-based compensation plans under SFAS No. 123, Accounting for Stock-Based Compensation,which allows companies to apply the provisions of Accounting Principles Board (APB)
Opinion No. 25, Accounting for Stock Issued to Employees,and provide pro forma net income and net income per share disclosures for employee stock option grants as if the fair value method defined in SFAS No. 123 had been applied.



From Hewitt Associates initial public offering on June 27, 2002 through June 30,
2003, Hewitt Associates granted nonqualified stock options to acquire 4,155,690 shares of Hewitt Associates Class A common stock to its employees. As of June 30, 2003, options to acquire a total of 4,041,393 shares of Hewitt Associates
Class A common stock were outstanding and represented approximately 4.1% of its outstanding common stock on that date. Had we determined compensation cost for the stock options granted using the fair value method as set forth under SFAS No. 123,
during the three and nine months ended June 30, 2003, we would have recorded approximately $1 million and $2 million, respectively, in additional expense, and reported income after taxes and minority interest and before owner distributions of $28
million and $70 million, respectively. On July 1, 2003, Hewitt Associates granted nonqualified stock options to acquire 3,767,476 shares of Hewitt Associates Class A common stock to its employees which represented approximately 3.8% of Hewitt
Associates outstanding common stock on that date.



Estimates



Various assumptions and other factors underlie the determination of
significant accounting estimates. The process of determining significant estimates is fact specific and takes into account factors such as historical experience, known facts, current and expected economic conditions and, in some cases, actuarial
techniques. We periodically reevaluate these significant factors and make adjustments when facts and circumstances dictate, however, actual results may differ from estimates.



Basis of Presentation



Revenues



Revenues include fees primarily generated from outsourcing contracts and from consulting services provided to our clients. Revenues earned in excess of billings are recorded as unbilled work in progress. Billings in
excess of revenues earned are recorded as advanced billings to clients, a deferred revenue liability, until services are rendered.



We record gross revenue for any outside services when we are primarily responsible to the client for the services, we change the delivered product, perform part of the
service delivered, have discretion on vendor selection, or bear the credit risk in the arrangement. We record revenue net of related expenses when a third party assumes primary responsibility to the client for the services.



Additionally, reimbursements received for out-of-pocket expenses incurred are characterized
as revenues and are shown separately within total revenue in accordance with Emerging Issue Task Force (EITF) Issue No. 01-14, Income Statement Characterization of Reimbursements Received for Out-of-Pocket Expenses
Incurred. Similarly, related reimbursable expenses are also shown separately within operating expenses. We refer to revenues before reimbursements as net revenues.



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Compensation and Related Expenses



Our largest operating expense is compensation and related expenses, which includes salaries and wages, annual performance-based bonuses,
benefits, payroll taxes, global profit sharing, temporary staffing services, training and recruiting. For all historical periods presented prior to May 31, 2002, compensation and related expenses do not include compensation expense related to our
owners since these individuals received distributions of income rather than compensation when we operated as a limited liability company. As a result of Hewitt Associates transition to a corporate structure on May 31, 2002, the owners became
employees and the Company began to expense their compensation and related expenses.



Other Operating Expenses



Other operating expenses include
equipment, occupancy and non-compensation-related direct client service costs. Equipment costs include mainframe, data storage and retrieval, data center operation and benefit center telecommunication expenses, and depreciation and amortization of
capitalized computer technology and proprietary software. Occupancy costs primarily include depreciation related to our properties, any third party rent expense and other costs of our occupying or managing our office space and properties.
Non-compensation related direct client service costs include costs associated with the provision of client services such as printing, duplication, fulfillment and delivery.



Selling, General and Administrative Expenses



Selling, general and administrative (SG&A) expenses consist primarily of third-party costs associated with promotion and
marketing, professional services, advertising and media, corporate travel and other general office expenses such as insurance, postage, office supplies and bad debt expense.



Other Expenses, Net



Other expenses, net primarily includes interest expense, interest income, gains and losses from investments and gains and losses on asset disposals, shown on a net basis.
Any rental income on real estate owned by the Company and leased to non-related parties is shown within other income.



Provision for Income Taxes



Prior to May 31, 2002, taxes on income earned by the Company were the responsibility of the individual owners. On May 31, 2002, Hewitt Associates became subject to
corporate income taxes and began applying the provisions of the asset and liability method outlined in SFAS No. 109, Accounting for Income Taxes.



Income Before and After Taxes, Minority Interest and Owner Distributions



Prior to May 31, 2002, the Company operated as a group of affiliated limited liability companies and recorded income before taxes, minority interest and owner
distributions in accordance with accounting principles generally accepted in the United States. As a result of Hewitt Associates transition to a corporate structure on May 31, 2002, owners who worked in the business became employees of Hewitt
Associates and Hewitt Associates began to include their compensation in compensation and related expenses and became subject to corporate income taxes. As such, the historical results of operations after May 31, 2002 are not directly comparable to
the results from prior periods.



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As of June 30, 2003, Hewitt Holdings owned approximately 72% of the outstanding common stock of Hewitt Associates. For
financial reporting purposes, all of the assets, liabilities, and earnings of Hewitt Associates and its subsidiaries are consolidated in the Companys financial statements, and the nonaffiliated investors Class A, Class B and Class C
common stock interests in Hewitt Associates are shown as a Minority Interest on the consolidated balance sheet and statement of operations.



Historical Results of Operations



The following table sets forth our historical results of operations as a percentage of net revenues. The information for each of the three and nine month periods is
derived from unaudited consolidated financial statements which were prepared on the same basis as the annual consolidated financial statements. In our opinion, information for the three and nine months ended June 30, 2002 and 2003, contains all
adjustments, consisting only of normal recurring adjustments, except as noted, necessary to fairly present this information. Operating results for any period are not necessarily indicative of results for any future periods.



|                                                                         |  | Three MonthsEnded June 30, |   |  | Nine monthsEnded June 30, |  
|------------------------------------------------------------------------ |  | -------------------------- | - |  | ------------------------- | -
|                                                                         |  | 2002                       |   |  | 2003                      |  
|Revenues:                                                                |  |                            |   |  |                           |  
|Revenues before reimbursements (net revenues)                            |  | 100.0                      | % |  | 100.0                     | %
|Reimbursements                                                           |  | 2.0                        |   |  | 2.6                       |  
|                                                                         |  |                            |   |  |                           |  
|Total revenues                                                           |  | 102.0                      |   |  | 102.6                     |  
|Operating expenses:                                                      |  |                            |   |  |                           |  
|Compensation and related expenses, excluding restricted stock awards (1) |  | 63.5                       |   |  | 64.5                      |  
|Restricted stock awards (2)                                              |  | 0.3                        |   |  | 1.1                       |  
|Reimbursable expenses                                                    |  | 2.0                        |   |  | 2.6                       |  
|Other operating expenses                                                 |  | 19.8                       |   |  | 18.8                      |  
|Selling, general and administrative expenses                             |  | 5.0                        |   |  | 5.2                       |  
|                                                                         |  |                            |   |  |                           |  
|Total operating expenses                                                 |  | 90.6                       |   |  | 92.2                      |  
|Operating income                                                         |  | 11.4                       |   |  | 10.4                      |  
|Other expenses, net                                                      |  | (1.5                       | ) |  | 0.7                       |  
|                                                                         |  |                            |   |  |                           |  
|Income before taxes, minority interest and owner distributions (3)       |  | 9.9                        |   |  | 11.1                      |  
|Provision for income taxes                                               |  | 5.7                        |   |  | 3.7                       |  
|                                                                         |  |                            |   |  |                           |  
|Income after taxes and before minority interest and owner distributions  |  | 4.2                        |   |  | 7.4                       |  
|Minority interest                                                        |  | (0.2                       | ) |  | 1.5                       |  
|                                                                         |  |                            |   |  |                           |  
|Income after taxes and minority interest and before owner distributions  |  | 4.4                        | % |  | 5.9                       | %
|                                                                         |  |                            |   |  |                           |  

---

|(1) |  | Compensation and related expenses did not include compensation related to our owners for 2002 prior to Hewitt Associates transition to a corporate structure on May 31, 2002.
Additionally, on June 5, 2002, Hewitt Associates acquired the benefits consulting business of Bacon & Woodrow and their compensation and related expenses were included in our results from the acquisition date.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(2) |  | Compensation expense of $1 million and $6 million for the three months ended June 30, 2002 and 2003, respectively, and $1 million and $35 million for the nine months ended June 30,
2002 and 2003, respectively, related to the amortization of restricted stock awards.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | Income before taxes, minority interest and owner distributions is not comparable to net income of a corporation because (i) compensation and related expenses did not include
compensation expense related to our owners since these individuals received distributions of income rather than compensation, and (ii) the Company incurred no income tax.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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Three Months Ended June 30, 2003 and 2002



Net Revenues



Net revenues were $495 million in the three months ended June 30, 2003, compared to $430 million in the comparable prior year period, an increase of 15%. Adjusting for
the effects of acquisitions and favorable foreign currency translations, net revenues grew 5%. Outsourcing net revenues increased by 10% to $304 million in the three months ended June 30, 2003, compared to $277 million in the prior year. A portion
of this growth was due to the addition of revenues from the June 2003 acquisitions of Cyborg and the benefit administration business of the Northern Trust Corporation. Excluding the effects of the Cyborg and the Northern Trust Corporation benefit
administration business, Outsourcing net revenues would have increased 8% quarter over quarter, primarily from the addition of new clients. Consulting net revenues increased by 25% to $191 million in the three months ended June 30, 2003, compared to
$153 million in the prior year, primarily due to the addition of revenues from the actuarial and benefits consulting business of Bacon & Woodrow. A portion of this growth was also due to favorable foreign currency translation from the
strengthening of European currencies relative to the U.S. dollar year over year and consolidation of our Dutch affiliate upon purchase of the remaining interest in that affiliate in the first quarter. Including the results of Bacon & Woodrow in
the prior year quarter and excluding the effects of favorable foreign currency translation and the acquisition of our Dutch affiliate, Consulting net revenues were unchanged between quarters. Increases in retirement plan and health benefit
management consulting were offset by decreases in revenue from our more discretionary consulting services resulting from continued soft demand for such services.



Compensation and Related Expenses



Compensation and related expenses were $319 million for the three months ended June 30, 2003, compared to $273 million for the comparable prior year period. Prior to May
31, 2002, compensation and related expenses did not include owners compensation as our owners were compensated through distributions of income. In connection with Hewitt Associates transition to a corporate structure in June 2002, we
incurred a non-recurring, non-cash $18 million compensation expense resulting from certain owners receiving more than their proportional share of total capital, without offset for those owners who received less than their proportional share in the
conversion of owners capital into common stock, and a non-recurring $8 million compensation expense related to our establishing an owner vacation liability. Had we incurred estimated owner compensation in the prior year quarter of $27 million
and excluded the non-recurring charges, compensation and related expenses would have been $274 million for the three months ended June 30, 2002. As such, on an adjusted basis, compensation and related expenses as a percentage of net revenues would
have been 64% in the current and prior year period. Increases in our Outsourcing personnel to support the development of our new workforce management service offering were offset by our beginning to capitalize approximately $6 million in incremental
and direct compensation and related costs associated with implementing new workforce management clients and lower performance-based compensation as a percentage of net revenues resulting from the continued negative effect of the economy on our
clients, and, therefore, on our business and performance relative to internal targets. The net increase in overall compensation and related expenses after the inclusion of owner compensation and the exclusion of the non-recurring charges in the
prior year period was primarily due to cost of living increases, the inclusion of Bacon & Woodrows compensation and related expenses, increases in our Outsourcing personnel to support the development of the workforce management service
offering, and the inclusion of the Northern Trust Corporations benefit administration business and Cyborgs compensation and related expenses, offset in part by our beginning to capitalize approximately $6 million in incremental and
direct compensation and related costs associated with implementing new workforce management clients.



Restricted Stock Awards



In connection
with Hewitt Associates initial public offering on June 27, 2002, Hewitt Associates granted approximately 5.8 million shares of Hewitt Associates Class A restricted stock and restricted stock units to its employees. Compensation and
related payroll tax expenses of approximately $63 million were recorded as restricted stock award expense from June 27, 2002 through June 30, 2003, of which $6 million was recorded in the quarter ended June 30, 2003, and $1 million was recorded for
the quarter ended June 30, 2002. The remaining $50 million



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of estimated unearned compensation will be recognized evenly through June 27, 2006, and adjusted for payroll taxes and forfeitures as they arise.



Other Operating Expenses



Other operating expenses were $93 million in the three months ended June 30, 2003 compared
to $85 million in the comparable prior year period. As a percentage of net revenues, other operating expenses decreased from 20% in the three months ended June 30, 2002 to 19% in the three months ended June 30, 2003. The decrease as a percentage of
net revenue was primarily the result of revenue growing at a faster rate than other operating expenses. The $8 million increase in other operating expenses primarily reflects the inclusion of Bacon & Woodrow since the acquisition, increased
occupancy costs, increased computer maintenance expenses and depreciation and amortization expenses on computer equipment and software, partially offset by lower telecommunication costs in our Outsourcing segment over the prior-year period.



Selling, General and Administrative Expenses



SG&A expenses were $26 million in the three months ended June 30, 2003, compared to $22
million in the comparable prior year period. As a percentage of net revenues, SG&A expenses remained flat at 5% in the three months ended June 30, 2003 and 2002. The increase in SG&A expenses of $4 million, primarily reflects the inclusion
of Bacon & Woodrow and increased travel and bad debt expense in the current-year quarter. In the prior-year quarter, travel expenses were lower following the events of September 11, 2001.



Other Expenses, Net



Other expenses, net totaled $3 million in income for the three months ended June 30, 2003, compared to a net expense of $6 million in the
comparable prior year period. As a percentage of net revenues, other expenses, net was 2% or less in the current year and prior year periods. During the third quarter of 2003, we sold a property located in Norwalk, Connecticut at a $10 million gain
which increased other income. Interest expense decreased by approximately $2 million over the prior-year period primarily due to reduced interest expense from the reduction in amounts due former owners, offset by the addition of interest expense
from borrowings on our $55 million line of credit facility prior to its expiration and repayments made on June 30, 2003.



Provision for Income Taxes



The provision for income taxes was $18 million for the three months ended June 30, 2003, compared to $25 million in the comparable prior year period. The decrease in the
provision for income taxes for the three months ended June 30, 2003, over the income taxes for the comparable period is primarily due to the inclusion of one-time charges in the quarter ending June 30, 2002, resulting from Hewitt Associates
transition to a corporate structure on May 31, 2002, offset by taxes for only one month in the third quarter of 2002 when Hewitt Associates was taxed as a corporation as compared to earnings being taxed for the full third quarter of fiscal 2003.
Approximately $22 million of the $25 million tax expense for the three months ended June 30, 2002, related to tax liabilities arising both from a mandatory change in Hewitt Associates tax accounting method and from the initial recording of
deferred tax assets and liabilities related to temporary differences which resulted from the transition to a corporate structure. The non-recurring, non-cash $18 million compensation expense in 2002 resulting from owners receiving more than their
proportional share of total capital, without offset for those owners who received less than their proportional share in conversion of owners capital into common stock, was not deductible. For the year ending September 30, 2003, Hewitt
Associates expects to report pretax income and, as such, has apportioned the estimated annual income tax provision to each quarter, based on the ratio of each quarters pre-tax income to estimated annual pre-tax income. These estimates reflect
the information available at this time and our best judgment, however, actual annual income or taxes may differ.



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Nine Months Ended June 30, 2003 and 2002



Revenues



Net revenues were $1,453 million in the nine months ended June 30, 2003, compared to $1,243 million in the comparable prior year period, an increase of 17%. Adjusting for
the effects of acquisitions and the favorable effects of foreign currency translation, net revenues grew 6%. Outsourcing net revenues increased by 10% to $908 million in the nine months ended June 30, 2003, compared to $828 million in the prior year
period. A portion of this growth was due to the addition of revenues from the newly acquired Cyborg and the benefit administration business of the Northern Trust Corporation. Excluding the effects of the Cyborg and the Northern Trust Corporation
benefit administration business, Outsourcing net revenues would have increased 9% period over period. For the nine months ended June 30, 2003, approximately two-thirds of our Outsourcing net revenue growth was from the addition of new clients and
approximately one-third of the growth from expanding services with existing clients. Consulting net revenues increased by 31% to $545 million in the nine months ended June 30, 2003 compared to $415 million in the prior year period. Consulting net
revenues increased primarily as a result of the June 2002 acquisition of the benefits consulting business of Bacon & Woodrow. A portion of this growth was also due to favorable foreign currency translation from the strengthening of European
currencies relative to the U.S. dollar year over year and consolidation of our Dutch affiliate upon purchase of the remaining interest in that affiliate in the first quarter. Including the results of Bacon & Woodrow in the prior year period and
excluding the effects of the acquisition of our Dutch affiliate and favorable foreign currency translation, Consulting net revenues would have increased by approximately 1% in the first nine months of 2003 over the comparable prior year period. This
increase was a result of growth in retirement plan and health benefit management consulting offset by a decrease in net revenue from our more discretionary consulting services over the prior year.



Compensation and Related Expenses



Compensation and related expenses were $942 million in the nine months ended June 30, 2003,
compared to $717 million in the comparable prior year period. Prior to May 31, 2002, compensation and related expenses did not include owners compensation as Hewitt Holdings owners were compensated through distributions of income. In
connection with Hewitt Associates transition to a corporate structure in June 2002, we incurred a non-recurring, non-cash $18 million compensation expense resulting from certain owners receiving more than their proportional share of total
capital, without offset for those owners who received less than their proportional share in the conversion of owners capital into common stock, and a non-recurring $8 million compensation expense related to our establishing an owner vacation
liability. Had we incurred estimated owner compensation in the prior year of $108 million and excluded the non-recurring charges, compensation and related expenses would have been $799 million for the nine months ended June 30, 2002. As such, on an
adjusted basis, compensation and related expenses as a percentage of net revenues was 65% in the current year period and would have been 64% in the prior year period. The increase as a percentage of net revenues is primarily due to increases in our
Outsourcing personnel to support the development of our new workforce management service offering. These increases were offset in part by lower performance-based compensation as a percentage of net revenues resulting from the continued negative
effects of the economy on our clients and therefore, our business and performance relative to targets. The net increase in overall compensation and related expenses after the inclusion of owner compensation and the exclusion of the non-recurring
charges in the prior year period was primarily due to cost of living increases, increases from the inclusion of Bacon & Woodrows compensation and related expenses and increases in our Outsourcing personnel to support the growth of benefit
administration outsourcing and workforce management.



Restricted Stock
Awards



Since Hewitt Associates initial public offering in June
2002, compensation and related payroll tax expenses of approximately $63 million were recorded as restricted stock award expense through June 30, 2003, of which $35 million was recorded in the nine months ended June 30, 2003, and $1 million was
recorded for the nine months ended June 30, 2002. An additional $50 million of estimated unearned compensation will be recognized evenly through June 27, 2006, and adjusted for payroll taxes and forfeitures as they arise.



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Other Operating Expenses



Other operating expenses were $276 million in the nine months ended June 30, 2003 compared to $250 million in the comparable prior year period. As a percentage of net
revenues, other operating expenses declined to 19% in the nine months ended June 30, 2003, from 20% in the comparable prior year period. The decrease as a percentage of net revenue was primarily the result of revenue growing at a faster rate than
other operating expenses. The $26 million increase in other operating expenses primarily reflects the inclusion of Bacon & Woodrow since the acquisition, increased depreciation and amortization expenses on computer equipment and software and
increased computer maintenance expenses, partially offset by lower telecommunication expenses in our Outsourcing segment over the prior year.



Selling, General and Administrative Expenses



SG&A expenses were $71 million in the nine months ended June 30, 2003, compared to $57 million in the comparable prior year period, an increase of 25%. As a
percentage of net revenues, SG&A expenses remained flat at 5% in the nine months ended June 30, 2003 and 2002. SG&A expenses increased $14 million period over period which primarily reflects the inclusion of Bacon & Woodrow and increased
travel and insurance expense in the current year, partially offset by lower bad debt expense. In the prior year period, travel expenses were lower and bad debt expenses were higher following the events of September 11, 2001.



Other Expenses, Net



Other expenses, net totaled $6 million in income for the nine months ended June 30, 2003, compared to a net expense of $22 million in the
comparable prior-year period. As a percentage of net revenues, other expenses, net was 2% or less in the current year and prior year periods. During the second quarter of 2003, we sold a property located in Newport Beach, California at a $40 million
gain. Approximately $17 million of the gain was recognized as income in the current period while $23 million of the gain was deferred since we continue to occupy a significant portion of the building. The deferred gain will be recognized as income
evenly over the remaining 14 year lease term. During the third quarter of 2003, we sold a property located in Norwalk, Connecticut at a $10 million gain. Interest expense remained flat over the prior-year period primarily due to the addition of
interest expense on our $55 million line of credit facility prior to its expiration and repayments made on June 30, 2003, offset by reduced interest expense from the reduction in amounts due former owners.



Provision for Income Taxes



The provision for income taxes was $45 million for the nine months ended June 30, 2003,
compared to $25 million in the comparable prior year period. The increase in the provision for income taxes for the nine months ended June 30, 2003, over the income taxes for the comparable period is primarily due to earnings being taxed for the
full nine months in fiscal 2003 as compared to earnings being taxed for only one month in the nine months ending June 30, 2002, as a result of the timing of Hewitt Associates transition to a corporate structure and the inclusion of one-time
charges in the nine months ending June 30, 2002, resulting from Hewitt Associates transition to a corporate structure on May 31, 2002. Approximately $22 million of the $25 million tax expense for the nine months ended June 30, 2002, related to
tax liabilities arising both from a mandatory change in Hewitt Associates tax accounting method and from the initial recording of deferred tax assets and liabilities related to temporary differences which resulted from the transition to a
corporate structure. The remaining $3 million represents income tax expense arising from earnings between May 31, 2002, and June 30, 2002, while Hewitt Associates operated as a corporation. The non-recurring, non-cash $18 million compensation
expense resulting from owners receiving more than their proportional share of total capital, without offset for those owners who received less than their proportional share in conversion of owners capital into common stock, was not deductible.
For the year ending September 30, 2003, Hewitt Associates expects to report pre-tax income and as such, has apportioned the estimated income tax provision for the year to each quarter, based on the ratio of each quarters pre-tax income to
estimated annual pre-tax income.



These estimates reflect the information
available at this time and our best judgment, however, actual annual income or taxes may differ.



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Segment Results



We operate many of the administrative and support functions of our business through centralized shared service operations, an arrangement that we believe is the most
economical and effective means of supporting the Outsourcing and Consulting segments. These shared services include information systems, human resources, general office support and space management, overall corporate management, finance and legal
services. Additionally, we utilize a client development group that markets the entire spectrum of our services and devotes its resources to maintaining existing client relationships. The compensation and related expenses, other operating expenses,
and selling, general and administrative expenses of the administrative and marketing functions are not allocated to the business segments, rather, they are included in unallocated shared costs. The costs of information systems and human resources,
however, are allocated to the Outsourcing and Consulting segments on a specific identification basis or based on usage and headcount. Operating income before unallocated shared costs is referred to as segment income throughout this
discussion.



Reconciliation of Segment Results to Total Company Results

(in thousands)



|                                                                                  |  | Three MonthsEnded June 30, |         | Nine MonthsEnded June 30,
|--------------------------------------------------------------------------------- |  | -------------------------- | ------- | -------------------------
|                                                                                  |  | 2002                       |         |                          
|Business Segments                                                                 |  |                            |         |                          
|                                                                                  |  |                            |         |                          
|Outsourcing                                                                       |  |                            |         |                          
|Revenues before reimbursements (net revenues)                                     |  | $                          | 277,124 |                          
|Segment income (1)                                                                |  |                            | 61,382  |                          
|                                                                                  |  |                            |         |                          
|Consulting (2)                                                                    |  |                            |         |                          
|Revenues before reimbursements (net revenues)                                     |  | $                          | 152,959 |                          
|Segment income (1)                                                                |  |                            | 51,921  |                          
|                                                                                  |  |                            |         |                          
|Total Company                                                                     |  |                            |         |                          
|Revenues before reimbursements (net revenues)                                     |  | $                          | 430,083 |                          
|Reimbursements                                                                    |  |                            | 8,508   |                          
|                                                                                  |  |                            |         |                          
|Total revenues                                                                    |  | $                          | 438,591 |                          
|                                                                                  |  |                            |         |                          
|Segment income (1)                                                                |  | $                          | 113,303 |                          
|Charges not recorded at the Segment level:                                        |  |                            |         |                          
|One-time charges (3)                                                              |  |                            | 26,143  |                          
|Restricted stock awards (4)                                                       |  |                            | 1,105   |                          
|Unallocated shared costs (1)                                                      |  |                            | 36,413  |                          
|                                                                                  |  |                            |         |                          
|Operating income  Hewitt Associates (1)                                          |  |                            | 49,642  |                          
|Other operating income (expenses)  Hewitt Holdings LLC and Property Entities (5) |  |                            | (582    | )                        
|                                                                                  |  |                            |         |                          
|Operating income (1)                                                              |  | $                          | 49,060  |                          
|                                                                                  |  |                            |         |                          



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---

|(1) |  | Prior to May 31, 2002, owners were compensated through distributions of income. In connection with Hewitt Associates transition to a corporate structure on May 31, 2002,
owners who worked in the business became employees and Hewitt Associates began to record their compensation in compensation and related expenses in arriving at segment income.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | On June 5, 2002, Hewitt Associates acquired the actuarial and benefits consulting business of Bacon & Woodrow. As such, the results of Bacon & Woodrow have been included in
the Companys Consulting segment results from the acquisition date of June 5, 2002.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(3) |  | In connection with Hewitt Associates transition to a corporate structure, the Company incurred one-time charges which included an $8 million non-recurring compensation expense
related to the establishment of a vacation liability for its former owners, and a $18 million non-recurring, non-cash compensation expense resulting from certain owners receiving more than their proportional share of total capital, without offset
for those owners who received less than their proportional share.
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(4) |  | Compensation expense of $1 million and $6 million for the three months ended June 30, 2002 and 2003, respectively, and $1 million and $35 million for the nine months ended June 30,
2002 and 2003, respectively, related to the amortization of the initial public offering restricted stock awards.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|(5) |  | The Company reviews segment results at the Hewitt Associates operating level. At that level, as well as on a consolidated basis, the majority of the occupancy costs under operating
and capital leases are reflected within Hewitt Associates operating income. Incremental other operating expenses at Hewitt Holdings LLC and Property Entities are not allocated to the segments. Also, included in other operating income (expense)
is the elimination of intercompany rent charges included in the segment results.
|--- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



Outsourcing



Three Months Ended June
30, 2003 and 2002



Outsourcing net revenues were $304 million in the three
months ended June 30, 2003, compared to $277 million in the comparable prior year period, an increase of 10%. A portion of this growth was due to the addition of revenues from the June 2003 acquisitions of Cyborg and the benefit administration
business of the Northern Trust Corporation. Excluding the effects of the Cyborg and the Northern Trust Corporation benefit administration business, Outsourcing net revenues would have increased 8% quarter over quarter, primarily from the addition of
new clients. Our revenue growth rate also reflects pricing pressure on new client services and renewals as a result of continued softness in the U.S. economy and the competitive environment.



Outsourcing segment income as a percentage of Outsourcing net revenues was 20% in the three
months ended June 30, 2003, compared to 22% in the comparable prior-year period. Prior to May 31, 2002, compensation and related expenses did not include owners compensation as our owners were compensated through distributions of income. Had
we incurred estimated owner compensation in the prior-year quarter, segment income would have been $56 million for the three months ended June 30, 2002. As such, as adjusted to reflect estimated owner compensation expense in the prior-year quarter
of $5 million, Outsourcing segment income as a percentage of Outsourcing net revenues would have been 20% in the prior year quarter. During the quarter ended June 30, 2003, the investments in our workforce management business were offset in part by
our beginning to capitalize approximately $6 million in incremental and direct costs associated with implementing new workforce management clients.



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Nine Months Ended June 30, 2003 and 2002



Outsourcing net revenues were $908 million in the nine months ended June 30, 2003, compared to $828 million in the comparable prior year
period, an increase of 10%. A portion of this growth was due to the addition of revenues from the newly acquired Cyborg and benefit administration business of the Northern Trust Corporation. Excluding the effects of the Cyborg and the Northern Trust
Corporation benefit administration business, Outsourcing net revenues would have increased 9% period over period. For the nine months ended June 30, 2003, approximately two-thirds of our Outsourcing net revenue growth was from the addition of new
clients with the remainder of the growth from expanding services with existing clients. Our revenue growth rate also reflects pricing pressure on new client services and renewals as a result of continued softness in the U.S. economy and the
competitive environment.



Outsourcing segment income as a percentage of
Outsourcing net revenues was 20% in the nine months ended June 30, 2003, compared to 24% in the comparable prior year period. Had we incurred estimated owner compensation of $22 million in the comparable prior year period, segment income would have
been $179 million for the nine months ended June 30, 2002. As such, as adjusted, Outsourcing segment income as a percentage of Outsourcing net revenues would have been 22% in the nine months ended June 30, 2002. The decrease in margin in the nine
months ended June 30, 2003 primarily relates to our continued investment in the development of our workforce management service offering.



Consulting



Three Months Ended June 30, 2003 and 2002



Consulting net revenues were $191 million in the three months ended June 30, 2003, compared to $153 million in the comparable prior-year period, an increase of 25%. This increase primarily reflects the addition of revenues from the
actuarial and benefits consulting business of Bacon & Woodrow since the acquisition date of June 5, 2002. A portion of this growth was also due to favorable foreign currency translation due to the strengthening of European currencies relative to
the U.S. dollar and consolidation of our Dutch affiliate upon purchase of the remaining interest in the first quarter of 2003. Including the results of Bacon & Woodrow in the prior-year quarter, and excluding the effects of the acquisition of
our Dutch affiliate and favorable foreign currency translation in the current-year quarter, Consulting net revenues were unchanged quarter over quarter. Increases in retirement plan and health benefit management consulting were offset by a decrease
in revenue from our discretionary consulting services resulting from continued soft demand for such services.



Consulting segment income as a percentage of Consulting net revenues was 19% in the three months ended June 30, 2003, compared to 34% for the comparable prior-year period. Had we incurred estimated owner compensation
in the prior-year quarter, Consulting segment income would have been $38 million for the three months ended June 30, 2002. As such, as adjusted to reflect estimated owner compensation expense in the prior year period, Consulting segment income as a
percentage of Consulting net revenues would have been 25% in the prior-year quarter. The decrease in the operating margin in the three months ended June 30, 2003, stemmed from lower margins on our more discretionary consulting services resulting
from continued soft demand for those services, offset by higher margins in our European region as a result of the Bacon & Woodrow business, and in health benefit management and retirement plan consulting. During the quarter, we have taken steps
to reduce costs, including headcount reductions, primarily in our more discretionary consulting service areas.



Nine Months Ended June 30, 2003 and 2002



Consulting net revenues were $545 million in the nine months ended June 30, 2003, compared to $415 million in the comparable prior year period, an increase of 31%. This increase primarily reflects the addition of Bacon & Woodrows
benefits consulting business, favorable foreign currency translation due to the strengthening of European currencies relative to the U.S. dollar and consolidation of our Dutch affiliate since December 2002, upon our purchase of the remaining
controlling interest. Including the results of Bacon & Woodrows benefits consulting business in the prior year period, and excluding the effects of the acquisition of our Dutch affiliate and favorable foreign currency translation,
Consulting net revenues would have increased by approximately 1% in the current year period over the prior year period. The net increase was due to increases in retirement plan and health benefit



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##### Table of Contents

management consulting offset by a decrease in revenue from our more discretionary consulting services due to continued soft demand for such services.



Consulting segment income as a percentage of Consulting net revenues was 19%
in the nine months ended June 30, 2003, compared to 32% for the comparable prior year period. Had we incurred estimated owner compensation of $57 million in the comparable prior year period, segment income would have been $78 million for the nine
months ended June 30, 2002. As such, as adjusted, Consulting segment income as a percentage of Consulting net revenues would have been 19% in the prior year period. Higher margins in our European region as a result of the Bacon & Woodrow
benefits consulting business and in our retirement plan and health benefit management consulting were offset by lower margins on our more discretionary consulting services due to continued soft demand for those services.



Pro Forma Results of Operations



During fiscal 2002, the Company completed several significant transactions. Hewitt
Associates completed its transition to a corporate structure in May 2002, and its initial public offering and the Bacon & Woodrow acquisition in June 2002. The following pro forma results give effect to all three of these transactions as if they
occurred as of the beginning of fiscal 2002 on October 1, 2001, excluding any non-recurring adjustments, to allow for comparability. Current year results, as shown in the statement of operations for the three and nine months ended June 30, 2003,
include the effects of all three transactions and as such, are not shown on a pro forma basis.



The Bacon & Woodrow historical results in the following pro forma consolidated income statements reflect Bacon & Woodrows results prior to the acquisition on June 5, 2002. As such, for the three and nine
months ended June 30, 2002, Bacon & Woodrows historical results are for the two and eight months prior to the acquisition. The historical results of Hewitt Holdings for fiscal 2002 include Bacon & Woodrows results since June 5,
2002.



The information presented is not necessarily indicative of the results
of operations that might have occurred had the events described above actually taken place as of the dates specified. The pro forma adjustments are based upon available information and assumptions that management believes are reasonable. This
information and the accompanying notes should also be read in conjunction with Hewitt Associates Pro Forma Results of Operations and consolidated financial statements and related notes in Hewitt Associates Registration
Statement (No. 333-105560) on Form S-3 filed with the Securities and Exchange Commission, our consolidated financial statements and related notes included in our Form 10 as filed with the Securities and Exchange Commission, and our consolidated
financial statements and related notes included elsewhere in this Quarterly Report on Form 10-Q.



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##### Table of Contents

Hewitt Holdings LLC

Pro Forma Consolidated Income Statements

(unaudited)



|                                                                        |  | Three Months Ended June 30, 2002                       |    
|----------------------------------------------------------------------- |  | ------------------------------------------------------ | ---
|                                                                        |  | HewittHoldingsHistorical                               |    
|                                                                        |  | (Dollars in millions, except share and per share data) |    
|Revenues:                                                               |  |                                                        |    
|Revenue before reimbursements (net revenues)                            |  | $                                                      | 430
|Reimbursements                                                          |  |                                                        | 9  
|                                                                        |  |                                                        |    
|Total revenues                                                          |  |                                                        | 439
|                                                                        |  |                                                        |    
|Operating expenses:                                                     |  |                                                        |    
|Compensation and related expenses, excluding restricted stock awards    |  |                                                        | 273
|Restricted stock awards                                                 |  |                                                        | 1  
|Reimbursable expenses                                                   |  |                                                        | 9  
|Other operating expenses                                                |  |                                                        | 85 
|Selling, general and administrative expenses                            |  |                                                        | 22 
|                                                                        |  |                                                        |    
|Total operating expenses                                                |  |                                                        | 390
|                                                                        |  |                                                        |    
|Operating income                                                        |  |                                                        | 49 
|                                                                        |  |                                                        |    
|Other expenses, net                                                     |  |                                                        | (6 
|                                                                        |  |                                                        |    
|Income before taxes, minority interest and owner distributions          |  |                                                        | 43 
|                                                                        |  |                                                        |    
|Provision for income taxes                                              |  |                                                        | 25 
|                                                                        |  |                                                        |    
|Income after taxes and before minority interest and owner distributions |  |                                                        | 18 
|                                                                        |  |                                                        |    
|Minority interest                                                       |  |                                                        | (1 
|                                                                        |  |                                                        |    
|Income after taxes and minority interest and before owner distributions |  | $                                                      | 19 
|                                                                        |  |                                                        |    

---

|(1) |  | Acquisition and incorporation adjustments include the following one-time items that are excluded for pro forma purposes: an $8 million compensation expense for vacation liability
arising from the Companys owners becoming employees of the Hewitt Associates; an $18 million compensation expense resulting from the requirement to recognize the extent to which certain owners stock allocation was greater than their
proportional share of the capital accounts, without offset for the extent to which certain owners stock allocation is less than their proportional share of the capital accounts; a $22 million non-recurring income tax expense resulting from a
$5 million tax benefit arising from a mandatory change in Hewitt Associates tax accounting method and a $27 million net liability arising from the establishment of deferred tax assets and liabilities; a $6 million expense related to the former
Bacon & Woodrow partners purchase of indemnity insurance prior to the acquisition; $1 million of acquisition-related professional service expenses incurred by Bacon & Woodrow; and a $1 million compensation expense reflecting our
assumption of annuity liabilities in connection with the acquisition. Other adjustments include expenses that the Company would have incurred had Hewitt Associates been a corporation for the entire period presented: $30 million of owner compensation
expense for both the Companys owners and Bacon & Woodrow partners; $21 million of additional income tax expense had Hewitt Associates been a taxable entity for the entire period; and $1 million of amortization of intangible assets created
as part of the acquisition of Bacon & Woodrow.
|--- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) |  | Offering adjustments include compensation expense of $5 million reflecting the amortization of the one-time grant of restricted stock awards and the related income tax benefit of $2
million and $8 million for the minority interest share of Hewitt Associates income.
|--- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On a pro forma basis, the Companys net revenues were $454 million compared to its actual net revenues of $430 million for the three months ended June 30, 2002. The difference in the net revenues is attributable
to the inclusion of the Bacon & Woodrow net revenues on a pro forma basis for the full period as compared to no Bacon & Woodrow net revenues in the Company historical results since Bacon & Woodrow was acquired on June 5, 2002, and their
results were included in actual results from the acquisition date forward.



On
a pro forma basis, the Companys income after taxes and minority interest and before owner distributions was $16 million compared to its actual income after taxes and minority interest and before owner distributions of $19 million for the three
months ended June 30, 2002. The difference is attributable to: (1) the exclusion of non-recurring charges for owner vacation accrual, the disproportionate share compensation charge, and the $22 million non-recurring income tax expense; (2) the
inclusion of owner salaries, benefits, bonuses, and payroll taxes for all periods; (3) the inclusion of an estimated tax expense as if Hewitt Associates had been subject to income tax for the entire period; (4) the inclusion of a charge for the
income allocable to the minority interest holders of Hewitt Associates; (5) the inclusion of the Bacon & Woodrow operations for all periods, adjusted for non-recurring items, on a pro forma basis; (6) the inclusion of compensation expense for
all periods, reflecting the amortization of the one-time grant of restricted stock awards to employees and the estimated tax benefit related to these awards; (7) the inclusion of amortization expense for the amortization of intangible assets
acquired as part of the Bacon & Woodrow business in pro forma net income; and (8) the inclusion of estimated compensation expense for the assumption of annuity liabilities in connection with the Bacon & Woodrow acquisition.



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Hewitt Holdings LLC

Pro Forma Consolidated Income Statements

(unaudited)



|                                                                        |  | Nine Months Ended June 30, 2002                        |      
|----------------------------------------------------------------------- |  | ------------------------------------------------------ | -----
|                                                                        |  | HewittHoldingsHistorical                               |      
|                                                                        |  | (Dollars in millions, except share and per share data) |      
|Revenues:                                                               |  |                                                        |      
|Revenue before reimbursements (net revenues)                            |  | $                                                      | 1,243
|Reimbursements                                                          |  |                                                        | 22   
|                                                                        |  |                                                        |      
|Total revenues                                                          |  |                                                        | 1,265
|                                                                        |  |                                                        |      
|Operating expenses:                                                     |  |                                                        |      
|Compensation and related expenses, excluding restricted stock awards    |  |                                                        | 717  
|Restricted stock awards                                                 |  |                                                        | 1.00 
|Reimbursable expenses                                                   |  |                                                        | 22   
|Other operating expenses                                                |  |                                                        | 250  
|Selling, general and administrative expenses                            |  |                                                        | 57   
|                                                                        |  |                                                        |      
|Total operating expenses                                                |  |                                                        | 1,047
|                                                                        |  |                                                        |      
|Operating income                                                        |  |                                                        | 218  
|                                                                        |  |                                                        |      
|Other expenses, net                                                     |  |                                                        | (22  
|                                                                        |  |                                                        |      
|Income before taxes, minority interest and owner distributions          |  |                                                        | 196  
|                                                                        |  |                                                        |      
|Provision for income taxes                                              |  |                                                        | 25   
|                                                                        |  |                                                        |      
|Income after taxes and before minority interest and owner distributions |  |                                                        | 171  
|                                                                        |  |                                                        |      
|Minority interest                                                       |  |                                                        | (1   
|                                                                        |  |                                                        |      
|Income after taxes and minority interest and before owner distributions |  | $                                                      | 172  
|                                                                        |  |                                                        |      

---

|(1) |  | Acquisition and incorporation adjustments include the following one-time items that are excluded for pro forma purposes: an $8 million compensation expense for vacation liability
arising from the Companys owners becoming employees of Hewitt Associates; an $18 million compensation expense resulting from the requirement to recognize the extent to which certain owners stock allocation was greater than their
proportional share of the capital accounts, without offset for the extent to which certain owners stock allocation is less than their proportional share of the capital accounts; a $22 million non-recurring income tax expense resulting from a
$5 million tax benefit arising from a mandatory change in Hewitt Associates tax accounting method and a $27 million net liability arising from the establishment of deferred tax assets and liabilities; a $6 million expense related to the former
Bacon & Woodrow partners purchase of indemnity insurance prior to the acquisition; $2 million of acquisition-related professional service expenses incurred by Bacon & Woodrow; $4 million of losses incurred on a foreign currency
purchase option related to the acquisition; and a $1 million compensation expense reflecting our assumption of annuity liabilities in connection with the acquisition. Other adjustments include expenses that the Company would have incurred had Hewitt
Associates been a corporation for the entire period presented: $120 million of owner compensation expense for both the Companys owners and Bacon & Woodrow partners; $53 million of additional income tax expense had Hewitt Associates been a
taxable entity for the entire period; $2 million of amortization of intangible assets created as part of the acquisition of Bacon & Woodrow; and $1 million of interest expense on borrowings to fund distributions of accumulated earnings to Bacon
& Woodrows partners.
|--- |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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|(2) |  | Offering adjustments include compensation expense of $56 million reflecting the amortization of the one-time grant of restricted stock awards and the related income tax benefit of
$22 million and $11 million for the minority interest share of Hewitt Associates income.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



On a pro forma basis, the Companys net revenues were $1,334 million compared to its actual net revenues of $1,243 million for the nine months ended June 30, 2002. The difference in the net revenues is
attributable to the inclusion of the Bacon & Woodrow net revenues on a pro forma basis for the full period as compared to no Bacon & Woodrow net revenues in the Company historical results since Bacon & Woodrow was acquired on June 5,
2002, and their results were included in actual results from the acquisition date forward.



The Companys income after taxes and minority interest and before owner distributions was $27 million on a pro forma basis compared to its actual income after taxes and minority interest and before owner
distributions of $172 million for the nine months ended June 30, 2002. The difference is attributable to: (1) the inclusion of owner salaries, benefits, bonuses, and payroll taxes for all periods; (2) the inclusion of an estimated tax expense as if
Hewitt Associates had been subject to income tax for the entire period; (3) the exclusion of non-recurring charges for owner vacation accrual, the disproportionate share compensation charge, and the $22 million non-recurring income tax expense; (4)
the inclusion of compensation expense for all periods, reflecting the amortization of the one-time grant of restricted stock awards to employees and the estimated tax benefit related to these awards; (5) the inclusion of a charge for the income
allocable to the minority interest holders of Hewitt Associates; (6) the inclusion of the Bacon & Woodrow operations for all periods, adjusted for non-recurring items, on a pro forma basis; (7) the exclusion of losses incurred on a foreign
currency purchase option; (8) the inclusion of amortization expense for the amortization of intangible assets acquired as part of the Bacon & Woodrow business in pro forma net income; (9) the inclusion of estimated interest expense for
borrowings to fund the payment of distributions to the former partners of Bacon & Woodrow; and (10) the inclusion of estimated compensation expense for the assumption of annuity liabilities in connection with the Bacon & Woodrow acquisition.



Liquidity and Capital Resources



We have historically funded our growth and working capital requirements with internally
generated funds, credit facilities, credit tenant notes and term notes. Hewitt Associates transition to a corporate structure in May 2002, and its initial public offering in June 2002, provided access to new forms of debt and equity financing
to fund new investments and acquisitions as well as to meet ongoing and future capital resource needs.



|Summary of Cash Flows                                |  | Nine months ended June 30, |         
|---------------------------------------------------- |  | -------------------------- | --------
|(in thousands)                                       |  | 2002                       |         
|                                                     |  | (unaudited)                |         
|Cash provided by:                                    |  |                            |         
|Operating activities                                 |  | $                          | 311,698 
|Cash used in:                                        |  |                            |         
|Investing activities                                 |  |                            | (8,213  
|Financing activities                                 |  |                            | (261,939
|Effect of exchange rates on cash                     |  |                            | (1,456  
|                                                     |  |                            |         
|Net increase (decrease) in cash and cash equivalents |  |                            | 40,090  
|Cash and cash equivalents at beginning of period     |  |                            | 69,393  
|                                                     |  |                            |         
|Cash and cash equivalents at end of period           |  | $                          | 109,483 
|                                                     |  |                            |         



For the nine months ended June 30,
2003 and 2002, cash provided by operating activities was $192 million and $312 million, respectively. The decrease in cash flows provided by operating activities between the nine months ended June 30, 2003 and 2002, is primarily due to the inclusion
of compensation expenses related to owners that are employed by Hewitt Associates



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and a provision for corporate income taxes, stemming from Hewitt Associates transition to a corporate structure on May 31, 2002. Prior to May 31, 2002,
owners that worked in the business were compensated through distributions that were paid out of cash flows from financing activities as capital distributions and Hewitt Associates did not pay corporate income taxes when it operated as a limited
liability company. Additionally, cash from operating activities decreased in the nine months ended June 30, 2003 due to increases in client receivables and unbilled work in process balances over the prior year period.



For the nine months ended June 30, 2003 and 2002, cash used in investing activities was $35
million and $8 million, respectively. The increase in cash used investing activities was primarily due to cash paid for acquisitions (see Note 6 to the consolidated financial statements) and increased spending on software development, offset by the
receipt of $84 million of proceeds from our sales of our office properties in Newport Beach, California, and Norwalk, Connecticut.



Cash used in financing activities was $167 million and $262 million, respectively, for the nine months ended June 30, 2003 and 2002. The decrease in cash used in
financing activities was primarily due to a decrease in the amount of capital distributions for the nine months ended June 30, 2003 as well as the refund of tax deposits made on behalf of our owners as a result of our transition to a calendar year
for tax purposes. For the nine months ended June 30, 2002, capital distributions had been a function of the timing of discretionary withdrawals by our owners and the needs of the Company for the construction of facilities for use by Hewitt
Associates. In future periods, distributions to owners was replaced by compensation and related expenses, which affected the net cash provided by operating activities.



At June 30, 2003, our cash and cash equivalents were $165 million, as compared to $109 million at June 30, 2002, an increase of $56 million
or 51%. Cash and cash equivalents at June 30, 2003, increased over the prior year primarily due to the receipt of proceeds in July 2002 from Hewitt Associates initial public offering in June 2002, and higher earnings and related cash flows
from operating activities in the year since June 30, 2002, offset by repayments of short-term borrowings.



Debt and Commitments



Significant
ongoing commitments consist primarily of leases and debt. There are three related party operating leases between Hewitt Associates and Overlook Associates covering a portion of the complex that constitutes Hewitt Associates global headquarters
in Lincolnshire, Illinois. Overlook Associates is a majority-owned but not a controlled investment of Hewitt Holdings. As such, this investment is accounted for as an equity investment for financial reporting purposes and is not consolidated. We
also have various third-party operating leases for office space, furniture and equipment with terms ranging from one to twenty years.



In April 2002, Hewitt Properties VII LLC sold a building and adjoining land in Norwalk, Connecticut in which Hewitt Associates leased office space. Hewitt Associates then
entered into a 15-year capital lease with the purchaser to continue to lease the office space. Payments are made in monthly installments at 7.33% interest. The debt remaining at June 30, 2003 is $62 million.



Our computer and telecommunications equipment installment notes and capitalized leases are
secured by the related equipment. The amounts due are payable over three- to five-year terms and are payable in monthly or quarterly installments at various interest rates ranging from 5.8% to 8.0%. At June 30, 2003, the outstanding balance on the
equipment financing agreements was $6 million.



In March 2003, The Bayview
Trust, a subsidiary, sold a building in Newport Beach, California in which Hewitt Associates leased office space. In June of 2002, Hewitt Associates had entered into a 15 year capital lease with The Bayview Trust. This lease was assigned to the
third-party purchaser of the building. Payments are made in monthly installments at 7.33% interest. The debt remaining at June 30, 2003, is $24 million.



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Our debt consists primarily of secured credit tenant notes related to the properties, unsecured term notes and our lines
of credit.



In connection with our financing some of the property purchases, we
issued secured credit tenant notes to various noteholders consisting primarily of insurance companies on several dates between October 1997 and May 1999. The notes bear interest at rates ranging from 5.58% to 7.13% and are repayable in monthly
installments over a period ranging from 15 to 20 years. As of June 30, 2003, the outstanding balance on the notes was $216 million.



We have unsecured senior term notes with various note holders also consisting primarily of insurance companies totaling $147 million as of June 30, 2003. Of this amount,
$10 million bears interest at 7.65% and is repayable in October 2005; $15 million bears interest at 7.90% and is repayable in October 2010; $15 million bears interest at 7.93% and is repayable in June 2007; $10 million bears interest at 8.11% and is
repayable in June 2010; $12 million bears interest at 7.94% and is repayable in four annual installments from March 2004 through March 2007; $35 million bears interest at 8.08% and is repayable in annual installments beginning in March 2008 through
March 2012; and $50 million bears interest at 7.45% and is repayable in annual installments beginning in May 2004 through May 2008.



Hewitt Associates has two unsecured line of credit facilities. The 364-day facility expires on September 26, 2003, and provides for borrowings up to $70 million. The
three-year facility expires on September 27, 2005, and provides for borrowings up to $50 million. Borrowings under either facility accrue interest at adjusted LIBOR plus 52.5 to 72.5 basis points or the prime rate, at our option and are repayable
upon demand or at expiration of the facility. Quarterly facility fees ranging from 10 to 15 basis points are charged on the average daily commitment under both facilities. If the aggregate utilization under both facilities exceeds 50% of the
aggregate commitment, an additional utilization fee, based on the aggregate utilization, is assessed at a rate of 0.125% per annum. At June 30, 2003, there was no outstanding balance on either facility.



Hewitt Associates had an unsecured multi-currency line of credit permitting borrowings of up
to $10 million through February 28, 2003, at an interbank multi-currency interest rate plus 75 basis points. All outstanding balances on the unsecured multicurrency line of credit were repaid in full at the expiration of the facility on February 28,
2003. In addition, Hewitt Bacon & Woodrow Ltd., our U.K. subsidiary, has an unsecured British Pound Sterling line of credit permitting borrowings up to £20 million until July 30, 2003 and £17 million thereafter until expiration of
the facility on January 31, 2004 at a current rate of 4.78%. As of June 30, 2003, the outstanding balance was £14 million, equivalent to approximately $24 million and is repayable upon demand or at expiration of the facility. There is other
foreign debt outstanding at June 30, 2003 totaling approximately $9 million pursuant to local banking relationships in over a half-dozen countries. In total, the outstanding balance on the multi-currency or other foreign debt totaled $33 million as
of June 30, 2003.



On March 7, 2003, Hewitt Associates entered into a contract
with a lender to guarantee borrowings of its subsidiaries up to $13 million in multiple currency loans and letters of credit to replace the unsecured multi-currency line of credit, which was repaid in February 2003. There is no fixed termination
date on this contract. This contract allows Hewitt Associates subsidiaries to secure financing at rates based on Hewitt Associates creditworthiness, however, the terms and conditions of the financing with the lender have not been
finalized. On March 17, 2003, Hewitt Associates subsidiary, the Lincolnshire Insurance Company, obtained a $6 million letter of credit under this contract. There were no borrowings under the contract or draws against the letter of credit as of
June 30, 2003.



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On November 26, 2002, Hewitt Holdings obtained a $55 million line of credit facility to fund capital distributions to
owners through June 30, 2003, when the facility was to expire. Borrowings under the facility accrued interest at adjusted LIBOR plus 175 basis points or the prime rate, at our option. We repaid the amounts owed on the $55 million facility in June
2003 from cash generated from the sale of property in Newport Beach, California and Rowayton, Connecticut and this facility was retired



A number of our debt agreements call for the maintenance of specified financial and other covenants including, among others, covenants restricting the Companys
ability to incur indebtedness and create liens, to sell the assets or stock of a collateralized subsidiary, and to pay dividends or make distributions to owners which would result in a default. Our debt agreements also contain covenants requiring
Hewitt Associates LLC and its affiliates to maintain a minimum level of tangible net worth ($144 million as of June 30, 2003) and net worth ($216 million as of September 30, 2002), to maintain interest rate coverage of at least 2.00 to 1.00 and to
maintain a leverage ratio not to exceed 2.25 to 1.00. At June 30, 2003, we were in compliance with the terms of our debt agreements.



In connection with the initial public offering of Hewitt Associates, we raised approximately $219 million in net proceeds after offering expenses. Of the $219 million in
total net proceeds received, $52 million was used to repay the outstanding balance under our line of credit, $8.3 million was used to pay income taxes resulting from our transition to a corporate structure, and the balance was used for general
corporate purposes and working capital.



On August 6, 2003, the owners, the
Bacon & Woodrow partners and the key employees of Hewitt Associates and Bacon & Woodrow sold 9,852,865 shares of Hewitt Associates Class A common stock in a registered secondary offering. On August 11, 2003, Hewitt Associates
underwriters exercised their over-allotment option to purchase an additional 1,477,929 shares from the selling stockholders. The offering was initiated pursuant to a request under a registration rights agreement which Hewitt Associates and the
Company entered into at the time of Hewitt Associates initial public offering. Neither Hewitt Associates nor the Company received any proceeds from this offering and pursuant to the registration rights agreement, Hewitt Associates will pay all
offering expenses other than underwriting discounts and commissions.



We
believe funds from operations, current assets and existing credit facilities, as well as funds from Hewitt Associates initial public offering, will satisfy expected working capital, contractual obligations, capital expenditures and investment
requirements at Hewitt Associates for at least the next 12 months. We believe Hewitt Associates change to a corporate structure will provide financing flexibility to meet ongoing and future capital resource needs and access to equity for
additional investments and acquisitions. We also believe that the existing funds and access to financing which is secured by real property or other assets will satisfy our expected cash distributions to owners and other requirements of Hewitt
Holdings for at least the next 12 months.



Self-Insurance



Hewitt Associates has established a captive insurance subsidiary as a cost-effective way to
self-insure against certain business risks and losses. To date, the captive has not issued any policies to cover any of Hewitt Associates insurance exposures, however, Hewitt Associates has contributed $5 million in cash and secured $6 million
of additional regulatory capital in the form of a letter of credit. Hewitt Associates may, from time to time, choose to self-insure a portion of its professional liability exposure through use of this captive subsidiary.



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New Accounting Pronouncements



In November 2002, the FASBs Emerging Issues Task Force reached consensus on EITF No. 00-21, Accounting for Revenue Arrangements
with Multiple Deliverables.EITF No. 00-21 addresses the accounting treatment for arrangements that provide the delivery or performance of multiple products or services where the delivery of a product, system or performance of services may occur
at different points in time or over different periods of time. EITF No. 00-21 requires the separation of the multiple deliverables that meet certain requirements into individual units of accounting that are accounted for separately under the
appropriate authoritative accounting literature. EITF No. 00-21 is applicable to revenue arrangements entered into in fiscal periods beginning after June 15, 2003. The Company is currently evaluating the requirements and impact of this issue on its
consolidated results of operations and financial position.



In January 2003,
the FASB issued FASB Interpretation No. 46 (FIN No. 46), Consolidation of Variable Interest Entities,to expand upon and strengthen existing accounting guidance that addresses when a company should include in its financial
statements the assets, liabilities and activities of another entity. Until now, one company generally has included another entity in its consolidated financial statements only if it controlled the entity through voting interests. FIN No. 46 changes
that by requiring a variable interest entity, as defined, to be consolidated by a company if that company is subject to a majority of the risk of loss from the variable interest entitys activities or entitled to receive a majority of the
entitys residual returns or both. The adoption of FIN No. 46 is not expected to have a material impact on our consolidated financial statements.



Note Regarding Forward-Looking Statements



This report contains forward-looking statements relating to our operations that are based on our current expectations, estimates and projections. Words such as
anticipates, believes, continues, estimates, expects, goal, intends, may, opportunity, plans, potential,
projects, forecasts, should, will, and similar expressions are intended to identify such forward-looking statements. These statements are not guarantees of future performance and involve risks,
uncertainties, and assumptions that are difficult to predict. Forward-looking statements are based upon assumptions as to future events that may not prove to be accurate. Actual outcomes and results may differ materially from what is expressed or
forecasted in these forward-looking statements. As a result, these statements speak only as of the date they were made.



Our actual results may differ from the forward-looking statements for many reasons, including:



| |  |  | The actions of our competitors could adversely impact our results.
| | - |  | ------------------------------------------------------------------



| |  |  | A prolonged economic downturn could have a material adverse effect on our results.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | If we are not able to anticipate and keep pace with rapid changes in government regulations or if government regulations decrease the need for our services, our business may be
negatively affected.
| | - |  | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to successfully manage and integrate acquired companies.
| | - |  | --------------------------------------------------------------------



| |  |  | If we fail to establish and maintain alliances for developing, marketing, and delivering our services, our ability to increase our revenues and profitability may suffer.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our ability to recruit, retain and motivate employees and to compete effectively.
| | - |  | ---------------------------------------------------------------------------------



| |  |  | If we are not able to keep pace with rapid changes in technology or if growth in the use of technology in business is not as rapid as in the past, our business may be negatively
affected.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | If our clients are not satisfied with our services, we may face damage to our professional reputation or legal liability.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | Tightening insurance markets may reduce available coverage and result in increased premium costs and/ or higher self retention of risks.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------------------



| |  |  | The loss of key employees may damage or result in the loss of client relationships.
| | - |  | -----------------------------------------------------------------------------------



| |  |  | Our global operations and expansion strategy entail complex management, foreign currency, legal, tax and economic risks.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



| |  |  | The profitability of our engagements with clients may not meet our expectations.
| | - |  | --------------------------------------------------------------------------------



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For a more detailed discussion of our risk factors, see the information under the heading Risk Factors in
Hewitt Associates Registration Statements on Form S-3 (File No. 333-105560) filed with the Securities Exchange Commission. We undertake no obligation to publicly update or revise any forward-looking statements, whether as a result of new
information, future events or otherwise.



Item 3. Quantitative and Qualitative Disclosures about Market Risks



We are exposed to market risk primarily from changes in interest rates and foreign currency exchange rates. Historically, we have not entered into hedging transactions, such as foreign currency forward contracts or
interest rate swaps, to manage this risk due to our low percentage of foreign debt and restrictions on our fixed rate debt. However, in August 2001, we purchased a £150 million foreign currency option to offset the foreign currency risk
associated with the planned purchase of the benefits consulting business of Bacon & Woodrow. This instrument expired in May 2002. We do not hold or issue derivative financial instruments for trading purposes. We are not currently a party to any
hedging transaction or derivative financial instrument.



Interest rate risk



We are exposed to interest rate risk primarily through our portfolio of
cash and cash equivalents, which is designed for safety of principal and liquidity. We maintain a portfolio of cash equivalents in the highest rated money market investments and continuously monitor the investment ratings. The investments are
subject to inherent interest rate risk as investments mature and are reinvested at current market interest rates.



At June 30, 2003, 100% of our long-term debt was at a fixed rate. Our short-term debt with a variable rate consisted of our unsecured line of credit, which has an
interest rate of LIBOR plus 52.5-to-72.5 basis points or the prime rate, at our option. As of June 30, 2003, there was no outstanding balance on our unsecured line of credit. In addition, Hewitt Bacon & Woodrow Ltd., the Companys U.K.
subsidiary, has an unsecured British Pound Sterling line of credit permitting borrowings of up to £20 million until July 30, 2003 and £17 million thereafter until expiration of the facility on January 31, 2004, at a current rate of
4.78%. As of June 30, 2003, the outstanding balance was £14 million, equivalent to approximately $24 million, and is repayable upon demand or at expiration of the facility. There is other foreign debt outstanding at June 30, 2003, totaling
approximately $9 million, pursuant to local banking relationships in over a half-dozen countries. In total, the outstanding balance on the line of credit and other foreign debt was $33 million as of June 30, 2003.



During the nine months ended June 30, 2003, our variable rate debt consisted of our British
Pound Sterling line of credit, our debt maintained at our foreign subsidiaries and our newly acquired $55 million line of credit and had an effective interest rate of 4.23%. A one percentage point increase would have increased our interest expense
by $0.3 million for the nine months ended June 30, 2003. We also maintain an invested cash portfolio, which earned interest at an effective rate of 1.75% during the nine months ended June 30, 2003. A one percentage point increase would have
increased our interest income by $1.1 million for the nine months ended June 30, 2003. The net effect of a one percentage point change would have been $0.9 million in additional income from an increase in the rate (additional expense from a decrease
in the rate) for the nine months ended June 30, 2003.



Our fixed rate debt
consists of our secured credit tenant notes and our unsecured credit notes. At June 30, 2003, a 10 percent decrease in the levels of interest rates with all other variables held constant would result in an increase in the fair market value of our
fixed rate debt of $10 million.



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At June 30, 2003, a 10 percent increase in the levels of interest rates with all other variables held constant would
result in a decrease in the fair market value of our fixed rate debt of $10 million.



Foreign exchange risk



For the nine month period ended June
30, 2003, revenues from U.S. operations as a percent of total revenues were 83%. Operating in international markets means that we are exposed to movements in these foreign exchange rates, primarily the British pound sterling and the Euro.
Approximately 10% of our net revenues for the nine months ended June 30, 2003, respectively, were from the United Kingdom. Approximately 3% of our net revenues for the nine months ended June 30, 2003, were from countries whose currency is the Euro.
Changes in these foreign exchange rates would have the largest impact on translating our international operations results into U.S. dollars. A 10% change in the average exchange rate for the British pound sterling for the nine months ended June 30,
2003, would have impacted our pre-tax net operating income by approximately $0.3 million. A 10% change in the average exchange rate for the Euro for the nine months ended June 30, 2003, would have impacted our pre-tax net operating income by less
than $0.1 million.



Foreign currency net translation income was $12 million for
the nine month period ended June 30, 2003.



Item 4. Controls and Procedures



Evaluation of
disclosure controls and procedures.



Our chief executive officer and our
chief financial officer have concluded, based on their evaluation as of the end of the period covered by this Quarterly Report, that the Companys disclosure controls and procedures (as defined in the Securities Exchange Act of 1934
Rules 13a-15(e) and 15-d-15(e)) are effective to ensure that information required to be disclosed in the reports that we file or submit under the Securities Exchange Act of 1934 is recorded, processed, summarized, and reported within the time
periods specified in the Securities and Exchange Commissions rules and forms.



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PART II. OTHER INFORMATION



ITEM 1. Legal Proceedings



The
Company is not a party to any material legal proceedings. Hewitt Associates is occasionally subject to lawsuits and claims arising in the normal conduct of business. The Company does not expect the outcome of these pending claims to have a material
adverse affect on the business, financial condition or results of operations of Hewitt Associates or the Company.



ITEM 6. Exhibits and Reports on Form 8-K



| | a. |  | Exhibits.
| | -- |  | ---------



31.1

Certification of Chief Executive Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)31.2

Certification of Chief Financial Officer pursuant to 15 U.S.C. Section 10A, as adopted pursuant to Section 302 of the Sarbanes-Oxley Act of 2002 (filed herewith)32.1

Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)32.2

Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (filed herewith)




| | b. |  | Reports on Form 8-K filed during the quarter. None.
| | -- |  | ---------------------------------------------------



|
|

|
|



ITEMS 2, 3,
4 And 5 Are Not Applicable And Have Been Omitted



SIGNATURES



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



|                         |  |  |  | HEWITT ASSOCIATES, INC.(Registrant)
|------------------------ |  |  |  | -----------------------------------
|                         |  | 
|Date:    August 13, 2003 |  |  |  | By: /s/ David L. Hunt              
|                         |  |  |  |                                    



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