---



SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549



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 March 31, 2005



OR



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



For the transition period from  to



Commission file number 001-31351



HEWITT ASSOCIATES, INC.

(Exact name of registrant as specified in its charter)



|                                                              |  |                                    
|------------------------------------------------------------- |  | -----------------------------------
|Delaware                                                      |  | 47-0851756                         
|(State or other jurisdiction ofincorporation or organization) |  | (I.R.S. EmployerIdentification 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)



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 x NO ̈



Indicate the number of shares outstanding of each class of the issuers common stock,
as of the latest practical date.



|                                       |  |                                   
|-------------------------------------- |  | ----------------------------------
|Class                                  |  | OutstandingShares atMarch 31, 2005
|Class A Common Stock - $0.01 par value |  | 51,312,945                        
|Class B Common Stock - $0.01 par value |  | 52,509,466                        
|Class C Common Stock - $0.01 par value |  | 4,307,764                         
|                                       |  |                                   
|                                       |  | 108,130,175                       



---



---



HEWITT ASSOCIATES, INC.



FORM 10-Q

FOR THE PERIOD ENDED

MARCH 31, 2005



INDEX



|           |  |                                                                                                        |  |     
|---------- |  | ------------------------------------------------------------------------------------------------------ |  | ----
|           |  |                                                                                                        |  | PAGE
|PART I.    |  | FINANCIAL INFORMATION                                                                                  |  |     
|           |  |                                                                                                       
|ITEM 1.    |  | Financial Statements:                                                                                  |  |     
|           |  |                                                                                                       
|           |  | Consolidated Balance Sheets - March 31, 2005 (Unaudited), and September 30, 2004                       |  | 3   
|           |  |                                                                                                       
|           |  | Consolidated Statements of Operations - Three and Six Months Ended March 31, 2005 and 2004 (Unaudited) |  | 5   
|           |  |                                                                                                       
|           |  | Consolidated Statements of Cash Flows - Six Months Ended March 31, 2005 and 2004 (Unaudited)           |  | 6   
|           |  |                                                                                                       
|           |  | Notes to Consolidated Financial Statements                                                             |  | 7   
|           |  |                                                                                                       
|ITEM 2.    |  | Managements Discussion and Analysis of Financial Condition and Results of Operations                  |  | 25  
|           |  |                                                                                                       
|ITEM 3.    |  | Quantitative and Qualitative Disclosures about Market Risk                                             |  | 50  
|           |  |                                                                                                       
|ITEM 4.    |  | Controls and Procedures                                                                                |  | 51  
|           |  |                                                                                                       
|PART II.   |  | OTHER INFORMATION                                                                                      |  |     
|           |  |                                                                                                       
|ITEM 1.    |  | Legal Proceedings                                                                                      |  | 52  
|           |  |                                                                                                       
|ITEM 2.    |  | Unregistered Sales of Equity Securities and Use of Proceeds                                            |  | 52  
|           |  |                                                                                                       
|ITEM 4.    |  | Submission of Matters to a Vote Of Security Holders                                                    |  | 53  
|           |  |                                                                                                       
|ITEM 6.    |  | Exhibits                                                                                               |  | 53  
|           |  |                                                                                                       
|SIGNATURES |  |                                                                                                        |  | 54  



2



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PART I. FINANCIAL INFORMATION



|ITEM1. | Financial Statements
|------ | --------------------



HEWITT ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS

(Dollars in thousands except share and per share amounts)



|                                                                                                                                               |  |               |           |                   |   |          
|---------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | ----------------- | - | ---------
|                                                                                                                                               |  | March 31,2005 |           | September 30,2004
|                                                                                                                                               |  | (Unaudited)   |           |                  
|ASSETS                                                                                                                                         |  |               |           |                   |   |          
|                                                                                                                                               |  |              
|Current Assets:                                                                                                                                |  |               |           |                   |   |          
|Cash and cash equivalents                                                                                                                      |  | $             | 80,263    |                   | $ | 129,481  
|Short-term investments                                                                                                                         |  |               | 54,040    |                   |   | 183,205  
|Client receivables and unbilled work in process, less allowances of $21,823 and $21,732 at March 31, 2005 and September 30, 2004,
respectively |  |               | 549,556   |                   |   | 522,882  
|Prepaid expenses and other current assets                                                                                                      |  |               | 89,889    |                   |   | 50,546   
|Funds held for clients                                                                                                                         |  |               | 39,056    |                   |   | 14,693   
|Deferred income taxes, net                                                                                                                     |  |               |          |                   |   | 246      
|                                                                                                                                               |  |               |           |                   |   |          
|Total current assets                                                                                                                           |  |               | 812,804   |                   |   | 901,053  
|                                                                                                                                               |  |               |           |                   |   |          
|Non-Current Assets:                                                                                                                            |  |               |           |                   |   |          
|Deferred contract costs                                                                                                                        |  |               | 188,814   |                   |   | 162,602  
|Property and equipment, net                                                                                                                    |  |               | 254,279   |                   |   | 236,480  
|Capitalized software, net                                                                                                                      |  |               | 97,862    |                   |   | 84,969   
|Other intangible assets, net                                                                                                                   |  |               | 279,940   |                   |   | 107,322  
|Goodwill, net                                                                                                                                  |  |               | 668,996   |                   |   | 285,743  
|Other assets, net                                                                                                                              |  |               | 27,651    |                   |   | 29,805   
|                                                                                                                                               |  |               |           |                   |   |          
|Total non-current assets                                                                                                                       |  |               | 1,517,542 |                   |   | 906,921  
|                                                                                                                                               |  |               |           |                   |   |          
|Total Assets                                                                                                                                   |  | $             | 2,330,346 |                   | $ | 1,807,974
|                                                                                                                                               |  |               |           |                   |   |          
|LIABILITIES                                                                                                                                    |  |               |           |                   |   |          
|                                                                                                                                               |  |              
|Current Liabilities:                                                                                                                           |  |               |           |                   |   |          
|Accounts payable                                                                                                                               |  | $             | 42,443    |                   | $ | 20,909   
|Accrued expenses                                                                                                                               |  |               | 127,915   |                   |   | 83,226   
|Funds held for clients                                                                                                                         |  |               | 39,056    |                   |   | 14,693   
|Advanced billings to clients                                                                                                                   |  |               | 119,361   |                   |   | 106,934  
|Accrued compensation and benefits                                                                                                              |  |               | 113,840   |                   |   | 181,812  
|Deferred income taxes, net                                                                                                                     |  |               | 11,770    |                   |   |         
|Short-term debt and current portion of long-term debt                                                                                          |  |               | 56,342    |                   |   | 13,445   
|Current portion of capital lease obligations                                                                                                   |  |               | 4,873     |                   |   | 5,373    
|Employee deferred compensation and accrued profit sharing                                                                                      |  |               | 29,441    |                   |   | 49,450   
|                                                                                                                                               |  |               |           |                   |   |          
|Total current liabilities                                                                                                                      |  |               | 545,041   |                   |   | 475,842  
|                                                                                                                                               |  |               |           |                   |   |          
|Long-Term Liabilities:                                                                                                                         |  |               |           |                   |   |          
|Deferred contract revenues                                                                                                                     |  |               | 114,628   |                   |   | 118,025  
|Debt, less current portion                                                                                                                     |  |               | 221,599   |                   |   | 121,253  
|Capital lease obligations, less current portion                                                                                                |  |               | 78,501    |                   |   | 79,982   
|Other long-term liabilities                                                                                                                    |  |               | 102,415   |                   |   | 83,063   
|Deferred income taxes, net                                                                                                                     |  |               | 21,435    |                   |   | 70,456   
|                                                                                                                                               |  |               |           |                   |   |          
|Total long-term liabilities                                                                                                                    |  |               | 538,578   |                   |   | 472,779  
|                                                                                                                                               |  |               |           |                   |   |          
|Total Liabilities                                                                                                                              |  | $             | 1,083,619 |                   | $ | 948,621  
|                                                                                                                                               |  |               |           |                   |   |          



Commitments and Contingencies (Note 12)



3



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HEWITT ASSOCIATES, INC.

CONSOLIDATED BALANCE SHEETS - Continued

(Dollars in thousands except share and
per share amounts)



|                                                                                                                                                                                                                                 |  |               |           |   |                   |   |           |  
|-------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ------------- | --------- | - | ----------------- | - | --------- | -
|                                                                                                                                                                                                                                 |  | March 31,2005 |           |   | September 30,2004 |  
|                                                                                                                                                                                                                                 |  | (Unaudited)   |           |   |                   |  
|STOCKHOLDERS EQUITY                                                                                                                                                                                                             |  |               |           |   |                   |   |           |  
|                                                                                                                                                                                                                                 |  |              
|Stockholders Equity:                                                                                                                                                                                                            |  |               |           |   |                   |   |           |  
|Class A common stock, par value $0.01 per share, 750,000,000 shares authorized, 64,588,784 and 32,480,669 shares issued, 51,312,945 and
31,954,151 shares outstanding, as of March 31, 2005 and September 30, 2004, respectively |  | $             | 646       |   |                   | $ | 325       |  
|Class B common stock, par value $0.01 per share, 200,000,000 shares authorized, 52,509,466 and 61,707,114 shares issued and outstanding, as of
March 31, 2005 and September 30, 2004, respectively                               |  |               | 525       |   |                   |   | 617       |  
|Class C common stock, par value $0.01 per share, 50,000,000 shares authorized, 4,307,764 and 4,391,862 shares issued and outstanding as of
March 31, 2005 and September 30, 2004, respectively                                   |  |               | 43        |   |                   |   | 44        |  
|Restricted stock units, 143,766 and 118,363 units issued and outstanding, as of March 31, 2005 and September 30, 2004,
respectively                                                                                              |  |               | 2,890     |   |                   |   | 2,166     |  
|Additional paid-in capital                                                                                                                                                                                                       |  |               | 1,305,921 |   |                   |   | 633,934   |  
|Cost of common stock in treasury, 13,275,839 and 526,518 shares of Class A common stock as of March 31, 2005 and September 30, 2004,
respectively                                                                                |  |               | (382,434  | ) |                   |   | (13,414   | )
|Retained earnings                                                                                                                                                                                                                |  |               | 255,617   |   |                   |   | 194,430   |  
|Unearned compensation                                                                                                                                                                                                            |  |               | (30,955   | ) |                   |   | (27,799   | )
|Accumulated other comprehensive income                                                                                                                                                                                           |  |               | 94,474    |   |                   |   | 69,050    |  
|                                                                                                                                                                                                                                 |  |               |           |   |                   |   |           |  
|Total stockholders equity                                                                                                                                                                                                       |  |               | 1,246,727 |   |                   |   | 859,353   |  
|                                                                                                                                                                                                                                 |  |               |           |   |                   |   |           |  
|Total Liabilities and Stockholders Equity                                                                                                                                                                                       |  | $             | 2,330,346 |   |                   | $ | 1,807,974 |  
|                                                                                                                                                                                                                                 |  |               |           |   |                   |   |           |  



The accompanying notes
are an integral part of these financial statements.



4



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HEWITT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF OPERATIONS

(Unaudited)

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



|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|-------------------------------------------------------------------------------------------- |  | --------------------------- | ----------- | - | ------------------------- | - | ---------- | ------- |  | - | ----------- | - |  | - | ---------- | -
|                                                                                             |  | Three Months EndedMarch 31, |             |   | Six Months EndedMarch 31, |  
|                                                                                             |  | 2005(1)                     |             |   | 2004                      |   |            | 2005(1) |  |   | 2004        |  
|Revenues:                                                                                    |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Revenues before reimbursements (net revenues)                                                |  | $                           | 697,086     |   |                           | $ | 546,335    |         |  | $ | 1,407,484   |   |  | $ | 1,078,299  |  
|Reimbursements                                                                               |  |                             | 15,494      |   |                           |   | 13,145     |         |  |   | 30,384      |   |  |   | 31,870     |  
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Total revenues                                                                               |  |                             | 712,580     |   |                           |   | 559,480    |         |  |   | 1,437,868   |   |  |   | 1,110,169  |  
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Operating expenses:                                                                          |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                             | 405,809     |   |                           |   | 347,806    |         |  |   | 826,154     |   |  |   | 688,010    |  
|Initial public offering restricted stock awards                                              |  |                             | 4,165       |   |                           |   | 4,561      |         |  |   | 8,591       |   |  |   | 8,680      |  
|Reimbursable expenses                                                                        |  |                             | 15,494      |   |                           |   | 13,145     |         |  |   | 30,384      |   |  |   | 31,870     |  
|Other operating expenses                                                                     |  |                             | 193,599     |   |                           |   | 110,782    |         |  |   | 379,242     |   |  |   | 215,509    |  
|Selling, general and administrative expenses                                                 |  |                             | 44,679      |   |                           |   | 27,720     |         |  |   | 82,930      |   |  |   | 54,705     |  
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Total operating expenses                                                                     |  |                             | 663,746     |   |                           |   | 504,014    |         |  |   | 1,327,301   |   |  |   | 998,774    |  
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Operating income                                                                             |  |                             | 48,834      |   |                           |   | 55,466     |         |  |   | 110,567     |   |  |   | 111,395    |  
|Other expenses, net:                                                                         |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Interest expense                                                                             |  |                             | (6,167      | ) |                           |   | (4,964     | )       |  |   | (11,626     | ) |  |   | (9,800     | )
|Interest income                                                                              |  |                             | 2,495       |   |                           |   | 720        |         |  |   | 4,784       |   |  |   | 1,049      |  
|Other income (expense), net                                                                  |  |                             | 888         |   |                           |   | 554        |         |  |   | (7          | ) |  |   | (1,317     | )
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|                                                                                             |  |                             | (2,784      | ) |                           |   | (3,690     | )       |  |   | (6,849      | ) |  |   | (10,068    | )
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Income before income taxes                                                                   |  |                             | 46,050      |   |                           |   | 51,776     |         |  |   | 103,718     |   |  |   | 101,327    |  
|                                                                                             |  |                             |             |  
|Provision for income taxes                                                                   |  |                             | 18,887      |   |                           |   | 21,356     |         |  |   | 42,531      |   |  |   | 41,544     |  
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Net income                                                                                   |  | $                           | 27,163      |   |                           | $ | 30,420     |         |  | $ | 61,187      |   |  | $ | 59,783     |  
|                                                                                             |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Earnings per share:                                                                          |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Basic                                                                                        |  | $                           | 0.24        |   |                           | $ | 0.32       |         |  | $ | 0.53        |   |  | $ | 0.62       |  
|Diluted                                                                                      |  | $                           | 0.23        |   |                           | $ | 0.31       |         |  | $ | 0.52        |   |  | $ | 0.61       |  
|                                                                                             |  |                             |             |  
|Weighted average shares:                                                                     |  |                             |             |   |                           |   |            |         |  |   |             |   |  |   |            |  
|Basic                                                                                        |  |                             | 114,850,491 |   |                           |   | 95,871,216 |         |  |   | 116,230,426 |   |  |   | 95,833,724 |  
|Diluted                                                                                      |  |                             | 117,156,938 |   |                           |   | 98,329,673 |         |  |   | 118,392,947 |   |  |   | 97,937,705 |  



|(1) | On October 1, 2004, the Company merged with Exult, Inc. and its results are included in the Companys results from the closing date of October 1, 2004.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------



The accompanying notes are an integral part of
these financial statements.



5



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HEWITT ASSOCIATES, INC.

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(Dollars in thousands)



|                                                                                  |  |                           |          |   |      |   |          |  
|--------------------------------------------------------------------------------- |  | ------------------------- | -------- | - | ---- | - | -------- | -
|                                                                                  |  | Six Months EndedMarch 31, |         
|                                                                                  |  | 2005                      |          |   | 2004 |  
|Cash flows from operating activities:                                             |  |                           |          |   |      |   |          |  
|Net income                                                                        |  | $                         | 61,187   |   |      | $ | 59,783   |  
|Adjustments to reconcile net income to net cash provided by operating activities: |  |                           |          |   |      |   |          |  
|Depreciation                                                                      |  |                           | 42,628   |   |      |   | 38,256   |  
|Amortization                                                                      |  |                           | 31,728   |   |      |   | 21,465   |  
|Amortization of premiums and discounts on available-for-sale securities           |  |                           | 286      |   |      |   |         |  
|Impairment of customer relationship intangible assets                             |  |                           | 9,569    |   |      |   |         |  
|Initial public offering restricted stock awards                                   |  |                           | 7,606    |   |      |   | 7,477    |  
|Restricted stock awards                                                           |  |                           | 5,747    |   |      |   |         |  
|Director stock remuneration                                                       |  |                           | 304      |   |      |   | 140      |  
|Deferred income taxes                                                             |  |                           | 25,337   |   |      |   | (450     | )
|Realized losses on short-term investments, net                                    |  |                           | 236      |   |      |   |         |  
|Changes in operating assets and liabilities, net of effect of acquisition:        |  |                           |          |   |      |   |          |  
|Client receivables and unbilled work in process                                   |  |                           | 63,534   |   |      |   | 11,944   |  
|Prepaid expenses and other current assets                                         |  |                           | 4,659    |   |      |   | (1,705   | )
|Funds held for clients                                                            |  |                           | 276      |   |      |   | (12,773  | )
|Deferred contract costs                                                           |  |                           | (25,842  | ) |      |   | (7,228   | )
|Accounts payable                                                                  |  |                           | (1,167   | ) |      |   | (989     | )
|Accrued compensation and benefits                                                 |  |                           | (84,350  | ) |      |   | (26,937  | )
|Accrued expenses                                                                  |  |                           | (19,355  | ) |      |   | 8,865    |  
|Funds held for clients liability                                                  |  |                           | (276     | ) |      |   | 12,773   |  
|Advanced billings to clients                                                      |  |                           | 6,695    |   |      |   | 3,091    |  
|Deferred contract revenues                                                        |  |                           | (3,661   | ) |      |   | 621      |  
|Employee deferred compensation and accrued profit sharing                         |  |                           | (20,138  | ) |      |   | (19,993  | )
|Other long-term liabilities                                                       |  |                           | 4,321    |   |      |   | (1,036   | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by operating activities                                         |  |                           | 109,324  |   |      |   | 93,304   |  
|                                                                                  |  |                          
|Cash flows from investing activities:                                             |  |                           |          |   |      |   |          |  
|Purchases of short-term investments                                               |  |                           | (180,442 | ) |      |   | (324,825 | )
|Proceeds from sales of short-term investments                                     |  |                           | 419,252  |   |      |   | 300,645  |  
|Additions to property and equipment                                               |  |                           | (41,979  | ) |      |   | (29,529  | )
|Cash received from acquisitions, net of cash paid for transaction costs           |  |                           | 4,683    |   |      |   | (437     | )
|Increase in other assets                                                          |  |                           | (25,846  | ) |      |   | (14,988  | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash provided by (used in) investing activities                               |  |                           | 175,668  |   |      |   | (69,134  | )
|                                                                                  |  |                          
|Cash flows from financing activities:                                             |  |                           |          |   |      |   |          |  
|Proceeds from the exercise of stock options                                       |  |                           | 3,187    |   |      |   | 2,240    |  
|Short-term borrowings                                                             |  |                           | 63,593   |   |      |   | 14,619   |  
|Repayments of short-term borrowings                                               |  |                           | (27,754  | ) |      |   | (18,655  | )
|Repayments of long-term debt                                                      |  |                           | (3,000   | ) |      |   | (3,000   | )
|Repayments of capital lease obligations                                           |  |                           | (2,895   | ) |      |   | (4,456   | )
|Purchase of Class A common shares into treasury                                   |  |                           | (369,020 | ) |      |   | (70      | )
|                                                                                  |  |                           |          |   |      |   |          |  
|Net cash used in financing activities                                             |  |                           | (335,889 | ) |      |   | (9,322   | )
|                                                                                  |  |                          
|Effect of exchange rate changes on cash and cash equivalents                      |  |                           | 1,679    |   |      |   | 1,115    |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Net increase (decrease) in cash and cash equivalents                              |  |                           | (49,218  | ) |      |   | 15,963   |  
|                                                                                  |  |                          
|Cash and cash equivalents, beginning of period                                    |  |                           | 129,481  |   |      |   | 67,785   |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Cash and cash equivalents, end of period                                          |  | $                         | 80,263   |   |      | $ | 83,748   |  
|                                                                                  |  |                           |          |   |      |   |          |  
|Supplementary disclosure of cash paid during the period:                          |  |                           |          |   |      |   |          |  
|Interest paid                                                                     |  | $                         | 10,813   |   |      | $ | 9,837    |  
|Income taxes paid                                                                 |  | $                         | 28,126   |   |      | $ | 37,533   |  



The accompanying notes
are an integral part of these financial statements.



6



---

HEWITT ASSOCIATES, INC.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

MARCH 31, 2005 AND 2004

(Unaudited)

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



|1. | Description of Business
|-- | -----------------------



Hewitt Associates, Inc., a Delaware corporation, and its subsidiaries (Hewitt or the Company) provide global human resources outsourcing and
consulting services. The Companys outsourcing business is comprised of employee benefit plan and human resources business process outsourcing (HR BPO) services. Hewitts consulting business is comprised of advisory services in
health management, retirement and financial management, talent and organization consulting and other consulting.



|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 for quarterly reports on Form 10-Q. In the
opinion of management, these financial statements include all adjustments necessary to present fairly the financial position, results of operations and cash flows as of March 31, 2005, 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 generally accepted accounting principles 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. It is suggested that these
interim financial statements 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-K for the fiscal year ended September 30, 2004, as filed with the Securities and Exchange Commission. Certain previously reported 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:



Revenue
Recognition



Revenues include fees generated from outsourcing contracts
and from consulting services provided to the Companys clients. Revenues from sales or licensing of software are not material. The Companys outsourcing contracts typically have three- to five-year terms for benefits services and seven- to
ten-year terms for HR BPO services. The Company recognizes revenues for non-refundable, up-front implementation fees evenly over the period between the initiation of ongoing services through the end of the contract term (on a straight-line basis).
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 prior to scheduled termination, both the remaining deferred implementation revenues and related costs are recognized through 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 recognized on a
monthly basis, typically based on the number of plan participants, employees or services and often with a minimum monthly fee. Ongoing service fees from fixed price contracts are recognized on a straight-line basis. Services provided outside the
scope of our outsourcing contracts are recognized on a time-and-material or fixed fee basis.



7



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The Companys clients typically pay for consulting services either on a time-and-materials or fixed-fee basis.
Revenues are recognized under time-and-material based arrangements monthly as services are provided. On fixed-fee engagements, revenues are recognized either as services are provided using the proportional performance method or at the completion of
a project based on facts and circumstances of the client arrangement.



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



In connection with the Emerging Issues Task Force (EITF) Issue No. 00-21, Revenue Arrangements with Multiple Deliverables, the Company has contracts for multiple services primarily in its
Outsourcing segment. In some of these contracts, the stand-alone deliverables, which may include outsourcing core services such as Defined Benefit, Health & Welfare or Defined Contribution Benefit Plan Administration, stand-alone ancillary
services, such as Your Total Rewards, or other consulting services, are sufficiently separable and there exists sufficient evidence of their fair values to separately account for all of the stand-alone deliverables using their relative fair value.
In these contracts, the outsourcing services are recognized as revenue over the ongoing service period. Revenues for consulting services provided in connection with these outsourcing engagements are recognized at the time services are provided. In
all other contracts with multiple services, all fees received for services provided in connection with outsourcing engagements are recognized as revenue over the ongoing service period under the contract.



Revenues earned in excess of billings are recorded as unbilled work in process. 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 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, changes the delivered product, 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.



Deferred Contract Costs and Deferred Contract Revenues



For new outsourcing services, up-front implementation efforts may be required to set up clients and their human resource or benefit programs on the Companys systems and operating processes. The direct
implementation or set up costs and any up-front set up fees are deferred and recognized into earnings over the life of the outsourcing agreement. Specific, incremental and direct costs of implementation are deferred and recognized as
primarily compensation and related expenses evenly over the period from the initiation of ongoing services through the end of the contract term. Such costs may include costs for coding or creating customizations of systems, costs for conversion of
client data and costs to negotiate contract terms. Implementation fees may be received either up front or over the ongoing services period in the fee per participant. By deferring the up-front set up fees over the ongoing services period, all set up
revenues are recognized evenly over the contract term along with the corresponding deferred contract costs. Additionally, at March 31, 2005 and September 30, 2004, a small portion of the deferred contract revenues includes deferred revenue on
payroll software maintenance agreements.



Funds Held for Clients



A small portion of the Companys outsourcing agreements requires the
Company to hold client funds. The increase in the funds held for clients at March 31, 2005 from September 30, 2004 is primarily due to the Companys merger with Exult, Inc. (Note 5) and the timing of when client obligations become due relative
to the receipt of client funds.



8



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There is usually a short period of time between when we receive funds and when we pay obligations on behalf of clients. Any difference, however, may result
in a significant level of funds held for clients, particularly, at the end of the month.



Performance-Based Compensation



The
Companys compensation program includes a performance-based component that is determined by management subject to annual review by the Compensation and Leadership Committee of the Board of Directors. 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 quarterly and annual results as compared to internal targets, and takes into account other factors, including industry trends 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 Company, team or individual. As such, accrued amounts are subject to change in future periods if
actual future performance varies from performance levels anticipated in prior interim periods.



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, asset
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.



Goodwill and Intangible Assets



Goodwill is not amortized but is reviewed for impairment annually or more frequently if
indicators arise. The evaluation is based upon a comparison of the estimated fair value of the reporting unit of the Companys business to which the goodwill has been assigned, to the sum of the carrying value of the assets and liabilities of
that unit. The fair values used in this evaluation are estimated based upon discounted future cash flow projections for the unit. These cash flow projections are based upon a number of estimates and assumptions. Intangible assets with definite lives
are amortized over their estimated useful lives and are reviewed for impairment if indicators of impairment arise.



Stock-Based Compensation



The Company accounts for its stock-based compensation plans under Statement of Financial Accounting Standards (SFAS) No. 123, Accounting for Stock-Based
Compensation,as amended by SFAS No. 148, Accounting for Stock-Based Compensation-Transition and Disclosure,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. The Company applies the intrinsic value
method for accounting for stock-based compensation as outlined in APB Opinion No. 25.



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 initially 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 remaining unvested shares
are subject to forfeiture and restrictions on sale or transfer for four years from the grant date.



9



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The Company also grants nonqualified stock options at an exercise price equal to the fair market value of the
Companys stock on the grant date. Because 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, applying the Black Scholes valuation method, had the estimated fair value of the stock options been amortized to compensation expense over the stock options vesting period,
the Companys pro forma net income and earnings per share would have been as follows:



|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|------------------------------------------------------ |  | --------------------------- | ------ | - | ------------------------- | - | ------ | ---- |  | - | ------- | - |  | - | ------ | -
|                                                       |  | Three Months EndedMarch 31, |        |   | Six Months EndedMarch 31, |  
|                                                       |  | 2005                        |        |   | 2004                      |   |        | 2005 |  |   | 2004    |  
|Net income:                                            |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|As reported                                            |  | $                           | 27,163 |   |                           | $ | 30,420 |      |  | $ | 61,187  |   |  | $ | 59,783 |  
|Reported stock-based compensation expense, net of tax  |  |                             | 4,080  |   |                           |   | 2,691  |      |  |   | 8,695   |   |  |   | 5,121  |  
|Pro forma stock-based compensation expense, net of tax |  |                             | (7,497 | ) |                           |   | (4,809 | )    |  |   | (15,611 | ) |  |   | (9,391 | )
|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|Pro forma net income                                   |  | $                           | 23,746 |   |                           | $ | 28,302 |      |  | $ | 54,271  |   |  | $ | 55,513 |  
|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|Net income per share  basic:                          |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|As reported                                            |  | $                           | 0.24   |   |                           | $ | 0.32   |      |  | $ | 0.53    |   |  | $ | 0.62   |  
|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|Pro forma                                              |  | $                           | 0.21   |   |                           | $ | 0.30   |      |  | $ | 0.47    |   |  | $ | 0.58   |  
|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|Net income per share  diluted:                        |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|As reported                                            |  | $                           | 0.23   |   |                           | $ | 0.31   |      |  | $ | 0.52    |   |  | $ | 0.61   |  
|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  
|Pro forma                                              |  | $                           | 0.20   |   |                           | $ | 0.29   |      |  | $ | 0.46    |   |  | $ | 0.57   |  
|                                                       |  |                             |        |   |                           |   |        |      |  |   |         |   |  |   |        |  



New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board
(FASB) issued SFAS No. 123(R), Share-Based Payment, which eliminates the ability to account for share-based compensation transactions using the intrinsic value method prescribed in APB Opinion No. 25, and generally requires that
such transactions be accounted for using a fair value-based method. The SEC recently extended the effective date of SFAS No. 123(R), such that the Company would begin to apply the Statement on October 1, 2005, the beginning of the Companys
2006 fiscal year. The Company is currently evaluating the requirements and impact of SFAS No. 123(R) on its consolidated results of operations and financial position.



On October 22, 2004, the American Jobs Creation Act of 2004 (AJCA) became effective. The AJCA provides a temporary
incentive for U.S. multinationals to repatriate accumulated earnings outside the United States by providing an 85 percent dividends received deduction for certain dividends from controlled foreign corporations. The AJCA applies to repatriated
foreign earnings in either the Companys fiscal year ending September 30, 2005 or the Companys fiscal year ending September 30, 2006.



In December 2004, the FASB issued FASB Statement of Position 109-2 (FSP 109-2), Accounting and Disclosure Guidance for the Foreign Earnings Repatriation
Provision within the American Jobs Creation Act of 2004, which provides accounting and disclosure guidance for the repatriation provision. FSP 109-2 is effective immediately, however, the Company is allowed time beyond the financial reporting period
of enactment to evaluate the effect of the AJCA on its plan for reinvestment or repatriation of foreign earnings, as it applies to the application of SFAS No. 109. The Company plans to repatriate $3,000 in dividends, which will result in an
estimated additional $200 tax liability in the quarter ended June 30, 2005.



In
September 2004, the FASBs Emerging Issue Task Force (EITF) reached a consensus on EITF Issue No. 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share. The Task Force reached a



10



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conclusion that Contingently Convertible Instruments (Co-Cos) should be included in diluted earnings per share computations, if dilutive,
regardless of whether the market price trigger or other contingent feature has been met. Through September 30, 2004, EITF Issue No. 04-08 had no effect on the Company. With the merger with Exult, Inc. and the assumed obligation of $102,300 of their
convertible senior notes on October 1, 2004, the Companys earnings per share computations include the convertible notes to the extent that the notes are determined to be dilutive. See Note 4 for additional information on earnings per shares
and Note 5 for additional information on the merger with Exult, Inc.



|3. | Tender Offer
|-- | ------------



On June 16, 2004, the Company announced that its Board of Directors authorized the Company to repurchase up to an aggregate amount of $150,000 of Hewitts Class A, Class B and Class C common stock, depending on
market conditions and other customary factors, in light of the Companys cash position and expected future cash flows. Through February 4, 2005, the Company had repurchased 2,393,450 shares of its Class A common stock under this authorization
for $68,234 at an average price per share of $28.51.



On February 4, 2005, the
Company announced that its Board of Directors authorized the replacement of the $150,000 share repurchase program with a plan to repurchase up to $300,000 of Hewitts Class A, Class B and Class C common shares, in the next twelve months
depending on market conditions and other customary factors.



On February 11,
2005, the Company announced that its Board of Directors had authorized the repurchase of up to 8 million shares of its Class A, Class B and Class C common stock through a modified Dutch Auction tender offer including the right to
purchase additional shares for a total repurchase of up to $300,000. The tender offer expired on March 16, 2005 and the Company repurchased 6,662,954 Class A shares and 3,681,872 Class B shares, or 10,344,826 shares in total, at a purchase price of
$29.00 per share. Upon repurchase, the Class B shares were converted into Class A shares. The aggregate amount paid for the shares was $300,000. The Company also incurred approximately $526 of estimated tender-related professional expenses. A total
of $300,526 was recorded as treasury stock, at cost.



|4. | Earnings Per Share
|-- | ------------------



Basic earnings per share (EPS) is calculated by dividing net income by the weighted-average number of shares of common stock outstanding. Diluted EPS includes the components of basic EPS and also gives
effect to dilutive common stock equivalents. Treasury stock is not considered outstanding for either basic or diluted EPS as weighted from the date the shares were placed into treasury. For purposes of calculating basic and diluted earnings per
share, vested restricted stock awards and stock issued upon exercise of stock options and warrants are considered outstanding. For diluted EPS, a portion of unvested restricted stock awards, unexercised stock options and warrants and outstanding
convertible debt securities that are in-the-money are also considered in the calculation under the treasury share method. Restricted stock awards vest 25 percent on each anniversary of the grant date and are not considered outstanding in
basic earnings per share until the vesting date.



Each share of the
Companys Class B and Class C common stock is convertible into Class A common stock subject to certain restrictions and has been included in both basic and diluted outstanding shares.



11



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The following table presents computations of basic and diluted EPS in accordance with accounting principles generally
accepted in the United States of America:



|                                                              |  |                             |             |                           |   |            |  |      |             |  |   |           
|------------------------------------------------------------- |  | --------------------------- | ----------- | ------------------------- | - | ---------- |  | ---- | ----------- |  | - | ----------
|                                                              |  | Three Months EndedMarch 31, |             | Six Months EndedMarch 31,
|                                                              |  | 2005                        |             | 2004                      |   | 2005       |  | 2004
|Net income as reported                                        |  | $                           | 27,163      |                           | $ | 30,420     |  | $    | 61,187      |  | $ | 59,783    
|                                                              |  |                             |             |                           |   |            |  |      |             |  |   |           
|Weighted-average number of shares of common stock for basic   |  |                             | 114,850,491 |                           |   | 95,871,216 |  |      | 116,230,426 |  |   | 95,833,724
|                                                              |  |                             |             |                          
|Incremental effect of dilutive common stock equivalents:      |  |                             |             |                           |   |            |  |      |             |  |   |           
|Unvested restricted stock awards                              |  |                             | 939,181     |                           |   | 933,591    |  |      | 852,813     |  |   | 814,827   
|Unexercised in-the-money stock options                        |  |                             | 1,367,266   |                           |   | 1,524,866  |  |      | 1,309,708   |  |   | 1,289,154 
|                                                              |  |                             |             |                           |   |            |  |      |             |  |   |           
|Weighted-average number of shares of common stock for diluted |  |                             | 117,156,938 |                           |   | 98,329,673 |  |      | 118,392,947 |  |   | 97,937,705
|                                                              |  |                             |             |                           |   |            |  |      |             |  |   |           
|Earnings per sharebasic                                      |  | $                           | 0.24        |                           | $ | 0.32       |  | $    | 0.53        |  | $ | 0.62      
|                                                              |  |                             |             |                           |   |            |  |      |             |  |   |           
|Earnings per sharediluted                                    |  | $                           | 0.23        |                           | $ | 0.31       |  | $    | 0.52        |  | $ | 0.61      
|                                                              |  |                             |             |                           |   |            |  |      |             |  |   |           



Debt securities convertible into
1,870,748 weighted-average shares of Class A common stock were outstanding in the three and six months ended March 31, 2005, but were not included in the computation of diluted earnings per share because the effect of including the convertible debt
securities would be antidilutive, as the effect of the assumed discontinuation of interest expense would be greater than the addition of assumed converted shares. Warrants to purchase 200,000 weighted-average shares of Class A common stock were
outstanding in the three and six months ended March 31, 2005, but were not included in the computation of diluted earnings per share because the conversion price of the warrants was greater than the average market price of the Class A common stock.
The Company did not have any convertible debt securities or warrants in the comparable prior-year periods. Stock options to purchase 55,357 and 56,477 weighted-average shares of Class A common stock were outstanding in the three months ended, and
55,797 and 52,782 weighted-average shares were outstanding in the six months ended March 31, 2005 and 2004, respectively, but were not included in the computation of diluted earnings per share because the exercise prices of the options were greater
than the average market price of the Class A common stock.



|5. | Exult Merger
|-- | ------------



On June 15, 2004, the Company entered into an Agreement and Plan of Merger with Exult, Inc. (Exult), a leading provider of HR business process outsourcing. On October 1, 2004, after obtaining regulatory
and stockholder approvals, the merger was completed. A wholly owned subsidiary of the Company, Eagle Merger Corp., was merged with and into Exult, and Exult became the surviving corporation and a wholly owned subsidiary of the Company. Under the
Agreement, each share of Exult common stock outstanding immediately prior to the effective time of the merger was converted into 0.2 shares of Hewitt Class A common stock. The purchase price of $684,969 consisted of the issuance of 22,159,921 shares
of Hewitt Class A common stock valued at $653,939, the settlement payment for the cancellation of all Exult unexercised stock options of $23,545, transaction costs of $6,512, and the estimated fair value of the assumed Exult stock warrants of $973.
The fair value of the shares of Hewitt Class A common stock of $29.51 was based upon the average of the closing prices of the Companys Class A common stock for the period commencing two trading days before, and ending two trading days after,
June 16, 2004, the date of the announcement of the merger. The Company estimated the fair value of the assumed warrants by utilizing the Black-Scholes method.



The merger has been accounted for as a purchase business combination. Under the purchase method of accounting, the assets acquired and liabilities assumed from Exult
at the date of merger are recorded at their respective fair values as of the merger date in the consolidated financial statements. The preliminary allocation of the purchase price resulted in the allocation of $367,465 to goodwill, all of which was
assigned to the Outsourcing segment. No



12



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portion of this goodwill is expected to be deductible for tax purposes. The combined results of operations from the merger are included in the consolidated
financial statements within the Outsourcing segment from October 1, 2004, the date of the merger.



As of the merger date, the Company determined the following estimated fair values for the assets purchased and liabilities assumed. The determination of estimated fair value requires management to make significant
estimates and assumptions. The Company engaged an independent third party to assist in the valuation of assets. Although the Company does not anticipate any significant adjustments, to the extent that the estimates used in the purchase accounting
need to be refined, the Company will do so upon making that determination but not later than one year from the date of merger.



|                                                                |  |                 |          |   |  |   |        
|--------------------------------------------------------------- |  | --------------- | -------- | - |  | - | -------
|                                                                |  | October 1, 2004
|Total purchase price                                            |  |                 |          |   |  | $ | 684,969
|                                                                |  |                
|Less net assets acquired:                                       |  |                 |          |   |  |   |        
|Cash and cash equivalents                                       |  | $               | 31,585   |   |  |   |        
|Short-term investments                                          |  |                 | 110,412  |   |  |   |        
|Client receivables and unbilled revenues                        |  |                 | 80,137   |   |  |   |        
|Prepaid expenses and other current assets                       |  |                 | 47,003   |   |  |   |        
|Property and equipment                                          |  |                 | 14,355   |   |  |   |        
|Contractual customer relationships (10-15 year estimated lives) |  |                 | 140,490  |   |  |   |        
|Core technology (10 year estimated life)                        |  |                 | 47,000   |   |  |   |        
|Purchased software (3-5 year estimated lives)                   |  |                 | 7,210    |   |  |   |        
|Tradenames (10 year estimated life)                             |  |                 | 2,000    |   |  |   |        
|Deferred tax assets, net                                        |  |                 | 62,336   |   |  |   |        
|Convertible senior notes                                        |  |                 | (102,300 | ) |  |   |        
|Accounts payable and accrued expenses                           |  |                 | (120,268 | ) |  |   |        
|Other assets and liabilities, net                               |  |                 | (2,456   | ) |  |   |        
|                                                                |  |                 |          |   |  |   |        
|                                                                |  |                 |          |   |  |   | 317,504
|                                                                |  |                 |          |   |  |   |        
|Preliminary allocation of goodwill resulting from merger        |  |                 |          |   |  | $ | 367,465
|                                                                |  |                 |          |   |  |   |        



In connection with the merger, the
Company formulated facility exit and severance strategies. The Company estimated $13,721 of liabilities for costs related to Exult facilities consolidation, the related impact on Exult outstanding real estate leases and Exult involuntary employee
terminations and relocations. These strategies are not yet finalized and the Company may take further action such as additional or different workforce reductions, relocations or facility exit strategies. The Company expects the strategies and
planned related actions to be finalized by the end of fiscal 2005, and when taken, to result in adjustments to goodwill.



|                               |  |                                       |        |  
|------------------------------ |  | ------------------------------------- | ------ | -
|                               |  | Facility ExitCosts andSeverance Costs |       
|Balance October 1, 2004        |  | $                                     | 13,721 |  
|Cash payments                  |  |                                       | (2,351 | )
|                               |  |                                       |        |  
|Balance December 31, 2004      |  |                                       | 11,370 |  
|Cash payments                  |  |                                       | (1,002 | )
|Adjustments to the estimate(1) |  |                                       | 788    |  
|Other(2)                       |  |                                       | 292    |  
|                               |  |                                       |        |  
|Balance March 31, 2005         |  | $                                     | 11,448 |  
|                               |  |                                       |        |  



|(1) | Changes in the estimated Facility Exit Costs accrual resulted from the inclusion of additional facility exit costs, primarily related to revised rent expense estimates.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | Other represents foreign currency translation and imputed interest.
|--- | -------------------------------------------------------------------



13



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As part of the merger, the Company assumed $110,000 of Exults 2.5% convertible senior notes, due on October 1,
2010, which may be converted to 1,870,748 shares of Hewitt Class A common stock at the current conversion price. In connection with the merger, the Company granted 692,139 shares of Class A unvested restricted stock and restricted stock units to
certain Exult employees. These awards were valued at $18,535 on the October 1, 2004 grant date (a price of $26.78 per share). This amount was recorded as unearned compensation and is being expensed ratably through the vesting date of June 27, 2006.



The following unaudited pro forma combined income statements with explanatory
notes present illustrative combined unaudited statements of operations of Hewitt and Exult for the three and six months ended March 31, 2004, giving effect to the merger as if it had been completed on October 1, 2003, the beginning of Hewitts
2004 fiscal year. The unaudited pro forma income statements have been derived from and should be read in conjunction with the historical consolidated financial statements and the related notes of both Hewitt and Exult. The unaudited pro forma
combined financial information shows the impact of the merger with Exult on Hewitts historical results of operations applying the purchase method of accounting. Under this method of accounting, the results of operations of Hewitt and Exult
were combined from the merger date forward.



The unaudited pro forma combined
income statements are presented for illustrative purposes only and are not indicative of the results of operations that might have occurred had the merger actually taken place as of the date specified, or that may be expected to occur in the future.
They do not assume any benefits from cost savings or synergies and they do not reflect any integration costs that the combined company realized or incurred after the merger. The unaudited pro forma combined income statements do reflect the estimated
effect of Exults adoption of Hewitts accounting policy of recognizing revenue based upon delivery of services. Hewitts ongoing service revenues are typically billed and recognized on a monthly basis as services are rendered.
Exults policy was to recognize revenue for long-term, multi-deliverable process management contracts for each reporting period based on the proportion of contract costs incurred to date to then-current estimates of total contract costs. The
effect of changes to total estimated contract revenues or costs was recognized in the period in which the determination was made that facts and circumstances dictated a change of estimate. For a more detailed description of Hewitts and
Exults revenue recognition policies, please refer to the historical consolidated financial statements and the related notes of Hewitt and Exult.



14



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Pro Forma Combined Income Statement

(unaudited)



|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|-------------------------------------------------------------------------------------------- |  | --------------------------------- | ---------- | - | ----- | - | ------- | ----------------------- |  | - | -------------------- | - |  | ------------------------------- | ---------- | ---- |  | - | ----------- | -
|                                                                                             |  | Three Months Ended March 31, 2004 |           
|(in thousands except share and per share data)                                               |  | Hewitt                            |            |   | Exult |   |         | Exult Reclassifications |  |   | Pro FormaAdjustments |   |  | Hewitt/Exult Pro Forma Combined |           
|Revenues:                                                                                    |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Revenues before reimbursements (net revenues)                                                |  | $                                 | 546,335    |   |       | $ | 97,794  |                         |  | $ |                     |   |  | $                               | 9,295      | (A)  |  | $ | 651,725     |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (3,237     | )(B) |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 1,538      | (C)  |  |   |             |  
|Reimbursements                                                                               |  |                                   | 13,145     |   |       |   |        |                         |  |   |                     |   |  |                                 |           |      |  |   | 13,145      |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Total revenues                                                                               |  |                                   | 559,480    |   |       |   | 97,794  |                         |  |   |                     |   |  |                                 | 7,596      |      |  |   | 664,870     |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Operating Expenses:                                                                          |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Cost of revenues                                                                             |  |                                   |           |   |       |   | 106,254 |                         |  |   | (106,254             | ) |  |                                 |           |      |  |   |            |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                                   | 347,806    |   |       |   |        |                         |  |   | 41,873               |   |  |                                 | (309       | )(D) |  |   | 389,552     |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 182        | (D)  |  |   |             |  
|Initial public offering restricted stock awards                                              |  |                                   | 4,561      |   |       |   |        |                         |  |   |                     |   |  |                                 |           |      |  |   | 4,561       |  
|Reimbursable expenses                                                                        |  |                                   | 13,145     |   |       |   |        |                         |  |   |                     |   |  |                                 |           |      |  |   | 13,145      |  
|Other operating expenses                                                                     |  |                                   | 110,782    |   |       |   |        |                         |  |   | 66,928               |   |  |                                 | (3,237     | )(B) |  |   | 172,217     |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (3,257     | )(C) |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 2,238      | (C)  |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (2,830     | )(E) |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 1,593      | (E)  |  |   |             |  
|                                                                                             |  |                                   |            |   |      
|Selling, general and administrative expenses                                                 |  |                                   | 27,720     |   |       |   | 9,390   |                         |  |   | (2,476               | ) |  |                                 | (14        | )(C) |  |   | 37,618      |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 2,998      | (C)  |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Total operating expenses                                                                     |  |                                   | 504,014    |   |       |   | 115,644 |                         |  |   | 71                   |   |  |                                 | (2,636     | )    |  |   | 617,093     |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Operating income (loss)                                                                      |  |                                   | 55,466     |   |       |   | (17,850 | )                       |  |   | (71                  | ) |  |                                 | 10,232     |      |  |   | 47,777      |  
|                                                                                             |  |                                   |            |   |      
|Other expense, net                                                                           |  |                                   | (3,690     | ) |       |   | (361    | )                       |  |   | 71                   |   |  |                                 | (111       | )(F) |  |   | (4,242      | )
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 835        | (G)  |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (986       | )(G) |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Loss from continuing operations before income taxes                                          |  |                                   |            |   |       |   | (18,211 | )                       |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Income before income taxes                                                                   |  |                                   | 51,776     |   |       |   |         |                         |  |   |                     |   |  |                                 | 9,970      |      |  |   | 43,535      |  
|                                                                                             |  |                                   |            |   |      
|Provision for income taxes                                                                   |  |                                   | 21,356     |   |       |   | 118     |                         |  |   |                     |   |  |                                 | (3,625     | )(H) |  |   | 17,849      |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Loss from continuing operations                                                              |  |                                   |            |   |       | $ | (18,329 | )                       |  |   |                      |   |  |                                 |            |      |  |   |             |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Net income                                                                                   |  | $                                 | 30,420     |   |       |   |         |                         |  | $ |                     |   |  | $                               | 13,595     |      |  | $ | 25,686      |  
|                                                                                             |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Earnings per share:                                                                          |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Basic                                                                                        |  | $                                 | 0.32       |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  | $ | 0.22        |  
|Diluted                                                                                      |  | $                                 | 0.31       |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  | $ | 0.21        |  
|                                                                                             |  |                                   |            |   |      
|Weighted average shares:                                                                     |  |                                   |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Basic                                                                                        |  |                                   | 95,871,216 |   |       |   |         |                         |  |   |                      |   |  |                                 | 22,092,826 | (I)  |  |   | 117,964,042 |  
|Diluted                                                                                      |  |                                   | 98,329,673 |   |       |   |         |                         |  |   |                      |   |  |                                 | 22,327,527 | (I)  |  |   | 120,657,200 |  



Certain amounts in the historical
consolidated income statements of Exult have been reclassified to conform to Hewitts current presentation. These are labeled as Exult Reclassifications in the unaudited pro forma combined income statements. Discontinued operations reported in
Exults historical consolidated statements of income have been excluded.



15



---

Pro Forma Combined Income Statement

(unaudited)



|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|-------------------------------------------------------------------------------------------- |  | ------------------------------- | ---------- | - | ----- | - | ------- | ----------------------- |  | - | -------------------- | - |  | ------------------------------- | ---------- | ---- |  | - | ----------- | -
|                                                                                             |  | Six Months Ended March 31, 2004 |           
|(in thousands except share and per share data)                                               |  | Hewitt                          |            |   | Exult |   |         | Exult Reclassifications |  |   | Pro FormaAdjustments |   |  | Hewitt/Exult Pro Forma Combined |           
|Revenues:                                                                                    |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Revenues before reimbursements (net revenues)                                                |  | $                               | 1,078,299  |   |       | $ | 215,740 |                         |  | $ |                     |   |  | $                               | 3,397      | (A)  |  | $ | 1,293,572   |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (6,949     | )(B) |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 3,085      | (C)  |  |   |             |  
|Reimbursements                                                                               |  |                                 | 31,870     |   |       |   |        |                         |  |   |                     |   |  |                                 |           |      |  |   | 31,870      |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Total revenues                                                                               |  |                                 | 1,110,169  |   |       |   | 215,740 |                         |  |   |                     |   |  |                                 | (467       | )    |  |   | 1,325,442   |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Operating Expenses:                                                                          |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Cost of revenues                                                                             |  |                                 |           |   |       |   | 210,436 |                         |  |   | (210,436             | ) |  |                                 |           |      |  |   |            |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                                 | 688,010    |   |       |   |        |                         |  |   | 81,789               |   |  |                                 | (579       | )(D) |  |   | 769,506     |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 286        | (D)  |  |   |             |  
|Initial public offering restricted stock awards                                              |  |                                 | 8,680      |   |       |   |        |                         |  |   |                     |   |  |                                 |           |      |  |   | 8,680       |  
|Reimbursable expenses                                                                        |  |                                 | 31,870     |   |       |   |        |                         |  |   |                     |   |  |                                 |           |      |  |   | 31,870      |  
|Other operating expenses                                                                     |  |                                 | 215,509    |   |       |   |        |                         |  |   | 132,890              |   |  |                                 | (6,949     | )(B) |  |   | 337,594     |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (6,221     | )(C) |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 4,476      | (C)  |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (5,947     | )(E) |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 3,836      | (E)  |  |   |             |  
|Selling, general and administrative expenses                                                 |  |                                 | 54,705     |   |       |   | 16,761  |                         |  |   | (3,994               | ) |  |                                 | (26        | )(C) |  |   | 73,442      |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 5,996      | (C)  |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Total operating expenses                                                                     |  |                                 | 998,774    |   |       |   | 227,197 |                         |  |   | 249                  |   |  |                                 | (5,128     | )    |  |   | 1,221,092   |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Operating income (loss)                                                                      |  |                                 | 111,395    |   |       |   | (11,457 | )                       |  |   | (249                 | ) |  |                                 | 4,661      |      |  |   | 104,350     |  
|                                                                                             |  |                                 |            |   |      
|Other expense, net                                                                           |  |                                 | (10,068    | ) |       |   | (772    | )                       |  |   | 249                  |   |  |                                 | (222       | )(F) |  |   | (11,112     | )
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | 1,677      | (G)  |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 | (1,976     | )(G) |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Loss from continuing operations before income taxes                                          |  |                                 |            |   |       |   | (12,229 | )                       |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Income before income taxes                                                                   |  |                                 | 101,327    |   |       |   |         |                         |  |   |                     |   |  |                                 | 4,140      |      |  |   | 93,238      |  
|                                                                                             |  |                                 |            |   |      
|Provision for income taxes                                                                   |  |                                 | 41,544     |   |       |   | 118     |                         |  |   |                     |   |  |                                 | (3,435     | )(H) |  |   | 38,227      |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Loss from continuing operations                                                              |  |                                 |            |   |       | $ | (12,347 | )                       |  |   |                      |   |  |                                 |            |      |  |   |             |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Net income                                                                                   |  | $                               | 59,783     |   |       |   |         |                         |  | $ |                     |   |  | $                               | 7,575      |      |  | $ | 55,011      |  
|                                                                                             |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Earnings per share:                                                                          |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Basic                                                                                        |  | $                               | 0.62       |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  | $ | 0.47        |  
|Diluted                                                                                      |  | $                               | 0.61       |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  | $ | 0.46        |  
|                                                                                             |  |                                 |            |   |      
|Weighted average shares:                                                                     |  |                                 |            |   |       |   |         |                         |  |   |                      |   |  |                                 |            |      |  |   |             |  
|Basic                                                                                        |  |                                 | 95,833,724 |   |       |   |         |                         |  |   |                      |   |  |                                 | 22,092,826 | (I)  |  |   | 117,926,550 |  
|Diluted                                                                                      |  |                                 | 97,937,705 |   |       |   |         |                         |  |   |                      |   |  |                                 | 22,325,234 | (I)  |  |   | 120,262,939 |  



Certain amounts in the historical
consolidated income statements of Exult have been reclassified to conform to Hewitts current presentation. These are labeled as Exult Reclassifications in the unaudited pro forma combined income statements. Discontinued operations reported in
Exults historical consolidated statements of income have been excluded.



16



---

The unaudited pro forma income statements presented do not indicate the combined results of operations that might have
occurred had the pro forma adjustments actually taken place as of the dates specified, nor are they indicative of the results of operations in future periods of the combined company.



Pro Forma Adjustments



The pro forma adjustments reflected in the unaudited pro forma combined income statements are as follows:



|(A) | This adjustment reflects the estimated effect of Exults adoption of Hewitts accounting policy of recognizing revenue based upon delivery of services. Hewitts
ongoing service revenues are typically recognized on a monthly basis as services are rendered. Exults policy was to recognize revenue for long-term multi-deliverable process management contracts for each reporting period based on the
proportion of costs incurred to date to then-current estimates of total contract costs. The effect of changes to total estimated contract revenues or costs was recognized in the period in which the determination was made that facts and circumstances
dictated a change of estimate. The effect of this adjustment is to increase net revenues by $9,295 and $3,397 for the three and six months ended March 31, 2004, respectively. (This entry also has the effect of removing the $23.9 million Bank of
America termination adjustment that Exult recorded in their quarter ended March 31, 2004.)
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(B) | These adjustments reflect the elimination of Hewitt services sold to Exult. All significant intercompany balances and transactions have been eliminated from the unaudited pro forma
combined income statements.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(C) | These adjustments reflect the write off of Exults historical amortization of intangible assets and record the amortization of intangible assets (other than goodwill) resulting
from the merger. The impact of these adjustments is to increase amortization expense as follows:
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                 |  |                                   |        |   |                                 |   |         |  
|-------------------------------- |  | --------------------------------- | ------ | - | ------------------------------- | - | ------- | -
|                                 |  | Three Months Ended March 31, 2004 |        |   | Six Months Ended March 31, 2004 |  
|Historical amortization expense  |  | $                                 | 4,809  |   |                                 | $ | 9,332   |  
|Pro forma amortization expense   |  |                                   | (5,236 | ) |                                 |   | (10,472 | )
|                                 |  |                                   |        |   |                                 |   |         |  
|Increase in amortization expense |  | $                                 | (427   | ) |                                 | $ | (1,140  | )
|                                 |  |                                   |        |   |                                 |   |         |  



The reversal of
amortization of certain intangible assets which were recorded by Exult as a reduction of revenue over the applicable contract term resulted in a net increase to net revenues of $1,538 and $3,085 for the three and six months ended March 31, 2004,
respectively.



|(D) | This adjustment eliminates the amortization of unearned compensation on Exults heritage restricted stock awards. In connection with the merger, the majority of Exults
heritage restricted stock was converted into Hewitt Class A common stock, keeping the original restrictions and vesting periods. As a result, the adjustment also records the amortization of the unearned compensation of the converted restricted
stock.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(E) | These adjustments reflect the write off of Exults historical depreciation of property and equipment and record the depreciation of property and equipment acquired in the
merger based on their estimated fair values and useful lives. The impact of these adjustments is to decrease depreciation expense as follows:
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|                                 |  |                                   |        |   |                                 |   |        |  
|-------------------------------- |  | --------------------------------- | ------ | - | ------------------------------- | - | ------ | -
|                                 |  | Three Months Ended March 31, 2004 |        |   | Six Months Ended March 31, 2004 |  
|Historical depreciation expense  |  | $                                 | 2,830  |   |                                 | $ | 5,947  |  
|Pro forma depreciation expense   |  |                                   | (1,593 | ) |                                 |   | (3,836 | )
|                                 |  |                                   |        |   |                                 |   |        |  
|Decrease in depreciation expense |  | $                                 | 1,237  |   |                                 | $ | 2,111  |  
|                                 |  |                                   |        |   |                                 |   |        |  



|(F) | This adjustment reduces interest income as a result of the cash payments of $29,545 pertaining to the settlement of Exults employee stock options for $23,545 and incentive
bonuses of $6,000 for the portion of the 2004 bonus period ending September 30, 2004. Had the cash payment occurred as of October 1, 2003 for the unaudited pro forma income statements, interest income on cash and cash equivalents would have been
lower by $111 and $222 for the three and six months ended March 31, 2004, respectively.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



17



---

|(G) | These adjustments record the interest expense on long-term debt instruments and capital lease obligations based upon the fair value of those instruments and obligations at the date
of merger. The impact of the adjustments was to increase interest expense by $151 and $299 for the three and six months ended March 31, 2004, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(H) | This adjustment reflects the anticipated income tax expense, which was redetermined based on the combined income of Exult and Hewitt. The adjusted effective tax rate is 41% for both
the pro forma three and six months ended March 31, 2004. Actual effective tax rates may differ from the pro forma rates reflected in these unaudited pro forma combined income statements and will ultimately depend on several variables, including the
mix of earnings between domestic and international operations (including the amount of any foreign losses for which a valuation allowance is recorded), and the overall level of earnings.
|--- | -----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(I) | For the three and six months ended March 31, 2004, the weighted average shares were calculated using the historical weighted average shares outstanding of Hewitt and the actual
number of Hewitt shares issued for the merger at October 1, 2004. Earnings per share data have been computed based on the combined historical net income of Hewitt, income from continuing operations for Exult and the impact of pro forma purchase
accounting adjustments.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|6. | Short-Term Investments
|-- | ----------------------



Short-term investments are comprised of available-for-sale securities at March 31, 2005 and September 30, 2004, and consist of the following:



|                                               |  |                |        |                      |   |                |  |                      |         |  |   |        
|---------------------------------------------- |  | -------------- | ------ | -------------------- | - | -------------- |  | -------------------- | ------- |  | - | -------
|                                               |  | March 31, 2005 |        | September 30, 2004  
|                                               |  | Amortized Cost |        | Estimated Fair Value |   | Amortized Cost |  | Estimated Fair Value
|Amounts included in short-term investments(1): |  |                |        |                      |   |                |  |                      |         |  |   |        
|Corporate notes                                |  | $              | 10,838 |                      | $ | 10,772         |  | $                    |        |  | $ |       
|Asset-backed securities                        |  |                | 20,764 |                      |   | 20,677         |  |                      |        |  |   |       
|U.S. Treasuries and Agencies                   |  |                | 22,682 |                      |   | 22,591         |  |                      |        |  |   |       
|Auction rate municipal bonds                   |  |                |       |                      |   |               |  |                      | 183,205 |  |   | 183,205
|                                               |  |                |        |                      |   |                |  |                      |         |  |   |        
|Short-term investments                         |  | $              | 54,284 |                      | $ | 54,040         |  | $                    | 183,205 |  | $ | 183,205
|                                               |  |                |        |                      |   |                |  |                      |         |  |   |        



|(1) | Prior to the October 1, 2004 merger with Exult, the Companys short-term investments consisted of auction rate municipal bonds. The Companys investments in these
securities were recorded at cost, which approximated fair market value due to their variable interest rates which typically reset every 28 to 35 days. As a result, prior to October 1, 2004, the Company had no cumulative gross unrealized holding
gains (losses) or gross realized gains (losses) from its available-for-sale securities. All income generated from the auction rate municipal bonds is recorded as interest income.
|--- | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



As of March 31, 2005, there were gross unrealized holding gains of $2 and gross unrealized
holding losses of $246 from available-for-sale securities.



18



---

Amortized cost and estimated fair market value of debt securities classified as available-for-sale by contractual
maturities at March 31, 2005 and September 30, 2004 consist of the following:



|                                            |  |                |        |                      |   |                |  |                      |         |  |   |        
|------------------------------------------- |  | -------------- | ------ | -------------------- | - | -------------- |  | -------------------- | ------- |  | - | -------
|                                            |  | March 31, 2005 |        | September 30, 2004  
|                                            |  | Amortized Cost |        | Estimated Fair Value |   | Amortized Cost |  | Estimated Fair Value
|Amounts included in short-term investments: |  |                |        |                      |   |                |  |                      |         |  |   |        
|Due in less than one year                   |  | $              | 27,056 |                      | $ | 26,958         |  | $                    | 4,855   |  | $ | 4,855  
|Due after one year through five years       |  |                | 17,077 |                      |   | 16,931         |  |                      |        |  |   |       
|Due after five years through ten years      |  |                |       |                      |   |               |  |                      | 9,500   |  |   | 9,500  
|Due after ten years                         |  |                | 10,151 |                      |   | 10,151         |  |                      | 168,850 |  |   | 168,850
|                                            |  |                |        |                      |   |                |  |                      |         |  |   |        
|Short-term investments                      |  | $              | 54,284 |                      | $ | 54,040         |  | $                    | 183,205 |  | $ | 183,205
|                                            |  |                |        |                      |   |                |  |                      |         |  |   |        



|7. | Client Receivables and Unbilled Work in Process
|-- | -----------------------------------------------



Client receivables and unbilled work in process, net of allowances, at March 31, 2005 and September 30, 2004, consist of the following:



|                         |  |               |         |                    |   |        
|------------------------ |  | ------------- | ------- | ------------------ | - | -------
|                         |  | March 31,2005 |         | September 30, 2004
|Client receivables       |  | $             | 348,936 |                    | $ | 339,306
|Unbilled work in process |  |               | 200,620 |                    |   | 183,576
|                         |  |               |         |                    |   |        
|                         |  | $             | 549,556 |                    | $ | 522,882
|                         |  |               |         |                    |   |        



As of March 31, 2005 and September 30,
2004, $13,541 and $18,003, respectively, of long-term unbilled work in process are classified within Other Assets, net.



|8. | Goodwill and Other Intangible Assets
|-- | ------------------------------------



The Company tests goodwill for impairment annually or whenever indicators of impairment arise. During the six months ended March 31, 2005 and 2004, no goodwill
impairments were recognized.



The following is a summary of changes in the
carrying amount of goodwill for the six months ended March 31, 2005:



|                                            |  |                    |         |                   |   |         |  |   |        
|------------------------------------------- |  | ------------------ | ------- | ----------------- | - | ------- |  | - | -------
|                                            |  | OutsourcingSegment |         | ConsultingSegment |   | Total  
|Balance at September 30, 2004               |  | $                  | 40,655  |                   | $ | 245,088 |  | $ | 285,743
|Additions and other adjustments             |  |                    | 367,465 |                   |   | 18      |  |   | 367,483
|Effect of changes in foreign exchange rates |  |                    | 6,157   |                   |   | 9,613   |  |   | 15,770 
|                                            |  |                    |         |                   |   |         |  |   |        
|Balance at March 31, 2005                   |  | $                  | 414,277 |                   | $ | 254,719 |  | $ | 668,996
|                                            |  |                    |         |                   |   |         |  |   |        



Goodwill additions during the six
months ended March 31, 2005 resulted from the Companys merger with Exult (see Note 5).



19



---

Intangible assets with definite useful lives are amortized over their estimated useful lives and are tested for
impairment whenever indicators of impairment arise. During the three months ended March 31, 2005, in connection with the termination of two Outsourcing client contracts, the Company evaluated contract profitability and performed a review of the
customer relationship intangible assets for impairment. The Company recognized $9,569 of impairment expense related to the customer relationship intangible assets. The fair values of the customer relationship intangible assets were estimated by
discounting the remaining cash flows related to each customers contract and were compared to the carrying values of the intangible assets to determine the impairment charge. The impairment charge was recorded in the Outsourcing segment results
and shown within selling, general and administrative expenses on the Companys statement of operations.



The following is a summary of intangible assets at March 31, 2005 and September 30, 2004:



|                          |  |                     |         |                         |   |         |  |                     |         |                         |   |         |  |   |         |  |   |        
|------------------------- |  | ------------------- | ------- | ----------------------- | - | ------- |  | ------------------- | ------- | ----------------------- | - | ------- |  | - | ------- |  | - | -------
|                          |  | March 31, 2005      |         | September 30, 2004     
|Definite useful life      |  | GrossCarryingAmount |         | AccumulatedAmortization |   | Net     |  | GrossCarryingAmount |         | AccumulatedAmortization |   | Net    
|Capitalized software      |  | $                   | 276,573 |                         | $ | 178,711 |  | $                   | 97,862  |                         | $ | 242,128 |  | $ | 157,159 |  | $ | 84,969 
|Trademarks and tradenames |  |                     | 14,982  |                         |   | 7,501   |  |                     | 7,481   |                         |   | 12,478  |  |   | 5,821   |  |   | 6,657  
|Core technology           |  |                     | 47,000  |                         |   | 2,350   |  |                     | 44,650  |                         |   |        |  |   |        |  |   |       
|Customer relationships    |  |                     | 255,234 |                         |   | 27,425  |  |                     | 227,809 |                         |   | 109,422 |  |   | 8,757   |  |   | 100,665
|                          |  |                     |         |                         |   |         |  |                     |         |                         |   |         |  |   |         |  |   |        
|Total                     |  | $                   | 593,789 |                         | $ | 215,987 |  | $                   | 377,802 |                         | $ | 364,028 |  | $ | 171,737 |  | $ | 192,291
|                          |  |                     |         |                         |   |         |  |                     |         |                         |   |         |  |   |         |  |   |        



The increases in the gross carrying
amounts of trademarks and tradenames, core technology and customer relationships are primarily the result of the Exult merger and the impact of foreign currency exchange rates. The increase in customer relationships is partially offset by impairment
charges of $9,569.



Amortization expense related to definite-lived intangible
assets for the three and six months ended March 31, 2005 and 2004, was as follows:



|                          |  |                             |        |                           |   |        |  |      |        |  |   |       
|------------------------- |  | --------------------------- | ------ | ------------------------- | - | ------ |  | ---- | ------ |  | - | ------
|                          |  | Three Months EndedMarch 31, |        | Six Months EndedMarch 31,
|                          |  | 2005                        |        | 2004                      |   | 2005   |  | 2004
|Capitalized software      |  | $                           | 9,528  |                           | $ | 8,756  |  | $    | 19,158 |  | $ | 17,563
|Trademarks and tradenames |  |                             | 726    |                           |   | 716    |  |      | 1,443  |  |   | 1,316 
|Core technology           |  |                             | 1,175  |                           |   |       |  |      | 2,350  |  |   |      
|Customer relationships    |  |                             | 4,521  |                           |   | 1,366  |  |      | 8,777  |  |   | 2,586 
|                          |  |                             |        |                           |   |        |  |      |        |  |   |       
|Total                     |  | $                           | 15,950 |                           | $ | 10,838 |  | $    | 31,728 |  | $ | 21,465
|                          |  |                             |        |                           |   |        |  |      |        |  |   |       



|9. | Related Party Transactions
|-- | --------------------------



From May 31, 2002, through September 30, 2007, Hewitt Associates LLC, a subsidiary of the Company, is providing certain support services to FORE Holdings LLC, formerly
known as Hewitt Holdings LLC, primarily in the financial, real estate and legal departments, as may be requested by FORE Holdings from time to time. FORE Holdings will pay Hewitt Associates LLC an annual fee of $50 for basic services and an
additional fee for additional services on a time-and-materials basis. Fees for services Hewitt Associates LLC provided under the services agreement totaled $36 for the six months ended March 31, 2005 and $69 for the comparable prior-year period. All
such fees have been paid by FORE Holdings through March 31, 2005.



20



---

The Company has been advised that FORE Holdings is in the process of selling the majority of the properties it owns to a
third party. The sale is expected to close in May 2005. Upon closing of the sale, Hewitt Associates LLC will enter into amended lease agreements. Under the amended leases, rent and lease terms remain the same. Hewitt Associates LLC has agreed to two
debt covenants (minimum net worth and leverage ratio) which already exist on the Companys unsecured senior term notes and Hewitt Associates LLC will also waive a purchase option right with respect to the properties being sold and one other
property. In exchange for the amended terms, Hewitt Associates will receive $3,000 in consideration at closing from FORE Holdings. The $3,000 will reduce the Companys rent expense related to the properties over the remaining lease terms which
run through March 2020.



|10. | Pension and Postretirement Benefit Plans
|--- | ----------------------------------------



The Company has defined benefit pension plans to provide benefits to eligible employees outside of North America. It is the Companys policy to fund these plans in
accordance with local practice and legislation. The Company also provides health benefits for retired employees and certain dependents when they become eligible for these benefits by satisfying plan provisions, which include certain age and service
requirements. The health benefit plans covering substantially all U.S. and Canadian employees are contributory, with contributions reviewed annually and adjusted as appropriate.



The components of net periodic benefit costs for the three and six months ended March 31, 2005 and 2004, included:



|                                        |  |                             |        |   |                           |   |        |                             |  |                           |        |   |  |      |        |      |  |      |     |      |   |     |  |   |       |  |   |      
|--------------------------------------- |  | --------------------------- | ------ | - | ------------------------- | - | ------ | --------------------------- |  | ------------------------- | ------ | - |  | ---- | ------ | ---- |  | ---- | --- | ---- | - | --- |  | - | ----- |  | - | -----
|                                        |  | Pension Benefits            |        |   | Health Benefits          
|                                        |  | Three Months EndedMarch 31, |        |   | Six Months EndedMarch 31, |   |        | Three Months EndedMarch 31, |  | Six Months EndedMarch 31,
|                                        |  | 2005                        |        |   | 2004                      |   |        | 2005                        |  |                           | 2004   |   |  | 2005 |        | 2004 |  | 2005 |     | 2004
|Components of Net Periodic Benefit Cost |  |                             |        |   |                           |   |        |                             |  |                           |        |   |  |      |        |      |  |      |     |      |   |     |  |   |       |  |   |      
|Service cost                            |  | $                           | 2,716  |   |                           | $ | 2,187  |                             |  | $                         | 5,151  |   |  | $    | 4,232  |      |  | $    | 317 |      | $ | 295 |  | $ | 634   |  | $ | 590  
|Interest cost                           |  |                             | 2,006  |   |                           |   | 1,777  |                             |  |                           | 3,911  |   |  |      | 3,444  |      |  |      | 192 |      |   | 173 |  |   | 384   |  |   | 346  
|Expected return on plan assets          |  |                             | (1,747 | ) |                           |   | (1,558 | )                           |  |                           | (3,477 | ) |  |      | (3,022 | )    |  |      |    |      |   |    |  |   |      |  |   |     
|Amortization of:                        |  |                             |        |   |                           |   |        |                             |  |                           |        |   |  |      |        |      |  |      |     |      |   |     |  |   |       |  |   |      
|Unrecognized prior service cost         |  |                             |       |   |                           |   |       |                             |  |                           |       |   |  |      |       |      |  |      | 9   |      |   | 45  |  |   | 18    |  |   | 90   
|Unrecognized loss                       |  |                             | 45     |   |                           |   | 92     |                             |  |                           | 90     |   |  |      | 177    |      |  |      | 50  |      |   | 29  |  |   | 100   |  |   | 58   
|Transition obligation                   |  |                             |       |   |                           |   |       |                             |  |                           |       |   |  |      |       |      |  |      | 32  |      |   | 8   |  |   | 64    |  |   | 16   
|                                        |  |                             |        |   |                           |   |        |                             |  |                           |        |   |  |      |        |      |  |      |     |      |   |     |  |   |       |  |   |      
|Net periodic benefit cost               |  | $                           | 3,020  |   |                           | $ | 2,498  |                             |  | $                         | 5,675  |   |  | $    | 4,831  |      |  | $    | 600 |      | $ | 550 |  | $ | 1,200 |  | $ | 1,100
|                                        |  |                             |        |   |                           |   |        |                             |  |                           |        |   |  |      |        |      |  |      |     |      |   |     |  |   |       |  |   |      



As of March 31, 2005, contributions of
$4,925 were made to the pension plans in fiscal 2005, and contributions of $150 were made to the health benefit plans in fiscal 2005.



On December 8, 2003, the Medicare Prescription Drug, Improvement and Modernization Act of 2003 (the Act) became effective. The Act introduces a prescription
drug benefit under Medicare (Medicare Part D) as well as a federal subsidy to sponsors of retiree health care benefit plans that provide a benefit that is at least the actuarial equivalent of Medicare Part D.



In accordance with the FASB Staff Position 106-2 (FSP 106-2), Accounting and
Disclosure Requirements Related to the Medicare Prescription Drug, Improvement and Modernization Act of 2003 and revised guidance released in January 2005, the Company evaluated its plan and determined this quarter that the plan is the actuarial
equivalent of a benefit under Medicare Part D. The adoption of FSP 106-2 has not had a material effect on the financial condition or results of operations of the Company. The financial statements and the notes to the financial statements do not
include the effect of the Act on the accumulated postretirement benefit obligation or the net periodic postretirement benefit cost.



21



---

|11. | Stock-Based Compensation Plans
|--- | ------------------------------



In 2002, the Company 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 the Company (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 March 31, 2005, only restricted stock, restricted stock units and nonqualified
stock options have been granted. A total of 25,000,000 shares of Class A common stock has been reserved for issuance under the Plan. As of March 31, 2005, there were 7,866,597 shares available for grant under the Plan.



Restricted Stock and Restricted Stock Units



In connection with the initial public offering, the Company granted 5,789,908 shares of
Class A restricted stock and restricted stock units 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. The one-time initial public
offering-related awards were valued at $110,141 on the June 27, 2002 grant date (a weighted price of $19.02 per share) and recognized as unearned compensation within stockholders equity. The Company has been recognizing the awards as
compensation expense over the six-month and four-year vesting periods. For the three and six months ended March 31, 2005, compensation expense for the initial public offering restricted stock awards was $4,165 and $8,591, respectively, including the
award compensation expense and applicable payroll taxes for the respective periods. For the three and six months ended March 31, 2004, compensation expense for the initial public offering restricted stock awards was $4,561 and $8,680, respectively,
including the award compensation expense and applicable payroll taxes for the respective periods.



In connection with the Companys merger with Exult, the Company granted 692,139 shares of Class A restricted stock and restricted stock units to certain Exult employees. These awards were valued at $18,535 on the
October 1, 2004 grant date (a price of $26.78 per share) and vest ratably through June 27, 2006.



Stock Options and Warrants



The
Committee may grant both incentive stock options and nonqualified stock options to purchase shares of 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 vest in equal annual
installments over a period of four years. As of March 31, 2005, the Company had 10,841,429 options outstanding with a weighted average exercise price of $23.72.



As part of the Companys merger with Exult (see Note 5), the Company assumed an obligation under a fully vested warrant to purchase up to 200,000 shares of the
Companys Class A common stock. The warrant expires in April 2008 and may not be exercised prior to April 2005. The warrant may only be exercised in its entirety, must be exercised in a single transaction and must be exercised on a cashless,
net issuance basis. The exercise price is derived from a formula with a minimum exercise price of $37.75 per share.



|12. | Legal Proceedings
|--- | -----------------



The Company is subject to lawsuits and claims arising in the normal conduct of business. Management does not expect the outcome of any pending matter to have a material adverse effect on the business, financial
condition or results of operations of the Company.



22



---

The Company provides indemnifications of varying scope and size to certain customers against claims of intellectual
property infringement made by third parties arising from the use of our products or receipt of our services. The Company evaluates estimated losses for such indemnifications under SFAS 5, Accounting for Contingencies, as interpreted by FASB
Interpretation No. 45, Guarantors Accounting and Disclosure Requirements forGuarantees, Including Indirect Guarantees of Indebtedness of Others. Management considers factors such as probability of an unfavorable outcome and the
ability to make a reasonable estimate of the amount of loss.



|13. | Other Comprehensive Income
|--- | --------------------------



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



|                                         |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|---------------------------------------- |  | --------------------------- | ------ | ------------------------- | ---- | - | ------ |  | - | ------ | - |  | - | ------
|                                         |  | Three Months EndedMarch 31, |        | Six Months EndedMarch 31,
|                                         |  | 2005                        |        |                           | 2004 |   | 2005   |  |   | 2004  
|Net income                               |  | $                           | 27,163 |                           |      | $ | 30,420 |  | $ | 61,187 |   |  | $ | 59,783
|Other comprehensive income:              |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Foreign currency translation adjustments |  |                             | (5,258 | )                         |      |   | 10,921 |  |   | 25,668 |   |  |   | 36,200
|Unrealized gains (losses) on investments |  |                             | 15     |                           |      |   |       |  |   | (244   | ) |  |   |      
|                                         |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       
|Total comprehensive income               |  | $                           | 21,920 |                           |      | $ | 41,341 |  | $ | 86,611 |   |  | $ | 95,983
|                                         |  |                             |        |                           |      |   |        |  |   |        |   |  |   |       



The change in the foreign currency
translation during the three and six months ended March 31, 2005, as compared to the three and six months ended March 31, 2004, was primarily due to changes in the value of the British pound sterling relative to the U.S. dollar.



|14. | 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 applies its human resources expertise and employs its integrated technology solutions to administer its clients human resources programs. Hewitts
benefits outsourcing services include health and welfare (such as medical plans), defined contribution (such as 401(k) plans) and defined benefit (such as pension plans). In addition to benefits outsourcing services, Hewitts human resources
business process outsourcing (HR BPO) services include workforce administration, rewards management, recruiting and staffing, payroll processing, performance management, learning and development, talent management, global mobility, time
and attendance, accounts payable, procurement expertise and vendor management.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



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



While the Company reports revenues and direct expenses based on these two segments, it combines its expertise in human resources outsourcing and consulting to create complete human resources solutions and a full
continuum of human resources services.



The Company operates many of the
administrative and support 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 segments. These shared services include
information systems, human resources, general office support and space management, overall corporate management, finance and legal services. Additionally, Hewitt utilizes a client development group that markets the entire spectrum of its services.
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.



23



---

The costs of information systems, human resources and the direct client activities provided by the client development function are, however, allocated to the
Outsourcing and Consulting segments on a specific identification basis or based on usage or headcount.



The tables below present information about the Companys reportable segments for the periods presented:



|                                                                                            |  |                             |         |                           |   |         |  |      |           |  |   |          
|------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | ------------------------- | - | ------- |  | ---- | --------- |  | - | ---------
|                                                                                            |  | Three Months EndedMarch 31, |         | Six Months EndedMarch 31,
|                                                                                            |  | 2005                        |         | 2004                      |   | 2005    |  | 2004
|Outsourcing (1)                                                                             |  |                             |         |                           |   |         |  |      |           |  |   |          
|Revenues before reimbursements (net revenues)                                               |  | $                           | 494,306 |                           | $ | 350,991 |  | $    | 1,014,669 |  | $ | 706,074  
|Segment income(2)                                                                           |  |                             | 48,230  |                           |   | 69,904  |  |      | 134,015   |  |   | 149,585  
|                                                                                            |  |                             |         |                          
|Consulting                                                                                  |  |                             |         |                           |   |         |  |      |           |  |   |          
|Revenues before reimbursements (net revenues)                                               |  | $                           | 202,780 |                           | $ | 195,344 |  | $    | 392,815   |  | $ | 372,225  
|Segment income(2)                                                                           |  |                             | 47,038  |                           |   | 36,195  |  |      | 73,083    |  |   | 58,628   
|                                                                                            |  |                             |         |                          
|Total Company (1)                                                                           |  |                             |         |                           |   |         |  |      |           |  |   |          
|Revenues before reimbursements (net revenues)                                               |  | $                           | 697,086 |                           | $ | 546,335 |  | $    | 1,407,484 |  | $ | 1,078,299
|Reimbursements                                                                              |  |                             | 15,494  |                           |   | 13,145  |  |      | 30,384    |  |   | 31,870   
|                                                                                            |  |                             |         |                           |   |         |  |      |           |  |   |          
|Total revenues                                                                              |  | $                           | 712,580 |                           | $ | 559,480 |  | $    | 1,437,868 |  | $ | 1,110,169
|                                                                                            |  |                             |         |                           |   |         |  |      |           |  |   |          
|Segment income(2)                                                                           |  | $                           | 95,268  |                           | $ | 106,099 |  | $    | 207,098   |  | $ | 208,213  
|Charges not recorded at the Segment level  Initial public offering restricted stock awards |  |                             | 4,165   |                           |   | 4,561   |  |      | 8,591     |  |   | 8,680    
|Unallocated shared service costs(2)                                                         |  |                             | 42,269  |                           |   | 46,072  |  |      | 87,940    |  |   | 88,138   
|                                                                                            |  |                             |         |                           |   |         |  |      |           |  |   |          
|Operating income(2)                                                                         |  | $                           | 48,834  |                           | $ | 55,466  |  | $    | 110,567   |  | $ | 111,395  
|                                                                                            |  |                             |         |                           |   |         |  |      |           |  |   |          



|(1) | On October 1, 2004, the Company merged with Exult, Inc. and its results are included in the Companys Outsourcing segment results from the merger date of October 1, 2004.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | As compared to fiscal 2004, lower provisions for incentive compensation increased Total Company operating income by $34,622 and $36,038 during the three and six months ended March
31, 2005. By segment, Outsourcing segment income increased by $9,904 and $9,124 in the three and six months ended March 31, 2005, respectively, Consulting segment income increased by $14,373 and $14,598 for the three and six months ended March 31,
2005, respectively. Lower incentive compensation expense reduced unallocated shared service costs by $10,346 and $12,316 in the three and six months ended March 31, 2005, respectively.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



24



---

|ITEM2. | 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 presented earlier 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-K filed with the Securities and Exchange Commission for additional information. In addition to historical information, this Quarterly Report on Form 10-Q may contain
forward-looking statements that involve risks, uncertainties and assumptions, which could cause actual results to differ materially from managements expectations. Please see some of the risks and uncertainties described below and in the
Notes Regarding Forward-Looking Statements which appears later in this section.



We use the terms Hewitt, the Company, we, us and our to refer to the business of Hewitt Associates, Inc. and its subsidiaries.



We use the term Heritage to refer to the stand-alone operations of Hewitt
Associates, Inc. or Exult, Inc. prior to their combination on October 1, 2004.



Hewitt was a wholly-owned subsidiary of Hewitt Holdings LLC prior to Hewitts initial public offering in June 2002. On April 29, 2004, Hewitt Holdings LLC changed its name to FORE Holdings LLC (FORE Holdings). We use the
term owner to refer to the individuals who are current or retired members of FORE Holdings. These individuals (with the exception of the retired owners) became employees of Hewitt Associates, Inc. upon the completion of our transition to
a corporate structure on May 31, 2002.



Due to integration efforts
related to our merger with Exult, Inc. (Exult) and our strategy to combine functions and core processes, stand-alone results for that business subsequent to the merger date are not meaningful and are not available. For a comparative
discussion of our results including Exult, we have included the prior year pro forma combined results of the Company and Exult for comparison with our current year results.



All references to years, unless otherwise noted, refer to our fiscal years, which end on September 30. For example, a reference to
2005 or fiscal 2005 means the twelve-month period that ends September 30, 2005. 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, presented earlier in this Quarterly Report on Form 10-Q. Certain prior period amounts have been reclassified to conform to the current year presentation.



Overview



Hewitt Associates, Inc., a Delaware corporation, and its subsidiaries provide global human
resources outsourcing and consulting services. The Companys outsourcing business is comprised of employee benefit plan and human resources business process outsourcing (HR BPO) services. Hewitts consulting business is
comprised of advisory services in health management, retirement and financial management, talent and organization consulting and other consulting.



Recent Developments



Tender Offer



On June 16, 2004, we announced that our Board of Directors authorized us to repurchase up to an aggregate amount of $150 million of Hewitts Class A, Class B and Class C common stock, depending on market
conditions and other customary factors, in light of our cash position and expected future cash flows. Through February 4, 2005, we have repurchased 2,393,450 shares of its Class A common stock under this authorization for $68,234 at an average price
per share of $28.51.



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On February 4, 2005, we announced that our Board of Directors authorized the replacement of the $150 million share
repurchase program with a plan to repurchase up to $300 million of Hewitts Class A, Class B and Class C common shares in the next twelve months, depending on market conditions and other customary factors. On February 11, 2005, we announced
that our Board of Directors had authorized the repurchase of up to 8 million shares of its Class A, Class B and Class C common stock through a modified Dutch Auction tender offer including the right to purchase additional shares for a
total repurchase of up to $300 million. The tender offer expired on March 16, 2005 and we repurchased 6,662,954 Class A shares and 3,681,872 Class B shares, or 10,344,826 shares in total, at a purchase price of $29.00 per share. Upon repurchase, the
Class B shares were converted into Class A shares. The aggregate amount paid for the shares was $300 million and we also incurred approximately $0.5 million of estimated tender-related professional expenses. A total of $300.5 million was recorded as
treasury stock, at cost, in the quarter ended March 31, 2005.



Exult
Merger



On June 15, 2004, we entered into an Agreement and Plan of Merger
with Exult, Inc., a leading provider of human resource business process outsourcing. On October 1, 2004, after obtaining regulatory and stockholder approvals, the merger was completed. A wholly-owned subsidiary of the Company, Eagle Merger Corp.,
was merged with and into Exult, and Exult became the surviving corporation and our wholly owned subsidiary. Under the Agreement, each share of Exult common stock outstanding immediately prior to the effective time of the merger was converted into
0.2 shares of Hewitt Class A common stock. The purchase price of $684,969 consisted of issuance of 22,159,921 shares of Hewitt Class A common stock valued at $653,939, the settlement payment for the cancellation of all Exult unexercised employee
stock options of $23,545, transaction costs of $6,512, and the estimated fair value of an issued Exult stock warrant of $973. The fair value of the shares of Hewitt Class A common stock of $29.51 was based upon the average of the closing prices of
our Class A common stock for the period commencing two trading days before, and ending two trading days after, June 16, 2004, the date of the announcement of the merger.



Shelf Registration Statement



On August 27, 2004, we filed an Amended Registration Statement on Form S-3/A with the Securities and Exchange Commission to facilitate possible future underwritten
secondary offerings, block trades and other sales by the former owners and the former partners of Bacon & Woodrow. The registration statement became effective on August 31, 2004. Through March 31, 2005, 5,558,275 shares of Hewitt stock were sold
by the former owners and the former partners of Bacon & Woodrow pursuant to this registration statement.



Release of Transfer Restrictions



Waivers of the transfer restrictions contained in our stockholders agreement with FORE Holdings no longer require the approval of our Board of Directors and may be done by FORE Holdings. FORE Holdings released the transfer
restrictions on 2% of the original number of aggregate Class B and Class C shares each month from October through December 2004 (approximately 1.6 million shares per month). Restrictions on 2 percent of the 0.9 million Class A shares held by certain
Exult senior executives were also released each month from October through December 2004. Approximately 1.9 million of these total shares were sold during this period. FORE Holdings authorized the release of sales restrictions on 1% of the original
number of aggregate Class B and Class C shares per week rather than every two weeks for the period January through March, 2005 (approximately 0.8 million shares per week, totaling approximately 10.3 million shares). Approximately 3.7 million of
these total shares were sold during this period. Also during the period, FORE Holdings released sales restrictions on an additional 3.7 million shares sold in the tender offer. In March 2005, FORE Holdings announced its plan to continue to release
transfer restrictions at the current rate of 1% of the original number of aggregate class B and Class C shares per week from April through June 2005. Restrictions on 1% of the Class A shares held by certain Exult senior executives will also be
released each week from April through June 2005. As previously disclosed, transfer restrictions on the majority of the remaining Class B and Class C shares and shares held by certain senior Exult executives are expected to lapse on June 27, 2005.



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Segments



Of our $2.2 billion of consolidated net revenues for fiscal 2004, 65% was generated in our Outsourcing segment and 35% was generated in our Consulting segment. Primarily
as a result of our merger with Exult, Outsourcing and Consulting accounted for 72% and 28% of net revenues, respectively, for the first six months of fiscal 2005.



Outsourcing



Our outsourcing business is comprised of a broad range of human resource services including benefits outsourcing, payroll, workforce administration, rewards management,
recruiting and staffing, performance management, learning and development, talent management, global mobility, time and attendance, accounts payable, procurement expertise and vendor management. With the merger of Exult on October 1, 2004, we
expanded our global presence and brought together existing service capabilities. The largest service area is benefits outsourcing. While we expect this service to continue to grow and to become a part of our broader HR BPO services, its percentage
of the total Outsourcing business will decrease as we expand into the newer and added HR BPO service areas.



There is strong interest in our expanded multi-process HR BPO services following the merger with Exult. We have noted a shift in prospective clients considering broader HR outsourcing solutions and the additional
integrated services we offer. Some effects that we expect to see in future results include business mix issues relating to the development of the HR BPO business at growing rates of profitability. When we initially bring on new HR BPO clients, we
typically assume their existing cost structure and work to transform the processes, systems and service delivery, so that greater profitability is realized in later years of the contracts. As this part of the business grows within our Outsourcing
segment, there will be a negative impact on margins that we expect to improve as the HR BPO contracts mature and become more profitable.



With respect to the benefits outsourcing business, were seeing greater demand for these services being incorporated into broader HR BPO services and envision these
services being delivered in a more integrated way in the future.



Consulting



Our consulting services consist of three principal categories: retirement
and financial management, talent and organization consulting and health management. In addition to these principal Consulting service lines, we provide tailored communication services to enhance the success of client solutions in all of our service
areas. To a lesser degree, our shared client development group also provides consulting services.



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



We experience a high level of recurring work because
of our clients annual needs for certain of our services, such as actuarial valuations of defined benefit plans and consultations regarding the processes of compensation review and health plan selection and negotiation. Certain of our
consulting services, however, support more discretionary or event-driven client activities, including the re-engineering of a clients human resources policies, corporate restructuring and change (e.g., mergers and acquisitions), and programs
and projects designed to improve human resources effectiveness. As we have seen in our business and industry, the demand for these services can be affected by general economic conditions, the financial position of our clients and the particular
strategic activities they may be considering, and, therefore, is variable from period to period and more difficult for us to predict.



Other



In April and early May 2005, we have been realigning our sales and account groups within our client development group (CDG) to reflect the industries our clients operate in and based on the services we
provide to them. The results of CDG have been primarily reported within unallocated shared services as CDGs client development efforts were provided across the firm. As a result primarily of the CDG realignment



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and other restructuring efforts, we expect to incur an estimated $13 million of severance-related expenses in the second half of fiscal 2005.



Consolidated Financial Highlights



Net Revenues



Net revenues increased 27.6%, to $697 million for the three months ended March 31, 2005, from $546 million in the prior year comparable
period, and increased 30.5%, to $1,407 million, for the six months ended March 31, 2005, from $1,078 million in the prior year comparable period. This increase was primarily due to our merger with Exult on October 1, 2004. For a meaningful
comparison and discussion of our results, we will refer to the prior year results of the Company and Exult on a pro forma combined basis, assuming the merger with Exult occurred on October 1, 2003, the beginning of our fiscal 2004, for comparison
with our current year consolidated results. We refer you to Note 5 to the consolidated financial statements for additional information on the pro forma results.



On a pro forma basis, net revenues increased 7.0%, to $697 million in the second quarter of 2005, from $652 million in the pro forma 2004 second quarter. For the six
months ended March 31, 2005, net revenues increased 8.8%, to $1,407 million, from $1,294 million in the comparable pro forma prior-year period. The net effects of favorable foreign currency translation, principally from the strengthening of European
currencies relative to the U.S. dollar, were approximately $7 million and $19 million for the three month and six-month periods, respectively, ended March 31, 2005. Revenues from our fiscal 2004 acquisition of the majority interest in our Puerto
Rico operations and Exults acquisition of ReloAction, a relocation service company, totaled approximately $7 million and $14 million for the respective three and six-month periods, also contributed significantly to the increase. After
adjusting for these factors, net revenues increased $32 million, or 4.8%, for the three months and $81 million, or 6.2%, for the six months ended March 31, 2005, over pro forma revenues in the comparable prior-year periods. For both the three and
six-month periods, the increases in net revenue were primarily related to the Outsourcing segment on an organic, constant currency basis.



On a pro forma basis, Outsourcing revenue growth, after adjusting for the effects of acquisitions and favorable foreign currency translation as described above, was 6.2%
over the pro forma 2004 second quarter, and 7.9% over the pro forma 2004 six-month period. For both the three and six-month periods, Outsourcing revenue growth was primarily due to increased services to new and existing clients in our HR BPO
business and, to a lesser extent, in our benefits outsourcing business.



In
Consulting, adjusting for the effects of foreign currency and the acquisition of the majority interest in our Puerto Rico operations, Consulting revenues increased 1.6% and 2.1% on an organic, constant currency basis for the quarter and six months
of 2005, over the respective pro forma 2004 revenues. For both the three and six-month periods, the increase was primarily due to growth in retirement and financial management consulting services in Europe, offset in part by lower revenues in health
benefit management consulting in North America.



Operating Income



Operating income decreased 12.0%, to $49 million, from $55 million in the
prior year second quarter. For the six-month period ended March 31, 2005, operating income of $111 million reflects a 0.7% decrease from the prior year. As a percentage of net revenue, operating income decreased from 10.2% to 7.0% in the second
quarter, and from 10.3% to 7.9% in the six months ended March 31, 2005.



On a
pro forma basis, operating income for the quarter increased 2.2%, to $49 million, from $48 million, and for the six months ended March 31, 2005, increased 6.0%, to $111 million, from $104 million. As a percentage of net revenue, however, operating
income decreased to 7.0%, from 7.3% in the prior year pro forma quarter, and to 7.9%, from 8.1% for the prior year pro forma six months. Lower provisions for incentive compensation increased



28



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operating income by $35 million and $36 million for the three and six-month periods ended March 31, 2005, respectively, versus comparable 2004 periods. The
expense for incentive compensation is recognized based on quarterly and annual results relative to our internal targets (See Note 2 to the Companys consolidated financial statements).



Also included in the current year results were charges totaling $10 million for impairments
of customer relationship intangible assets in the quarter related to the termination of two acquired Outsourcing contracts, Exult retention-related awards expense of $5 million in the quarter (and $8 million in the six-month period), and the
addition of the 2004 acquisitions of Puerto Rico and ReloAction which contributed $2 million of operating income in the quarter (and $3 million in the six months ended March 31, 2005). Taken as a whole, these items had the net effect of improving
reported Outsourcing and Consulting segment income and segment income as a percentage of net revenue during the three and six months ended March 31, 2005. Lower incentive compensation also reduced reported shared service costs and shared services
cost as a percentage of net revenue.



Outsourcing segment margin decreased to
9.8% in the current quarter, from 14.8% in the pro forma prior-year quarter. Outsourcing segment margin decreased to 13.2% for the six months ended March 31, 2005, from 16.4% in the pro forma prior-year period. Included in the current year results
were lower incentive compensation expenses of $10 million in the quarter (and $9 million in the six-month period), the $10 million customer relationship intangible assets impairment charges, Exult retention-related awards expense of $5 million in
the quarter (and $8 million in the six-month period), and the addition of the 2004 acquisitions of Puerto Rico and ReloAction which contributed $1 million of operating income in the quarter (and $3 million in the six months ended March 31, 2005).
Aside from these changes, benefits outsourcing margins were lower and results also reflect a higher proportion of currently lower margin HR BPO services.



In Consulting, segment margin increased to 23.2% in the current quarter, from 18.9% in the pro forma prior-year quarter. Consulting segment margin increased to 18.6% for
the six months ended March 31, 2005, from 16.1% in the pro forma prior-year period. Reported Consulting segment margin improvement benefited from lower incentive compensation expense of $14 million in the quarter (and $15 million in the six-month
period) versus prior periods. Excluding the effects of lower incentive compensation expense, Consulting margins were down as a result of higher compensation expenses without an offsetting increase in pricing.



Critical Accounting Policies and Estimates



For a more detailed description of our significant accounting policies and basis of
presentation, see our Annual Report on Form 10-K for the fiscal year ended September 30, 2004.



Conforming with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts and disclosures in the consolidated financial statements and this Quarterly
Report. 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 change; however, actual results may differ from estimates. Certain of our accounting policies require higher degrees of judgment than others in their application.
These include certain aspects of accounting for revenue recognition, performance-based compensation, accounts receivable and unbilled work in process, goodwill and other intangible assets, retirement plans and income taxes.



Revenues



We enter into numerous service contracts through our outsourcing and consulting businesses. Outsourcing contract terms typically range from
three- to five-years for benefits contracts and seven- to ten-years for HR BPO contracts, while consulting arrangements are generally of a short-term nature. In connection with the Emerging Issues Task Force (EITF) Issue No. 00-21,
Revenue Arrangements with Multiple Deliverables, the Company has contracts for multiple services primarily in the Outsourcing segment. In some of these contracts, the stand-alone deliverables,



29



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which may include outsourcing core services such as Defined Benefit, Health & Welfare or Defined Contribution Benefit Plan Administration, stand-alone
ancillary services, such as Your Total Rewards, or other consulting services, are sufficiently separable and there exists sufficient evidence of their fair values to separately account for all of the stand-alone deliverables using their relative
fair value. In these contracts, the outsourcing services are recognized as revenue over the ongoing service period. Revenues for consulting services provided in connection with these outsourcing engagements are recognized at the time services are
provided. Most consulting assignments are also very short-term in nature, so that the risks of recognizing revenue in the wrong period or at different values for stand-alone deliverables are significantly reduced. In all other contracts with
multiple services, all fees received for services provided in connection with outsourcing engagements are recognized as revenue over the ongoing service period under the contract.



The Companys clients typically pay for consulting services either on a time-and-materials or on a fixed-fee basis. On fixed-fee
engagements, revenues are recognized either as services are provided using the proportional performance method, which utilizes estimates of overall profitability and stages of project completion, or at the completion of a project, based on facts and
circumstances of the client arrangement.



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



Deferred Contract Costs and Deferred Contract Revenues



For new outsourcing services, up-front implementation efforts may be
required to set up clients and their human resource or benefit programs on the Companys systems and operating processes. The direct implementation or set up costs and any non-refundable set up fees are deferred and recognized into
earnings over the life of the outsourcing agreement. Specific, incremental and direct costs of implementation are deferred and recognized as primarily compensation and related expenses evenly over the period from the initiation of ongoing services
through the end of the contract term. Such costs may include costs for coding or creating customizations of systems, costs for conversion of client data and costs to negotiate contract terms. Implementation fees may be received either up front or
over the ongoing services period in the fee per participant. By deferring the up-front set up fees over the ongoing services period, all set up revenues are recognized evenly over the contract term along with the corresponding deferred contract
costs.



Performance-Based Compensation



Our compensation program includes a performance-based component that is determined by
management and the Compensation and Leadership Committee of our Board of Directors. Performance-based compensation is discretionary and is based on individual, team, and total Company performance. 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 trends 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 Company, team or individual. As such, accrued amounts are subject to change in future
periods if actual future performance varies from performance levels anticipated in prior interim periods.



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 become
aware of a specific clients difficulty in meeting its financial obligations to us (e.g., bankruptcy, 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



30



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receivables are past due. Facts and circumstances may change, which would require us to alter our estimates of the collectibility of client receivables and
unbilled work in process. A key factor mitigating this risk is our diverse client base. For the three and six months ended March 31, 2005 and 2004, no single client accounted for more than 10% of our total revenues.



Goodwill and Other Intangible Assets



We apply the purchase method of accounting for business combinations. The amounts assigned
to the identifiable assets and liabilities acquired in connection with these acquisitions were based on estimated fair values as of the date of the acquisitions, with the remainder recorded as goodwill. Estimates of fair value have been based
primarily upon future cash flow projections for the acquired business and net assets, discounted to present value using a risk adjusted discount rate. In connection with these acquisitions, we have recorded significant amounts of intangible assets,
including goodwill.



We evaluate our goodwill for impairment annually and
whenever indicators of impairment exist. 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 is 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. Intangible assets with definite lives are amortized over their estimated useful lives and are reviewed for impairment
if indicators of impairment arise.



Retirement Plans



We provide pension benefits to certain of our employees outside of North America and other
postretirement benefits to certain of our employees in North America. The valuation of the funded status and net periodic pension and other postretirement benefit costs are calculated using actuarial assumptions, which are reviewed annually. The
assumptions include rates of increases in employee compensation, interest rates used to discount liabilities, the long-term rate of return on plan assets, anticipated future healthcare costs, and other assumptions involving demographic factors such
as retirement, mortality and turnover. The selection of assumptions is based on both short-term and long-term historical trends and known economic and market conditions at the time of the valuation. The use of different assumptions would have
resulted in different measures of the funded status and net periodic pension and other postretirement benefit expenses. Actual results in the future could differ from expected results. Management is not able to estimate the probability of actual
results differing from expected results, but believes its assumptions are appropriate.



Income Taxes



We are subject to income
taxes in both the U.S. and numerous foreign jurisdictions. Significant judgment is required in determining the worldwide income tax provision. In the ordinary course of global business, there are many transactions and calculations for which the
ultimate tax outcome is uncertain. Some of these uncertainties arise as a consequence of revenue sharing and cost reimbursement arrangements among related entities, the process of identifying items of revenue and expense that qualify for
preferential tax treatment, and segregation of foreign and domestic income and expense to avoid double taxation. To the extent that the final tax outcome of these matters is different from the amounts that were initially recorded, such differences
will impact the income tax provision in the period in which such determination is made.



We record a valuation allowance to reduce our deferred tax assets to the amount of future tax benefit that is more likely than not to be realized. While we have considered future taxable income and ongoing prudent and
feasible tax planning strategies in assessing the need for the valuation allowance, there is no assurance that the valuation allowance will not need to be increased to cover additional deferred tax assets that may not be realizable. Any increase in
the valuation allowance could have a material adverse impact on our income tax provisions and net income in the period in which such determination is made.



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Historical Results of Operations



Three Months Ended March 31, 2005 and 2004



The following table sets forth our historical results of operations as a percentage of net revenues. The information for each of the three-month periods is derived
from unaudited consolidated financial statements which were prepared on the same basis as the annual consolidated financial statements. The information for the three months ended March 31, 2005 and 2004 contains all adjustments, consisting only of
normal recurring adjustments, necessary to fairly present this information. Operating results for any period are not necessarily indicative of results for any future periods.



|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ------ | ---- | - | ------- | ------------------- |  | ---- | ---------------- | - | ---- | ----- | -- |  | ----- | - |  | ----- | -
|                                                                                             |  | Three Months Ended March 31, |        
|                                                                                             |  | 2005(1)                      |         |        | 2004 |   |         | Increase/(Decrease) |  |      | % of Net Revenue |  
|Dollar amounts in thousands                                                                  |  |                              |         | Amount |      |   | %       |                     |  | 2005 |                  |   | 2004 |      
|Revenues:                                                                                    |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Revenues before reimbursements (net revenues)                                                |  | $                            | 697,086 |        |      | $ | 546,335 |                     |  | $    | 150,751          |   |      | 27.6  | %  |  | 100.0 | % |  | 100.0 | %
|Reimbursements                                                                               |  |                              | 15,494  |        |      |   | 13,145  |                     |  |      | 2,349            |   |      | 17.9  |    |  | 2.2   |   |  | 2.4   |  
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Total revenues                                                                               |  |                              | 712,580 |        |      |   | 559,480 |                     |  |      | 153,100          |   |      | 27.4  |    |  | 102.2 |   |  | 102.4 |  
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|                                                                                             |  |                              |         |        |      |  
|Operating expenses:                                                                          |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                              | 405,809 |        |      |   | 347,806 |                     |  |      | 58,003           |   |      | 16.7  |    |  | 58.2  |   |  | 63.6  |  
|Initial public offering restricted stock awards                                              |  |                              | 4,165   |        |      |   | 4,561   |                     |  |      | (396             | ) |      | (8.7  | )  |  | 0.6   |   |  | 0.8   |  
|Reimbursable expenses                                                                        |  |                              | 15,494  |        |      |   | 13,145  |                     |  |      | 2,349            |   |      | 17.9  |    |  | 2.2   |   |  | 2.4   |  
|Other operating expenses                                                                     |  |                              | 193,599 |        |      |   | 110,782 |                     |  |      | 82,817           |   |      | 74.8  |    |  | 27.8  |   |  | 20.3  |  
|Selling, general and administrative expenses                                                 |  |                              | 44,679  |        |      |   | 27,720  |                     |  |      | 16,959           |   |      | 61.2  |    |  | 6.4   |   |  | 5.1   |  
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Total operating expenses                                                                     |  |                              | 663,746 |        |      |   | 504,014 |                     |  |      | 159,732          |   |      | 31.7  |    |  | 95.2  |   |  | 92.2  |  
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Operating income                                                                             |  |                              | 48,834  |        |      |   | 55,466  |                     |  |      | (6,632           | ) |      | (12.0 | )  |  | 7.0   |   |  | 10.2  |  
|                                                                                             |  |                              |         |        |      |  
|Other expenses, net                                                                          |  |                              | (2,784  | )      |      |   | (3,690  | )                   |  |      | 906              |   |      | (24.6 | )  |  | (0.4  | ) |  | (0.7  | )
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Income before income taxes                                                                   |  |                              | 46,050  |        |      |   | 51,776  |                     |  |      | (5,726           | ) |      | (11.1 | )  |  | 6.6   |   |  | 9.5   |  
|                                                                                             |  |                              |         |        |      |  
|Provision for income taxes                                                                   |  |                              | 18,887  |        |      |   | 21,356  |                     |  |      | (2,469           | ) |      | (11.6 | )  |  | 2.7   |   |  | 3.9   |  
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  
|Net income                                                                                   |  | $                            | 27,163  |        |      | $ | 30,420  |                     |  | $    | (3,257           | ) |      | (10.7 | )% |  | 3.9   | % |  | 5.6   | %
|                                                                                             |  |                              |         |        |      |   |         |                     |  |      |                  |   |      |       |    |  |       |   |  |       |  



|(1) | On October 1, 2004, we merged with Exult, Inc. and its results are included in our results from that date.
|--- | ----------------------------------------------------------------------------------------------------------



As a result of the merger with Exult, Inc. on October 1, 2004, the results of operations for
the three months ended March 31, 2005 and 2004 are not comparable. The results for the three months ended March 31, 2005 include the consolidated operating results of Exult, however, the results for the three months ended March 31, 2004 do not
include Exult. For a more meaningful comparison, the following table presents the historical results of Hewitt for the three months ended March 31, 2005, compared with the unaudited pro forma results for the three months ended March 31, 2004, as if
the merger and consolidation had occurred on October 1, 2003. We refer you to Note 5 to the consolidated financial statements for additional information on the pro forma results. The information for the three months ended March 31, 2005 and the
unaudited pro forma results for the three months ended March 31, 2004 are derived from unaudited consolidated financial statements. In our opinion, information for the three months ended March 31, 2005, and the unaudited pro forma results for the
three months ended March 31, 2004, contain all adjustments, consisting only of normal recurring adjustments necessary to fairly present this information. Operating results for any period are not necessarily indicative of results for any future
periods. The unaudited pro forma



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combined income statement is presented for illustrative purposes only and is not indicative of the results of operations that might have occurred had the
merger actually taken place as of the dates specified, or that may be expected to occur in the future.



|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|-------------------------------------------------------------------------------------------- |  | ---------------------------- | ------- | ------ | -------------- | - | ------- | ------------------- |  | ---- | ---------------- | - | ---- | ----- | - |  | ----- | - |  | ----- | -
|                                                                                             |  | Three Months Ended March 31, |        
|                                                                                             |  | 2005                         |         |        | Pro forma 2004 |   |         | Increase/(Decrease) |  |      | % of Net Revenue |  
|Dollar amounts in thousands                                                                  |  |                              |         | Amount |                |   | %       |                     |  | 2005 |                  |   | 2004 |      
|Revenues:                                                                                    |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Revenues before reimbursements (net revenues)                                                |  | $                            | 697,086 |        |                | $ | 651,725 |                     |  | $    | 45,361           |   |      | 7.0   | % |  | 100.0 | % |  | 100.0 | %
|Reimbursements                                                                               |  |                              | 15,494  |        |                |   | 13,145  |                     |  |      | 2,349            |   |      | 17.9  |   |  | 2.2   |   |  | 2.0   |  
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Total revenues                                                                               |  |                              | 712,580 |        |                |   | 664,870 |                     |  |      | 47,710           |   |      | 7.2   |   |  | 102.2 |   |  | 102.0 |  
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|                                                                                             |  |                              |         |        |                |  
|Operating expenses:                                                                          |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                              | 405,809 |        |                |   | 389,552 |                     |  |      | 16,257           |   |      | 4.2   |   |  | 58.2  |   |  | 59.8  |  
|Initial public offering restricted stock awards                                              |  |                              | 4,165   |        |                |   | 4,561   |                     |  |      | (396             | ) |      | (8.7  | ) |  | 0.6   |   |  | 0.7   |  
|Reimbursable expenses                                                                        |  |                              | 15,494  |        |                |   | 13,145  |                     |  |      | 2,349            |   |      | 17.9  |   |  | 2.2   |   |  | 2.0   |  
|Other operating expenses                                                                     |  |                              | 193,599 |        |                |   | 172,217 |                     |  |      | 21,382           |   |      | 12.4  |   |  | 27.8  |   |  | 26.4  |  
|Selling, general and administrative expenses                                                 |  |                              | 44,679  |        |                |   | 37,618  |                     |  |      | 7,061            |   |      | 18.8  |   |  | 6.4   |   |  | 5.8   |  
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Total operating expenses                                                                     |  |                              | 663,746 |        |                |   | 617,093 |                     |  |      | 46,653           |   |      | 7.6   |   |  | 95.2  |   |  | 94.7  |  
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Operating income                                                                             |  |                              | 48,834  |        |                |   | 47,777  |                     |  |      | 1,057            |   |      | 2.2   |   |  | 7.0   |   |  | 7.3   |  
|                                                                                             |  |                              |         |        |                |  
|Other expenses, net                                                                          |  |                              | (2,784  | )      |                |   | (4,242  | )                   |  |      | 1,458            |   |      | (34.4 | ) |  | (0.4  | ) |  | (0.7  | )
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Income before income taxes                                                                   |  |                              | 46,050  |        |                |   | 43,535  |                     |  |      | 2,515            |   |      | 5.8   |   |  | 6.6   |   |  | 6.6   |  
|                                                                                             |  |                              |         |        |                |  
|Provision for income taxes                                                                   |  |                              | 18,887  |        |                |   | 17,849  |                     |  |      | 1,038            |   |      | 5.8   |   |  | 2.7   |   |  | 2.7   |  
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  
|Net income                                                                                   |  | $                            | 27,163  |        |                | $ | 25,686  |                     |  | $    | 1,477            |   |      | 5.8   | % |  | 3.9   | % |  | 3.9   | %
|                                                                                             |  |                              |         |        |                |   |         |                     |  |      |                  |   |      |       |   |  |       |   |  |       |  



Overview



In addition to our merger with Exult in 2005, there are two other acquisitions that alter
comparability between our fiscal 2005 and 2004 results. On February 5, 2004, we acquired the majority interest in our Puerto Rico operations. On May 15, 2004, Exult acquired ReloAction, a relocation services company. We refer to these acquisitions
as the 2004 acquisitions. The results of the 2004 acquisitions are included in our results from their respective acquisition dates, and therefore, are in our results for the three months ended March 31, 2005, but are not included in the
unaudited pro forma results for the three months ended March 31, 2004. Additionally, the unaudited pro forma combined results do not assume any benefits from cost savings or synergies and do not reflect any integration costs that the combined
company realized or incurred after the merger. Where these items have a material impact on comparability between the 2005 historical and 2004 pro forma results, we have noted them in the analysis that follows.



Net Revenues



Net revenues for the three months ended March 31, 2005, increased 7.0%, to $697 million, from $652 million in the pro forma comparable
prior-year period. Adjusting for the net favorable effects of foreign currency translation of approximately $7 million and the favorable effects of the 2004 acquisitions of approximately $7 million, net revenues grew 4.8% over the pro forma
comparable prior-year period. Outsourcing net revenues increased by 8.3%, to $494 million, from $456 million in the pro forma comparable prior-year period. Excluding the favorable effects of the 2004 acquisitions of approximately $7 million and the
net favorable effects of foreign currency translation of



33



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approximately $3 million, Outsourcing net revenues increased 6.2% over the pro forma comparable prior-year period. Outsourcing revenue growth was primarily
due to increased services to new and existing clients in our HR BPO business and, to a lesser extent, in our benefits outsourcing business. Consulting net revenues for the quarter increased by 3.8%, to $203 million, from $195 million in the pro
forma comparable prior-year period. The majority of this growth was due to the net favorable effect of foreign currency translation of approximately $4 million and the remaining favorable effect of the acquisition of the majority interest in our
Puerto Rico operations. Adjusting for the effects of foreign currency and the acquisition of the majority interest in our Puerto Rico operations, Consulting net revenues increased by 1.6% in the three months ended March 31, 2005, as compared to the
pro forma prior-year period. This increase reflects growth in our retirement and financial management consulting services in Europe, offset in part by lower revenues in health benefit management consulting in North America and in other discretionary
consulting services.



Compensation and Related Expenses



Compensation and related expenses (which include personnel, supplemental staffing and
related expenses) increased 4.2%, to $406 million for the three months ended March 31, 2005, from $390 million in the pro forma comparable prior-year period. As a percentage of net revenues, compensation and related expenses decreased to 58.2% from
59.8% of net revenues over the pro forma prior-year quarter. The $16 million increase in compensation and related expenses was due primarily to increases in outsourcing personnel to support the growth of the Outsourcing segment, wage increases, the
effects of foreign currency translation, the Exult retention-related awards of $5 million, and compensation expenses related to the 2004 acquisitions of approximately $4 million, offset by lower incentive compensation expense of $35 million versus
the prior pro forma quarter. Lower compensation and related expenses as a percentage of net revenues also reflects a higher proportion of revenues managed by Hewitt, but performed by third party suppliers, where the cost of third party services are
reported in other operating expenses.



Initial Public Offering Restricted
Stock Awards



In connection with our initial public offering on June 27,
2002, we granted approximately 5.8 million shares of Class A restricted stock and restricted stock units to our employees. Compensation and related payroll tax expenses of approximately $92 million were recorded as initial public offering restricted
stock award expense from June 27, 2002, through March 31, 2005, of which $4 million was recorded for the three months ended March 31, 2005, and $5 million was recorded for the pro forma comparable prior-year period. The remaining $19 million of
unearned compensation as of March 31, 2005, will be recognized evenly through June 27, 2006, and adjusted for payroll taxes and forfeitures as they arise.



Other Operating Expenses



Other operating expenses (which include technology, occupancy and non-compensation related direct client service costs, including third party supplier costs) increased
12.4%, to $194 million in the three months ended March 31, 2005, from $172 million in the pro forma comparable prior-year period. As a percentage of net revenues, other operating expenses increased to 27.8%, from 26.4% of net revenues quarter over
pro forma quarter. The increase of $21 million was primarily related to an increase in third party supplier expenses related to a higher mix of managed services we provide to our clients and the inclusion of operating costs from the 2004
acquisitions, and was partially offset by reduced office rental expenses and decreased maintenance costs associated with our leased facilities. The increase as a percentage of net revenues was also related to a higher proportion of net revenues
serviced by third parties after the merger with Exult.



34



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Selling, General and Administrative Expenses



Selling, general and administrative (SG&A) expenses (which include promotion and marketing costs, corporate professional
services, provisions for doubtful accounts and other general office expenses) increased 18.8%, to $45 million in the three months ended March 31, 2005, from $38 million in the pro forma comparable prior-year period. As a percentage of net revenues,
SG&A expenses increased to 6.4% from 5.8% quarter over pro forma quarter. The increase in SG&A was due to recognition of impairment of customer relationship intangibles of approximately $10 million, relating to two terminated client
contracts. Excluding the impairment charges, SG&A expenses as a percentage of net revenues declined in the second quarter to 5.0%, reflecting lower professional fees during the current quarter than in the pro forma prior-year quarter.



Other Expenses, Net



Other expenses, net (which includes interest expense, interest income, equity earnings on
unconsolidated ventures and other income or expense) declined 34.4%, to $3 million in the three months ended March 31, 2005, from $4 million in the pro forma comparable prior-year period. As a percentage of net revenues, other expenses, net declined
to 0.4% from 0.7% quarter over pro forma quarter. The largest component of this decrease is attributable to an increase in interest income on short-term investments for the current quarter, which more than offset increased interest expense related
to higher short- and long-term debt in the quarter.



Provision for Income
Taxes



The provision for income taxes was $19 million for the three months
ended March 31, 2005, compared to $18 million in the pro forma comparable prior-year period, an increase of 5.8%, which is due to the increase in income before income taxes for the current quarter. For the year ending September 30, 2005, we expect
to report an effective tax rate of approximately 41% of our income before income taxes and, as such, we have apportioned the estimated income tax provision for the year to the quarter, based on the ratio of each quarters income before income
taxes to estimated annual income before income taxes. These estimates reflect the information available at this time and our best judgment; however, actual income or taxes may differ.



35



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Six Months Ended March 31, 2005 and 2004



The following table sets forth our historical results of operations as a percentage of net revenues. The information for each of the
six-month periods is derived from unaudited consolidated financial statements which were prepared on the same basis as the annual consolidated financial statements. The information for the six months ended March 31, 2005 and 2004 contains all
adjustments, consisting only of normal recurring adjustments, necessary to fairly present this information. Operating results for any period are not necessarily indicative of results for any future periods.



|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|-------------------------------------------------------------------------------------------- |  | -------------------------- | --------- | - | ---- | - | --------- | ------------------- |  | - | ---------------- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                                                                                             |  | Six Months Ended March 31, |          
|                                                                                             |  |                            |           |   |      |   |           | Increase/(Decrease) |  |   | % of Net Revenue |  
|Dollar amounts in thousands                                                                  |  | 2005(1)                    |           |   | 2004 |   |           | Amount              |  |   | %                |   |  | 2005  |   |  | 2004  |  
|Revenues:                                                                                    |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Revenues before reimbursements (net revenues)                                                |  | $                          | 1,407,484 |   |      | $ | 1,078,299 |                     |  | $ | 329,185          |   |  | 30.5  | % |  | 100.0 | % |  | 100.0 | %
|Reimbursements                                                                               |  |                            | 30,384    |   |      |   | 31,870    |                     |  |   | (1,486           | ) |  | (4.7  | ) |  | 2.2   |   |  | 3.0   |  
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Total revenues                                                                               |  |                            | 1,437,868 |   |      |   | 1,110,169 |                     |  |   | 327,699          |   |  | 29.5  |   |  | 102.2 |   |  | 103.0 |  
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Operating expenses:                                                                          |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                            | 826,154   |   |      |   | 688,010   |                     |  |   | 138,144          |   |  | 20.1  |   |  | 58.7  |   |  | 63.8  |  
|Initial public offering restricted stock awards                                              |  |                            | 8,591     |   |      |   | 8,680     |                     |  |   | (89              | ) |  | (1.0  | ) |  | 0.6   |   |  | 0.8   |  
|Reimbursable expenses                                                                        |  |                            | 30,384    |   |      |   | 31,870    |                     |  |   | (1,486           | ) |  | (4.7  | ) |  | 2.2   |   |  | 3.0   |  
|Other operating expenses                                                                     |  |                            | 379,242   |   |      |   | 215,509   |                     |  |   | 163,733          |   |  | 76.0  |   |  | 26.9  |   |  | 20.0  |  
|Selling, general and administrative expenses                                                 |  |                            | 82,930    |   |      |   | 54,705    |                     |  |   | 28,225           |   |  | 51.6  |   |  | 5.9   |   |  | 5.1   |  
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Total operating expenses                                                                     |  |                            | 1,327,301 |   |      |   | 998,774   |                     |  |   | 328,527          |   |  | 32.9  |   |  | 94.3  |   |  | 92.7  |  
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Operating income                                                                             |  |                            | 110,567   |   |      |   | 111,395   |                     |  |   | (828             | ) |  | (0.7  | ) |  | 7.9   |   |  | 10.3  |  
|                                                                                             |  |                            |           |   |      |  
|Other expenses, net                                                                          |  |                            | (6,849    | ) |      |   | (10,068   | )                   |  |   | 3,219            |   |  | (32.0 | ) |  | (0.6  | ) |  | (0.9  | )
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Income before income taxes                                                                   |  |                            | 103,718   |   |      |   | 101,327   |                     |  |   | 2,391            |   |  | 2.4   |   |  | 7.3   |   |  | 9.4   |  
|                                                                                             |  |                            |           |   |      |  
|Provision for income taxes                                                                   |  |                            | 42,531    |   |      |   | 41,544    |                     |  |   | 987              |   |  | 2.4   |   |  | 3.0   |   |  | 3.9   |  
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Net income                                                                                   |  | $                          | 61,187    |   |      | $ | 59,783    |                     |  | $ | 1,404            |   |  | 2.3   | % |  | 4.3   | % |  | 5.5   | %
|                                                                                             |  |                            |           |   |      |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  



|(1) | On October 1, 2004, we merged with Exult, Inc. and its results are included in our results from that date.
|--- | ----------------------------------------------------------------------------------------------------------



As a result of the merger with Exult, Inc. on October 1, 2004, the results of operations for
the six months ended March 31, 2005 and 2004 are not comparable. The results for the six months ended March 31, 2005 include the consolidated operating results of Exult, however, the results for the six months ended March 31, 2004, do not include
Exult. For a more meaningful comparison, the following table presents the historical results of Hewitt for the six months ended March 31, 2005, compared with the unaudited pro forma results for the six months ended March 31, 2004, as if the merger
and consolidation had occurred on October 1, 2003. We refer you to Note 5 to the consolidated financial statements for additional information on the pro forma results. The information for the six months ended March 31, 2005, and the unaudited pro
forma results for the six months ended March 31, 2004, are derived from unaudited consolidated financial statements. In our opinion, information for the six months ended March 31, 2005, and the unaudited pro forma results for the six months ended
March 31, 2004, contain all adjustments, consisting only of normal recurring adjustments necessary to fairly present this information. Operating results for any period are not necessarily indicative of results for any future periods. The unaudited
pro forma combined income statement is presented for illustrative purposes only and is not indicative of the results of operations that might have occurred had the merger actually taken place as of the dates specified, or that may be expected to
occur in the future.



36



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|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|-------------------------------------------------------------------------------------------- |  | -------------------------- | --------- | - | -------------- | - | --------- | ------------------- |  | - | ---------------- | - |  | ----- | - |  | ----- | - |  | ----- | -
|                                                                                             |  | Six Months Ended March 31, |          
|                                                                                             |  |                            |           |   |                |   |           | Increase/(Decrease) |  |   | % of Net Revenue |  
|Dollar amounts in thousands                                                                  |  | 2005                       |           |   | Pro forma 2004 |   |           | Amount              |  |   | %                |   |  | 2005  |   |  | 2004  |  
|Revenues:                                                                                    |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Revenues before reimbursements (net revenues)                                                |  | $                          | 1,407,484 |   |                | $ | 1,293,572 |                     |  | $ | 113,912          |   |  | 8.8   | % |  | 100.0 | % |  | 100.0 | %
|Reimbursements                                                                               |  |                            | 30,384    |   |                |   | 31,870    |                     |  |   | (1,486           | ) |  | (4.7  | ) |  | 2.2   |   |  | 2.5   |  
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Total revenues                                                                               |  |                            | 1,437,868 |   |                |   | 1,325,442 |                     |  |   | 112,426          |   |  | 8.5   |   |  | 102.2 |   |  | 102.5 |  
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Operating expenses:                                                                          |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Compensation and related expenses, excluding initial public offering restricted stock awards |  |                            | 826,154   |   |                |   | 769,506   |                     |  |   | 56,648           |   |  | 7.4   |   |  | 58.7  |   |  | 59.4  |  
|Initial public offering restricted stock awards                                              |  |                            | 8,591     |   |                |   | 8,680     |                     |  |   | (89              | ) |  | (1.0  | ) |  | 0.6   |   |  | 0.7   |  
|Reimbursable expenses                                                                        |  |                            | 30,384    |   |                |   | 31,870    |                     |  |   | (1,486           | ) |  | (4.7  | ) |  | 2.2   |   |  | 2.5   |  
|Other operating expenses                                                                     |  |                            | 379,242   |   |                |   | 337,594   |                     |  |   | 41,648           |   |  | 12.3  |   |  | 26.9  |   |  | 26.1  |  
|Selling, general and administrative expenses                                                 |  |                            | 82,930    |   |                |   | 73,442    |                     |  |   | 9,488            |   |  | 12.9  |   |  | 5.9   |   |  | 5.7   |  
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Total operating expenses                                                                     |  |                            | 1,327,301 |   |                |   | 1,221,092 |                     |  |   | 106,209          |   |  | 8.7   |   |  | 94.3  |   |  | 94.4  |  
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Operating income                                                                             |  |                            | 110,567   |   |                |   | 104,350   |                     |  |   | 6,217            |   |  | 6.0   |   |  | 7.9   |   |  | 8.1   |  
|                                                                                             |  |                            |           |   |                |  
|Other expenses, net                                                                          |  |                            | (6,849    | ) |                |   | (11,112   | )                   |  |   | 4,263            |   |  | (38.4 | ) |  | (0.6  | ) |  | (0.9  | )
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Income before income taxes                                                                   |  |                            | 103,718   |   |                |   | 93,238    |                     |  |   | 10,480           |   |  | 11.2  |   |  | 7.3   |   |  | 7.2   |  
|                                                                                             |  |                            |           |   |                |  
|Provision for income taxes                                                                   |  |                            | 42,531    |   |                |   | 38,227    |                     |  |   | 4,304            |   |  | 11.3  |   |  | 3.0   |   |  | 2.9   |  
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  
|Net income                                                                                   |  | $                          | 61,187    |   |                | $ | 55,011    |                     |  | $ | 6,176            |   |  | 11.2  | % |  | 4.3   | % |  | 4.3   | %
|                                                                                             |  |                            |           |   |                |   |           |                     |  |   |                  |   |  |       |   |  |       |   |  |       |  



Overview



In addition to our merger with Exult in 2005, there are two other acquisitions that alter
comparability between our fiscal 2005 and 2004 results. On February 5, 2004, we acquired the majority interest in our Puerto Rico operations. On May 15, 2004, Exult acquired ReloAction, a relocation services company. We refer to these acquisitions
as the 2004 acquisitions. The results of the 2004 acquisitions are included in our results from their respective acquisition dates, and therefore, are in our results for the six months ended March 31, 2005, but are not included in the
unaudited pro forma results for the six months ended March 31, 2004. Additionally, the unaudited pro forma combined results do not assume any benefits from cost savings or synergies and do not reflect any integration costs that the combined company
realized or incurred after the merger. Where these items have a material impact on comparability between the 2005 historical and 2004 pro forma results, we have noted them in the analysis that follows.



Net Revenues



Net revenues for the six months ended March 31, 2005 increased 8.8%, to $1,407 million, from $1,294 million in the pro forma comparable
prior-year period. Adjusting for the net favorable effects of foreign currency translation of approximately $19 million and the favorable effects of the 2004 acquisitions of approximately $14 million, net revenues grew 6.2% over the pro forma
comparable prior-year period. Outsourcing net revenues increased by 10.1%, to $1,015 million in the six-month period, from $921 million in the pro forma comparable prior-year period. Excluding the favorable effects of the 2004 acquisitions of
approximately $13 million and the net favorable effects of foreign currency translation of approximately $7 million, Outsourcing net revenues increased 7.9% in the six months ended March 31, 2005, over the pro forma comparable prior-year period.
Outsourcing revenue growth was primarily due to increased services to new and existing clients in our HR BPO business and, to a lesser extent, in our



37



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benefits outsourcing business. Consulting net revenues for the six-month period ending March 31, 2005, increased by 5.5%, to $393 million, from $372 million
in the pro forma comparable prior-year period. The majority of this growth was due to the net favorable effect of foreign currency translation of approximately $12 million and the favorable effect of the acquisition of the majority interest in our
Puerto Rico operations of approximately $1 million. Adjusting for the effects of foreign currency and the acquisition of the majority interest in our Puerto Rico operations, Consulting net revenues increased by 2.1% in the six months ended March 31,
2005. This increase reflects growth in our retirement and financial management consulting services in Europe, and increased demand for our more discretionary consulting services primarily in Asia-Pacific and North America, offset in part by lower
revenues in health benefit management consulting in North America.



Compensation and Related Expenses



Compensation and related
expenses (which include personnel, supplemental staffing and related expenses) increased 7.4%, to $826 million for the six months ended March 31, 2005, from $770 million in the pro forma comparable prior-year period. As a percentage of net revenues,
compensation and related expenses decreased to 58.7% from 59.4% in the pro forma prior-year period. The $57 million increase in compensation and related expenses was due to increases in outsourcing personnel to support the growth of Outsourcing
segment, wage increases, the effects of foreign currency translation, the Exult retention-related awards of $8 million, and compensation expenses related to the 2004 acquisitions of approximately $8 million, which was offset in part by lower
incentive compensation of $36 million versus the pro forma prior-year period. Lower compensation and related expenses as a percentage of net revenues also reflects a higher proportion of revenues managed by Hewitt, but performed by third party
suppliers, where the cost of third party services are reported in other operating expenses.



Initial Public Offering Restricted Stock Awards



In connection with our initial public offering on June 27, 2002, we granted approximately 5.8 million shares of Class A restricted stock and restricted stock units to our employees. Compensation and related payroll tax expenses of
approximately $92 million were recorded as initial public offering restricted stock award expense from June 27, 2002, through March 31, 2005, of which $9 million was recorded for the six months ended March 31, 2005, and $9 million was recorded for
the pro forma comparable prior-year period. The remaining $19 million of unearned compensation as of March 31, 2005, will be recognized evenly through June 27, 2006, and adjusted for payroll taxes and forfeitures as they arise.



Other Operating Expenses



Other operating expenses (which include technology, occupancy and non-compensation related
direct client service costs, including third party supplier costs) increased 12.3%, to $379 million in the six months ended March 31, 2005, from $338 million in the pro forma comparable prior-year period. As a percentage of net revenues, other
operating expenses increased to 26.9% for the six months ended March 31, 2005, from 26.1% in the comparable pro forma prior-year period. The $42 million period-over-pro-forma-period increase in other operating expenses primarily reflects increases
in third party supplier expenses related to a higher mix of managed services we provide to our clients and the inclusion of operating costs from the 2004 acquisitions. The increase as a percentage of net revenues was also related to a higher
proportion of net revenues serviced by third parties after the merger with Exult.



Selling, General and Administrative Expenses



Selling, general
and administrative (SG&A) expenses (which include promotion and marketing costs, corporate professional services, provisions for doubtful accounts and other general office expenses) increased 12.9%, to $83 million in the six months
ended March 31, 2005, from $73 million in the pro forma comparable prior-year period. As a percentage of net revenues, SG&A expenses increased to 5.9% for the six months ended March 31, 2005, from 5.7% in the comparable pro forma prior-year
period. The increase as a percentage of net revenues was due to the impairment of customer relationship intangibles of approximately $10 million, relating to two terminated client contracts. Excluding the impairment charges, SG&A expenses as a
percentage of net revenues declined in the current period to 5.2%, reflecting lower professional fees incurred in 2005.



38



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Other Expenses, Net



Other expenses, net (which includes interest expense, interest income, equity earnings on unconsolidated ventures and other income or expense) declined 38.4%, to $7
million in the six months ended March 31, 2005, from $11 million in the pro forma comparable prior-year period. As a percentage of net revenues, other expenses, net declined to 0.6% for the six months ended March 31, 2005, from 0.9% in the
comparable pro forma prior-year period, due to an increase in interest income on short-term investments during the six-month period in 2005.



Provision for Income Taxes



The provision for income taxes was $43 million for the six months ended March 31, 2005, compared to $38 million in the pro forma comparable prior-year period, an increase
of 11.3%. The increase in the provision for income taxes is due to higher income before income taxes in the current year period. For the year ending September 30, 2005, we expect to report an effective tax rate of approximately 41% of our income
before income taxes and as such, we have apportioned the estimated income tax provision for the year to the quarter, based on the ratio of each quarters income before income taxes to estimated annual income before income taxes. These estimates
reflect the information available at this time and our best judgment; however, actual income or taxes may differ.



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, overall corporate management, finance and legal services, general office support and space management. Additionally, we utilize a client
development group that markets the entire spectrum of our services. 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 services, human resources and the direct client activities provided by the client development function are, however, 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.



39



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Reconciliation of Segment Results to Total Company Results(in thousands)



Three Months Ended March 31, 2005 and 2004



|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------- | - | ------- | ------ |  | - | ------- | - |  | ----- | --
|                                                                                            |  | Three Months EndedMarch 31, |         |   | Increase/(Decrease) |  
|                                                                                            |  | 2005                        |         |   | 2004                |   |         | Amount |  |   | %       |  
|Outsourcing(1)                                                                              |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                           | 494,306 |   |                     | $ | 350,991 |        |  | $ | 143,315 |   |  | 40.8  | % 
|Segment income                                                                              |  |                             | 48,230  |   |                     |   | 69,904  |        |  |   | (21,674 | ) |  | (31.0 | )%
|Segment income as a percentage of segment net revenues                                      |  |                             | 9.8     | % |                     |   | 19.9    | %      |  |   |         |   |  |       |   
|                                                                                            |  |                             |         |  
|Consulting                                                                                  |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                           | 202,780 |   |                     | $ | 195,344 |        |  | $ | 7,436   |   |  | 3.8   | % 
|Segment income                                                                              |  |                             | 47,038  |   |                     |   | 36,195  |        |  |   | 10,843  |   |  | 30.0  | % 
|Segment income as a percentage of segment net revenues                                      |  |                             | 23.2    | % |                     |   | 18.5    | %      |  |   |         |   |  |       |   
|                                                                                            |  |                             |         |  
|Total Company (1)                                                                           |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                           | 697,086 |   |                     | $ | 546,335 |        |  | $ | 150,751 |   |  | 27.6  | % 
|Reimbursements                                                                              |  |                             | 15,494  |   |                     |   | 13,145  |        |  |   | 2,349   |   |  | 17.9  | % 
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Total revenues                                                                              |  | $                           | 712,580 |   |                     | $ | 559,480 |        |  | $ | 153,100 |   |  | 27.4  | % 
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Segment income                                                                              |  | $                           | 95,268  |   |                     | $ | 106,099 |        |  | $ | (10,831 | ) |  | (10.2 | )%
|Charges not recorded at the Segment level  Initial public offering restricted stock awards |  |                             | 4,165   |   |                     |   | 4,561   |        |  |   | (396    | ) |  | (8.7  | )%
|Unallocated shared service costs                                                            |  |                             | 42,269  |   |                     |   | 46,072  |        |  |   | (3,803  | ) |  | (8.3  | )%
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Operating income                                                                            |  | $                           | 48,834  |   |                     | $ | 55,466  |        |  | $ | (6,632  | ) |  | (12.0 | )%
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   



|(1) | On October 1, 2004, the Company merged with Exult, Inc. and its results are included in the Companys Outsourcing segment results that date.
|--- | --------------------------------------------------------------------------------------------------------------------------------------------



As a result of our merger with Exult, we have prepared unaudited pro forma segment results
for the three months ended March 31, 2004, as if the merger and consolidation of Exult had occurred on October 1, 2003. The unaudited pro forma segment results were prepared in conjunction with the unaudited pro forma combined income statement. We
refer you to Note 5 to the consolidated financial statements for additional information on the pro forma results. In preparing the unaudited pro forma segment results for the three months ended March 31, 2004, the Exult pro forma results were
included within the Outsourcing segment. Those results were adjusted to allocate the expenses from Exult cost centers that mirror our shared services as described above into the unallocated shared costs. The combined pro forma Hewitt and Exult costs
of information services, human resources and the direct client delivery activities provided by Hewitts client development function were allocated to the Outsourcing and Consulting segments on a specific identification basis or based on usage
and combined pro forma headcount. This reallocation resulted in a shift in allocated shared costs from the Consulting segment to the Outsourcing segment, and is consistent with the allocation methodology used by Hewitt for the three months ended
March 31, 2004, and for all subsequent periods. The following table presents our historical segment results for the three months ended March 31, 2005, compared with our unaudited pro forma segment results for the three months ended March 31, 2004.



40



---

|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|------------------------------------------------------------------------------------------- |  | --------------------------- | ------- | - | ------------------- | - | ------- | ------ |  | - | ------- | - |  | ----- | --
|                                                                                            |  | Three Months EndedMarch 31, |         |   | Increase/(Decrease) |  
|                                                                                            |  | 2005                        |         |   | (Pro forma)2004     |   |         | Amount |  |   | %       |  
|Outsourcing                                                                                 |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                           | 494,306 |   |                     | $ | 456,381 |        |  | $ | 37,925  |   |  | 8.3   | % 
|Segment income                                                                              |  |                             | 48,230  |   |                     |   | 67,429  |        |  |   | (19,199 | ) |  | (28.5 | )%
|Segment income as a percentage of segment net revenues                                      |  |                             | 9.8     | % |                     |   | 14.8    | %      |  |   |         |   |  |       |   
|                                                                                            |  |                             |         |  
|Consulting                                                                                  |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                           | 202,780 |   |                     | $ | 195,344 |        |  | $ | 7,436   |   |  | 3.8   | % 
|Segment income                                                                              |  |                             | 47,038  |   |                     |   | 36,841  |        |  |   | 10,197  |   |  | 27.7  | % 
|Segment income as a percentage of segment net revenues                                      |  |                             | 23.2    | % |                     |   | 18.9    | %      |  |   |         |   |  |       |   
|                                                                                            |  |                             |         |  
|Total Company                                                                               |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                           | 697,086 |   |                     | $ | 651,725 |        |  | $ | 45,361  |   |  | 7.0   | % 
|Reimbursements                                                                              |  |                             | 15,494  |   |                     |   | 13,145  |        |  |   | 2,349   |   |  | 17.9  | % 
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Total revenues                                                                              |  | $                           | 712,580 |   |                     | $ | 664,870 |        |  | $ | 47,710  |   |  | 7.2   | % 
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Segment income                                                                              |  | $                           | 95,268  |   |                     | $ | 104,270 |        |  | $ | (9,002  | ) |  | (8.6  | )%
|Charges not recorded at the Segment level  Initial public offering restricted stock awards |  |                             | 4,165   |   |                     |   | 4,561   |        |  |   | (396    | ) |  | (8.7  | )%
|Unallocated shared service costs                                                            |  |                             | 42,269  |   |                     |   | 51,932  |        |  |   | (9,663  | ) |  | (18.6 | )%
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   
|Operating income                                                                            |  | $                           | 48,834  |   |                     | $ | 47,777  |        |  | $ | 1,057   |   |  | 2.2   | % 
|                                                                                            |  |                             |         |   |                     |   |         |        |  |   |         |   |  |       |   



Outsourcing



Outsourcing net revenues increased by 8.3%, to $494 million in the quarter, from $456
million in the pro forma comparable prior-year period. The revenue growth was due, in part, to the addition of revenues from the 2004 acquisitions as well as the effects of foreign currency translation. Excluding the favorable effects of the 2004
acquisitions of approximately $7 million and the net favorable effects of foreign currency translation of approximately $3 million, Outsourcing net revenues increased 6.2%. Outsourcing revenue growth was primarily due to increased services to new
and existing clients in our HR BPO business and, to a lesser extent, in our benefits outsourcing business. There is strong interest in our expanded multi-process HR BPO services following the merger with Exult. We have also noted a shift in new
prospective clients considering broader HR outsourcing solutions and the additional integrated services offer post-merger. This shift is expected to impact both HR BPO as well as benefits outsourcing prospectively. Benefits outsourcing participant
volumes increased by approximately 5% year over year, but pricing on service renewals continues to have an impact on overall revenue levels. Revenues from one-time projects in benefits outsourcing were flat year over year.



Outsourcing segment income decreased 28.5%, to $48 million in the three months ended March
31, 2005, from $67 million in the pro forma comparable prior-year period. Outsourcing segment income as a percentage of outsourcing net revenues decreased to 9.8% in the three months ended March 31, 2005, from 14.8% in the pro forma comparable
prior-year period. Included in the current year results were charges totaling $10 million for the impairment of customer relationship intangible assets related to two terminated Outsourcing contracts, Exult retention-related awards expense of $5
million, and the addition of the 2004 acquisitions of Puerto Rico and ReloAction which contributed $1 million of operating income in the quarter. Segment income benefited from lower incentive compensation expense of $10 million relative to the
prior-year quarter. The remaining decrease in segment income and margin relates to the change in business mix from the growing HR BPO business as well as lower benefits outsourcing margins. Benefits margins decreased due to the planned re-pricing of
some older contracts to current



41



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market prices, service mix and higher client service delivery costs, including the build out of newer service offerings and our global sourcing capabilities.



Consulting



Consulting net revenues for the quarter increased by 3.8%, to $203 million, from $195
million in the pro forma comparable prior-year period. The majority of this growth was due to the net favorable effect of foreign currency translation of approximately $4 million. Adjusting for the effects of foreign currency translation, Consulting
net revenues increased by 1.6% in the three months ended March 31, 2005, as compared to the pro forma prior-year period. This increase reflects growth in our European operations, primarily in our retirement and financial management consulting
services, offset in part by lower revenues in health benefit management consulting in North America and in other discretionary consulting services.



Consulting segment income increased to $47 million for the three months ended March 31, 2005, from $37 million in the pro forma comparable prior-year period. Consulting
segment margin increased to 23.2% from 18.9%. The increase in margin was primarily due to lower incentive compensation of $14 million in the quarter. After considering this item, margins declined in the quarter as a result of increased compensation
expense without a corresponding increase in pricing.



Six Months Ended March
31, 2005 and 2004



|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|------------------------------------------------------------------------------------------- |  | ------------------------- | --------- | - | ------------------- | - | --------- | ------ |  | - | ------- | - |  | ----- | --
|                                                                                            |  | Six Months EndedMarch 31, |           |   | Increase/(Decrease) |  
|                                                                                            |  | 2005                      |           |   | 2004                |   |           | Amount |  |   | %       |  
|Outsourcing (1)                                                                             |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                         | 1,014,669 |   |                     | $ | 706,074   |        |  | $ | 308,595 |   |  | 43.7  | % 
|Segment income                                                                              |  |                           | 134,015   |   |                     |   | 149,585   |        |  |   | (15,570 | ) |  | (10.4 | )%
|Segment income as a percentage of segment net revenues                                      |  |                           | 13.2      | % |                     |   | 21.2      | %      |  |   |         |   |  |       |   
|                                                                                            |  |                           |           |  
|Consulting                                                                                  |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                         | 392,815   |   |                     | $ | 372,225   |        |  | $ | 20,590  |   |  | 5.5   | % 
|Segment income                                                                              |  |                           | 73,083    |   |                     |   | 58,628    |        |  |   | 14,455  |   |  | 24.7  | % 
|Segment income as a percentage of segment net revenues                                      |  |                           | 18.6      | % |                     |   | 15.8      | %      |  |   |         |   |  |       |   
|                                                                                            |  |                           |           |  
|Total Company (1)                                                                           |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                         | 1,407,484 |   |                     | $ | 1,078,299 |        |  | $ | 329,185 |   |  | 30.5  | % 
|Reimbursements                                                                              |  |                           | 30,384    |   |                     |   | 31,870    |        |  |   | (1,486  | ) |  | (4.7  | )%
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Total revenues                                                                              |  | $                         | 1,437,868 |   |                     | $ | 1,110,169 |        |  | $ | 327,699 |   |  | 29.5  | % 
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Segment income                                                                              |  | $                         | 207,098   |   |                     | $ | 208,213   |        |  | $ | (1,115  | ) |  | (0.5  | )%
|Charges not recorded at the Segment level  Initial public offering restricted stock awards |  |                           | 8,591     |   |                     |   | 8,680     |        |  |   | (89     | ) |  | (1.0  | )%
|Unallocated shared service costs                                                            |  |                           | 87,940    |   |                     |   | 88,138    |        |  |   | (198    | ) |  | (0.2  | )%
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Operating income                                                                            |  | $                         | 110,567   |   |                     | $ | 111,395   |        |  | $ | (828    | ) |  | (0.7  | )%
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   



|(1) | On October 1, 2004, the Company merged with Exult, Inc. and its results are included in the Companys Outsourcing segment results from that date.
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------



As a result of our merger with Exult, we have prepared unaudited pro forma segment results
for the six months ended March 31, 2004, as if the merger and consolidation of Exult had occurred on October 1, 2003. The unaudited pro forma segment results were prepared in conjunction with the unaudited pro forma combined income statement. We



42



---

refer you to Note 5 to the consolidated financial statements for additional information on the pro forma results. In preparing the unaudited pro forma
segment results for the six months ended March 31, 2004, the Exult pro forma results were included within the Outsourcing segment. Those results were adjusted to allocate the expenses from Exult cost centers that mirror our shared services as
described above into the unallocated shared costs. The combined pro forma Hewitt and Exult costs of information services, human resources and the direct client delivery activities provided by Hewitts client development function were allocated
to the Outsourcing and Consulting segments on a specific identification basis or based on usage and combined pro forma headcount. This reallocation resulted in a shift in allocated shared costs from the Consulting segment to the Outsourcing segment,
and is consistent with the allocation methodology used by Hewitt for the six months ended March 31, 2004 and for all subsequent periods. The following table presents our historical segment results for the six months ended March 31, 2005 compared
with our unaudited pro forma segment results for the six months ended March 31, 2004.



|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|------------------------------------------------------------------------------------------- |  | ------------------------- | --------- | - | ------------------- | - | --------- | ------ |  | - | ------- | - |  | ----- | --
|                                                                                            |  | Six Months EndedMarch 31, |           |   | Increase/(Decrease) |  
|                                                                                            |  | 2005                      |           |   | (Pro forma)2004     |   |           | Amount |  |   | %       |  
|Outsourcing                                                                                 |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                         | 1,014,669 |   |                     | $ | 921,347   |        |  | $ | 93,322  |   |  | 10.1  | % 
|Segment income                                                                              |  |                           | 134,015   |   |                     |   | 150,712   |        |  |   | (16,697 | ) |  | (11.1 | )%
|Segment income as a percentage of segment net revenues                                      |  |                           | 13.2      | % |                     |   | 16.4      | %      |  |   |         |   |  |       |   
|                                                                                            |  |                           |           |  
|Consulting                                                                                  |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                         | 392,815   |   |                     | $ | 372,225   |        |  | $ | 20,590  |   |  | 5.5   | % 
|Segment income                                                                              |  |                           | 73,083    |   |                     |   | 59,829    |        |  |   | 13,254  |   |  | 22.2  | % 
|Segment income as a percentage of segment net revenues                                      |  |                           | 18.6      | % |                     |   | 16.1      | %      |  |   |         |   |  |       |   
|                                                                                            |  |                           |           |  
|Total Company                                                                               |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Revenues before reimbursements (net revenues)                                               |  | $                         | 1,407,484 |   |                     | $ | 1,293,572 |        |  | $ | 113,912 |   |  | 8.8   | % 
|Reimbursements                                                                              |  |                           | 30,384    |   |                     |   | 31,870    |        |  |   | (1,486  | ) |  | (4.7  | )%
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Total revenues                                                                              |  | $                         | 1,437,868 |   |                     | $ | 1,325,442 |        |  | $ | 112,426 |   |  | 8.5   | % 
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Segment income                                                                              |  | $                         | 207,098   |   |                     | $ | 210,541   |        |  | $ | (3,443  | ) |  | (1.6  | )%
|Charges not recorded at the Segment level  Initial public offering restricted stock awards |  |                           | 8,591     |   |                     |   | 8,680     |        |  |   | (89     | ) |  | (1.0  | )%
|Unallocated shared service costs                                                            |  |                           | 87,940    |   |                     |   | 97,511    |        |  |   | (9,571  | ) |  | (9.8  | )%
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   
|Operating income                                                                            |  | $                         | 110,567   |   |                     | $ | 104,350   |        |  | $ | 6,217   |   |  | 6.0   | % 
|                                                                                            |  |                           |           |   |                     |   |           |        |  |   |         |   |  |       |   



Outsourcing



Outsourcing net revenues increased by 10.1%, to $1,015 million in the six-month period ended
March 31, 2005, from $921 million in the pro forma comparable prior-year period. The revenue growth was due, in part, to the addition of revenues from the 2004 acquisitions as well as the effects of foreign currency translation. Excluding the
favorable effects of the 2004 acquisitions of approximately $13 million and the net favorable effects of foreign currency translation of approximately $7 million, Outsourcing net revenues increased 7.9% in the six-month period. Outsourcing revenue
growth was primarily due to increased services to new and existing clients in our HR BPO business and, to a lesser extent, in our benefits outsourcing business. There is strong interest in our expanded multi-process HR BPO services following the
merger with Exult. We have noted a shift in new prospective clients considering broader HR outsourcing solutions and the additional integrated services offer post-merger. This shift is expected to impact both HR BPO as well as benefits outsourcing
prospectively. Benefits outsourcing participant volumes increased 5% year over year, but pricing on service renewals continues to have an impact on overall revenues. Revenues from one-time projects in benefits outsourcing were flat year over year.



43



---

Outsourcing segment income decreased 11.1%, to $134 million in the six-month period ended March 31, 2005, from $151
million in the pro forma comparable prior-year period. Outsourcing segment income as a percentage of outsourcing net revenues decreased to 13.2% in the six-month period ended March 31, 2005, from 16.4% in the pro forma comparable prior-year period.
Included in the current year results were a $10 million customer relationship intangible assets impairment charge related to two terminated Outsourcing contracts and Exult retention-related awards expense of $8 million and the addition of the 2004
acquisitions of Puerto Rico and ReloAction which contributed $3 million of operating income in the six months ended March 31, 2005. The decrease in margin in the six months ended March 31, 2005, was primarily due to the recognition of the impairment
of the two customer relationship intangible assets. The remaining decrease in margins relates to the change in business mix from the growing HR BPO business as well as lower benefits outsourcing margins. Benefits margins decreased due to the planned
re-pricing of some older contracts to current market prices, service mix and higher client service delivery costs, including the build out of newer service offerings and our global sourcing capabilities. These factors were partially offset by lower
incentive compensation of $9 million in the six-month period.



Consulting



Consulting net revenues in the six-month period ended March 31, 2005
increased by 5.5%, to $393 million, from $372 million in the pro forma comparable prior-year period. The majority of this growth was due to the net favorable effect of foreign currency translation of approximately $12 million and the favorable
effect of the acquisition of the majority interest in our Puerto Rico operations of approximately $1 million. Adjusting for the effects of foreign currency and the acquisition of the majority interest in our Puerto Rico operations, Consulting net
revenues increased by 2.1% in the six-month period ended March 31, 2005, as compared to the pro forma prior-year period. For the six-month period ended March 31, 2005, growth in retirement and financial management consulting services in Europe, and
increased demand for our more discretionary consulting services in Asia-Pacific and North America, were partially offset by lower revenues in health benefit management consulting in North America.



Consulting segment income increased by 22.2%, to $73 million in the six-month period ended
March 31, 2005, from $60 million in the pro forma comparable prior-year period. Consulting segment margin increased to 18.6% from 16.1%. The increase in margins was primarily due to lower incentive compensation expense of $15 million and the absence
of charges for the exit of a leased facility of approximately $3 million in the three months ended December 31, 2003. After considering these items, margins declined in the period as a result of increased compensation expense without a corresponding
increase in pricing.



44



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Liquidity and Capital Resources



We have historically funded our growth and working capital requirements with internally generated funds, leases, credit facilities and term
notes. Our change to a corporate structure in May 2002 and our initial public offering in June 2002 enhanced our ability to access public market financing to fund new investments and acquisitions, as well as to meet ongoing and future capital
resource needs.



|                                                     |      |                           |          |      |  |   |         |  
|---------------------------------------------------- | ---- | ------------------------- | -------- | ---- |  | - | ------- | -
|Summary of Cash Flows(in thousands)                  |      | Six Months EndedMarch 31, |         
|                                                     | 2005 |                           |          | 2004 | 
|Cash provided by Operating activities                |      | $                         | 109,324  |      |  | $ | 93,304  |  
|Cash provided by (used in) Investing activities      |      |                           | 175,668  |      |  |   | (69,134 | )
|Cash used in Financing activities                    |      |                           | (335,889 | )    |  |   | (9,322  | )
|Effect of exchange rates on cash                     |      |                           | 1,679    |      |  |   | 1,115   |  
|                                                     |      |                           |          |      |  |   |         |  
|Net (decrease) increase in cash and cash equivalents |      |                           | (49,218  | )    |  |   | 15,963  |  
|Cash and cash equivalents at beginning of period     |      |                           | 129,481  |      |  |   | 67,785  |  
|                                                     |      |                           |          |      |  |   |         |  
|Cash and cash equivalents at end of period           |      | $                         | 80,263   |      |  | $ | 83,748  |  
|                                                     |      |                           |          |      |  |   |         |  



Cash and cash equivalents were $80
million and $84 million at March 31, 2005 and 2004, respectively. Cash and cash equivalents decreased by $49 million, or 38.0%, in the six months ended March 31, 2005, and increased by $16 million, or 23.5%, in the six months ended March 31, 2004.
Working capital, defined as current assets less current liabilities, was $268 million and $425 million at March 31, 2005 and September 30, 2004, respectively. The decrease in working capital was primarily the result of the decision to repurchase
$300 million of our shares in the Companys tender offer (see Note 3 to the Consolidated Financial Statements  Tender Offer). This was funded through the use of our excess liquidity, including the sale of investments, cash on
hand and short-term borrowings.



For the six months ended March 31, 2005 and
2004, cash provided by operating activities was $109 million and $93 million, respectively. The increase in cash provided by operating activities was primarily due to increased collections of receivables, partially offset by higher annual incentive
compensation paid out in early 2005 for the 2004 fiscal year, compared to the annual incentive compensation paid out in the prior year.



For the six months ended March 31, 2005 and 2004, cash provided by investing activities was $176 million, and cash used in investing activities was $69 million,
respectively. The increase in cash from investing activities primarily reflects the net proceeds from the sales of short-term investments to fund the stock repurchase in the tender offer. This was slightly offset by higher expenditures for computer
upgrades and equipment including mainframe computer and disk storage upgrades and expenditures for servers and personal computers.



For the six months ended March 31, 2005 and 2004, cash used in financing activities was $336 million and $9 million, respectively. The use of cash from financing
activities in 2005 was primarily due to the repurchase of our common stock in the tender offer, resulting in shares placed into treasury.



We incur significant cash outflows for up-front implementation efforts on new outsourcing services. Specific, incremental and direct client implementation costs are
capitalized as Deferred Contract Costs and amortized over the life of the respective outsourcing arrangements. During the six months ended March 31, 2005, we capitalized, net of amortization, an additional $26.2 million of such costs. Similarly,
non-refundable implementation fees are also deferred as Deferred Contract Revenues and amortized over the life of the respective outsourcing arrangements. Historically, for most arrangements, we received up-front implementation fees for those
efforts; however, implementation fees may also be received over the ongoing services period. We have seen a shift to more of our implementation fees being recovered over the ongoing services period. Recovering less implementation costs up front
reduces our operating cash flows in periods when we enter into new outsourcing contracts.



45



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Commitments



Significant ongoing commitments consist primarily of leases and debt.



Operating Leases



We have entered into related party operating leases with FORE Holdings and its subsidiaries, Hewitt Properties I LLC, Hewitt Properties II LLC, Hewitt Properties III LLC, Hewitt Properties IV LLC, and Overlook
Associates (an equity method investment of FORE Holdings). As of March 31, 2005, all of the Companys leases with FORE Holdings and its subsidiaries were classified as operating leases. The investments in the properties owned by these related
parties were funded through capital contributions by FORE Holdings and third party debt. This debt is not reflected on the Hewitt Associates balance sheet as the obligation represented by the debt is not an obligation of, nor guaranteed by,
the Company. The future minimum aggregate lease payments on these leases totaled $428 million as of December 31, 2004.



We have been advised that FORE Holdings is in the process of selling the majority of the properties it owns to a third party. The sale is expected to close in May 2005.
Upon closing of the sale, Hewitt Associates LLC will enter into amended lease agreements. Under the amended leases, rent and lease terms remain the same. Hewitt Associates LLC has agreed to two debt covenants (minimum net worth and leverage ratio)
which already exist on our unsecured senior term notes and Hewitt Associates LLC will also waive a purchase option right with respect to the properties being sold and one other property owned by Overlook Associates. In exchange for the amended
terms, we will receive $3 million in consideration at closing. The $3 million will reduce our rent expense related to the properties over the remaining lease terms which run through March 2020.



We also have various third-party operating leases for office space, furniture and equipment
with terms ranging from one to twenty years. As of December 31, 2004, the minimum aggregate lease payments on these leases totaled $353 million.



Capital Leases



During the third quarter of fiscal 2002, we entered into two 15-year capital leases for office space. At inception of the leases, we recorded $89 million in buildings and long-term debt to reflect the long-term
capital lease obligations. Lease payments are made in monthly installments at 7.33% interest. As of March 31, 2005, the outstanding debt related to these leases was $81 million. Both leases provide for stepped rents over the lease term and options
for renewal terms. One of the leases provides us with a right of first refusal on sale of the building and the other provides us with a right of first offer to purchase the building. One of the leases, totaling approximately $23 million at March 31,
2005, was with a related party, The Bayview Trust. However, on March 7, 2003, The Bayview Trust sold the building and our lease was assigned to the third-party purchaser of the building.



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 and at various interest rates ranging from 2.455% to 7.0%. At March 31, 2005, the outstanding balance on the equipment financing agreements was $2
million.



Debt



Our debt consists primarily of lines of credit, term notes, and equipment financing
arrangements.



Variable Interest Rate Debt



We currently have two domestic unsecured line of credit facilities. The
three-year facility provides for borrowings up to $75 million. On March 29, 2005, we exercised our right to increase this credit facility to $100 million. All other terms and conditions remained unchanged. Borrowings under the facility accrue
interest at LIBOR plus 52.5-to-72.5 basis points or the prime rate, at our option. Borrowings are repayable upon demand or at expiration of the facility on September 27, 2005. Quarterly facility fees ranging from 10-to-15 basis points are charged on
the



46



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average daily commitment under the facility. If the utilization under the facility exceeds 50% of the commitment, an additional utilization fee is assessed
at a rate of 0.125% per annum. At March 31, 2005, $25,000 was outstanding on the line of credit accruing interest at 3.475%. In connection with the Exult merger, we assumed a domestic unsecured revolving line of credit facility which provides for
borrowings up to $25 million and which expires on July 31, 2005. Borrowings under the facility accrue interest at LIBOR plus 52.5 basis points or a base rate. A commitment fee of 0.125% per annum is charged on the unused portion of the facility. At
March 31, 2005, $7,355 was outstanding on the line of credit and was accruing interest at 4.33%.



Hewitt Bacon & Woodrow Ltd., (HBW) a U.K. subsidiary, has an unsecured British pound sterling line of credit permitting borrowings up to £5 million until expiration of the facility on July 31,
2005, at a current rate of 5.775%. As of March 31, 2005, there was no outstanding balance on the line of credit. On December 22, 2004, HBW entered into a £6 million term loan credit facility agreement. At March 31, 2005, HBW has drawn £6
million or approximately $11 million on the facility which is repayable in 24 quarterly installments through December 2010, and accrues interest at LIBOR plus 80 basis points. Interest is currently accruing at 5.76% at March 31, 2005.



We have a contract with a global lending institution to guarantee borrowings of our
subsidiaries up to $20 million in multiple currency loans and letters of credit. There is no fixed termination date on this contract. This contract allows Hewitts foreign subsidiaries to secure financing at rates based on Hewitts
credit-worthiness. The contract was signed August 31, 2004, and $1.4 million of the facility is used by Hewitts India office to support local letters of credit and bank guarantees. The facility provides for borrowings at LIBOR plus 75 basis
points. As of March 31, 2005, there were no borrowings under this contract.



Fixed Interest Rate Debt



Unsecured
Senior Term Notes



We have issued unsecured senior term notes to various
financial institutions consisting primarily of insurance companies totaling $131 million as of March 31, 2005. The $131 million consists of the following notes (in thousands):



|       |         |               |      |   |       |                                                                
|------ | ------- | ------------- | ---- | - | ----- | ---------------------------------------------------------------
|Amount |         | Interest Rate |      |   | Terms
|$      | 10,000  |               | 7.65 | % |       | Repayable in October 2005                                      
|       | 15,000  |               | 7.93 | % |       | Repayable in June 2007                                         
|       | 6,000   |               | 7.94 | % |       | Repayable in five annual installments which began in March 2003
|       | 40,000  |               | 7.45 | % |       | Repayable in five annual installments which began in May 2004  
|       | 10,000  |               | 8.11 | % |       | Repayable in June 2010                                         
|       | 15,000  |               | 7.90 | % |       | Repayable in October 2010                                      
|       | 35,000  |               | 8.08 | % |       | Repayable in five annual installments beginning in March 2008  
|       |         |               |      |   |       |                                                                
|$      | 131,000 |               |      |   |       |                                                                
|       |         |               |      |   |       |                                                                



Convertible Senior Notes



As part of our merger with Exult, we acquired $110 million aggregate
principal amount of 2.50% Convertible Senior Notes due October 1, 2010. On October 29, 2004, we merged Exult with and into Hewitt and became the sole obligor of the notes. The notes rank equally with all of our existing and future senior unsecured
debt and will be effectively subordinated to all liabilities of each of our subsidiaries. We recorded the notes at their estimated fair value of $102,300 at the merger date and are accreting the value of the discount over the remaining term of the
notes to their stated maturity value using a method that approximates the effective interest method.



The notes are convertible into shares of Hewitt Class A common stock at any time before the close of business on the date of their maturity, unless the notes have previously been redeemed or repurchased, if (1) the
price of Hewitts Class A common stock issuable upon conversion of a note reaches a specified threshold, (2) the notes are called for redemption, (3) specified corporate transactions occur or (4) the trading price of the notes falls below
certain thresholds. The initial conversion rate is 17.0068 shares of Hewitt Class A common stock per each $1,000 principal amount of notes, subject to adjustment in certain circumstances. This is equivalent to an initial conversion price of



47



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approximately $58.80 per share. Based upon the current conversion price, the notes will be convertible into 1,870,748 shares of Hewitt Class A common stock.



On or after October 5, 2008, we have the option to redeem all or a portion of
the notes that have not been previously converted or repurchased at a redemption price of 100% of the principal amount of the notes plus accrued interest and liquidated damages owed, if any, to the redemption date. Holders have the option, subject
to certain conditions, to require Hewitt to repurchase any notes held by the holder on October 1, 2008 or upon a change in control at a price equal to 100% of the principal amount of the notes plus accrued interest and liquidated damages owed, if
any, to the date of purchase.



Other Long-Term Obligation



We purchased certain software licenses for resale totaling approximately
$11 million under a long-term arrangement which requires periodic payments through June 2009. The related asset value was established by computing the present value of the future payments using an interest rate appropriate at the inception of the
transaction of 4.5%.



A number of our debt agreements contain financial and
other covenants including, among others, covenants restricting our 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 FORE Holdings owners,
a violation of 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 net worth of $237 million at March 31, 2005, to maintain a maximum ratio of
total debt to net worth of 0.45 to 1.00, 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 March 31, 2005, we were in compliance with the terms of our debt agreements.



Self-Insurance



We established a captive insurance subsidiary in fiscal 2003 as a cost-effective way to
self-insure against certain business risks and losses. As enacted by the Company, a captive insurance subsidiary has issued policies to cover the deductible portion of various insured exposures, including the deductible portions of our workers
compensation and professional liability insurance. The Company carries an umbrella policy to cover exposures in excess of the deductible.



We believe the cash on hand, together with funds from operations, other current assets, and existing credit facilities will satisfy our expected working capital,
contractual obligations, capital expenditures, and investment requirements for at least the next 12 months and the foreseeable future.



New Accounting Pronouncements



In December 2004, the Financial Accounting Standards Board (FASB) issued SFAS No. 123(R), Share-Based Payment, which eliminates the ability to account
for share-based compensation transactions using the intrinsic value method prescribed in APB Opinion No. 25, and generally requires that such transactions be accounted for using a fair value-based method. The SEC recently extended the effective date
of SFAS No. 123(R), such that we would begin to apply the Statement on October 1, 2005, the beginning of our fiscal year 2006. We are currently evaluating the requirements and impact of SFAS No. 123(R) on its consolidated results of operations and
financial position.



On October 22, 2004, the American Jobs Creation Act of
2004 (AJCA) became effective. The AJCA provides a temporary incentive for U.S. multinationals to repatriate accumulated earnings outside the United States by providing an 85 percent dividends received deduction for certain dividends
from controlled foreign corporations. The AJCA applies to repatriated foreign earnings in either our fiscal year ending September 30, 2005 or our fiscal year ending September 30, 2006.



In December 2004, FASB issued FASB Statement of Position 109-2 (FSP 109-2), Accounting and Disclosure Guidance for the
Foreign Earnings Repatriation Provision within the American Jobs Creation Act of 2004, which provides accounting and disclosure guidance for the repatriation provision. FSP 109-2 is effective immediately, however, we are allowed time beyond the
financial reporting period of enactment to evaluate the effect of the AJCA on its plan for reinvestment or repatriation of foreign earnings, as it applies to the application of SFAS No. 109. We



48



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plan to repatriate $3.0 million in dividends, which will result in an estimated additional $0.2 million tax liability in the quarter ended June 30, 2005.



In September 2004, the FASBs Emerging Issue Task Force
(EITF) reached a consensus on EITF Issue No. 04-08, The Effect of Contingently Convertible Instruments on Diluted Earnings per Share. The Task Force reached a conclusion that Contingently Convertible Instruments
(Co-Cos) should be included in diluted earnings per share computations, if dilutive, regardless of whether the market price trigger or other contingent feature has been met. Through September 30, 2004, EITF Issue No. 04-08 had no effect
on us. With the merger with Exult, Inc. and the assumed obligation of $102,300 of their convertible senior notes on October 1, 2004, our earnings per share computations include the convertible notes to the extent that they are determined to be
dilutive. See Note 5 for additional information on the merger with Exult, Inc.



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.



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.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Our ability to successfully manage our significant capital investments and acquisitions, including our ability to successfully integrate acquired companies.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | In our outsourcing business, early contract terminations could cause our business to be less profitable than anticipated.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



| |  |  | The demand for our services may not grow at rates we anticipate.
| | - |  | ----------------------------------------------------------------



| |  |  | The loss of a significantly large client or several clients could have a material adverse effect on our revenues.
| | - |  | -----------------------------------------------------------------------------------------------------------------



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



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------



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



| |  |  | We may be unable to recruit, retain and motivate employees and to compete effectively.
| | - |  | --------------------------------------------------------------------------------------



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



| |  |  | 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.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We have only a limited ability to protect the intellectual property rights that are important to our success, and we face the risk that our services or products may infringe upon
the intellectual property rights of others.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We rely on our computing and communications infrastructure and the integrity of these systems, and our revenue growth depends, in part, on our ability to use the Internet as a means
for delivering human resources services.
| | - |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | We rely on third parties to provide certain services and their failure to perform the service could do harm to our business.
| | - |  | ----------------------------------------------------------------------------------------------------------------------------



| |  |  | Our profitability will suffer if we are not able to maintain our prices and control our costs, including staffing costs.
| | - |  | ------------------------------------------------------------------------------------------------------------------------



49



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| |  |  | Insurance market conditions may reduce available coverage and result in increased premium costs and/or higher self retention of risks.
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our client contracts and vendor relationships may not yield the results we expect.
| | - |  | ----------------------------------------------------------------------------------



| |  |  | Our initial stockholders, many of whom are our employees, continue to hold a significant number of Hewitt shares and their interests may differ from those of our other stockholders.
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| |  |  | Our stock price may decline due to the large number of shares of common stock eligible for future sale.
| | - |  | -------------------------------------------------------------------------------------------------------



For a more detailed discussion of our risk factors, see the information under the heading Risk Factors in our Annual Report on
Form 10-K and in our most recent Registration Statement on Form S-3 (File No. 333-119576) 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 for any other reason.



|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, we may enter into foreign currency forward contracts in the future
should business conditions require. We do not hold or issue derivative financial instruments for trading purposes. At March 31, 2005, we were not 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, short-term investments and debt.



Our portfolio of cash and cash equivalents and short-term investments is
designed for safety of principal and liquidity. We invest in the highest rated money market investments and debt securities and regularly monitor the investment ratings. The investments are subject to inherent interest rate risk as investments
mature and are reinvested at current market interest rates. The investment portfolio consists primarily of fixed income securities such as commercial paper, corporate notes, asset-backed securities, U.S. treasuries and agencies and auction rate
municipal bonds. Our portfolio earned interest at an average rate of 2.96% and 2.65% during the three and six months ended March 31, 2005, respectively. A one percentage point change would have impacted our interest income by approximately $1.76
million and $0.85 million for the three and six months ended March 31, 2005, respectively.



At March 31, 2005, our unsecured senior term notes and convertible senior notes were at a fixed rate. At March 31, 2005, 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 unsecured senior term notes of $1.7 million. At March 31, 2005, 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 unsecured senior term notes of $1.6 million. At March 31, 2005, 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
convertible senior notes of $1.5 million. At March 31, 2005, 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 convertible senior notes of $1.5
million.



Our short-term debt with a variable rate consists of our unsecured
lines of credit and a term credit loan facility. We have a $75 million 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. On March 29, 2005, we exercised our right to increase this
credit facility to $100 million. All other terms and conditions remained unchanged. At March 31, 2005, $25 million was outstanding on the line of credit accruing interest at 3.475%.



50



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We acquired from our merger with Exult a domestic unsecured revolving line of credit facility which provides for
borrowings up to $25 million expiring on July 31, 2005. Borrowings under the facility accrue interest at LIBOR plus 52.5 basis points or a base rate. A commitment fee of 0.125% per annum is charged on the unused portion of the facility. At March 31,
2005, $7.4 million was outstanding on the line of credit.



Our U.K. subsidiary,
Hewitt Bacon & Woodrow Ltd., has an unsecured British pound sterling line of credit permitting borrowings of up to £5 million until expiration of the facility on July 31, 2005, at a current rate of 5.775%. As of March 31, 2005, there was
no outstanding balance on the line of credit. On December 22, 2004, HBW entered into a £6 million term loan credit facility agreement. At March 31, 2005, HBW has drawn £6 million or approximately $11 million on the facility which is
repayable in 24 quarterly installments through December 2010, and accrues interest at LIBOR plus 80 basis points. Interest is currently accruing at 5.76% at March 31, 2005.



We maintained variable interest debt with an effective interest rate of 4.64% and 5.47% during the three and six months ended March 31,
2005, respectively.



A one percentage point increase would have increased our
interest expense related to all outstanding variable rate debt, by approximately $0.05 million and $0.08 million for the three and six months ended March 31, 2005, respectively. The estimated impact on interest expense is fairly low as a significant
amount of the variable rate debt at March 31, 2005, was outstanding for a short period of time.



Foreign exchange risk



For the three
and six months ended March 31, 2005, revenues from U.S. operations as a percent of total revenues were 77.4% and 77.9%, respectively. Unrealized foreign currency translation gains (losses) were ($5) million for the three months ended March 31, 2005
and $26 million for the six months ended March 31, 2005, and were primarily due to the changes in the value of the British pound sterling relative to the U.S. dollar over the prior year. We have not entered into any foreign currency forward
contracts for speculative or trading purposes.



Operating in international
markets means that we are exposed to movements in foreign exchange rates, primarily the British pound sterling and most recently, the Canadian dollar. Approximately 12% of our net revenues for both the three and six months ended March 31, 2005, were
from the United Kingdom. Approximately 3% of our net revenues for both the three and six months ended March 31, 2005, were from Canada. Changes in these foreign exchange rates can have a significant impact on our translated international results of
operations in U.S. dollars. A 10% change in the average exchange rate for the British pound sterling for the three and six months ended March 31, 2005, would have impacted our pre-tax net operating income by approximately $0.63 million for both
periods. A 10% change in the average exchange rate for the Canadian dollar would have impacted our pre-tax net operating income by approximately $0.45 million and $0.62 million for the three and six months ended March 31, 2005, respectively.



|Item 4. | Controls and Procedures
|------- | -----------------------



Evaluation of Disclosure Controls and Procedures.



Under the supervision and with the participation of our senior management, including our chief executive officer and chief financial officer, we conducted an evaluation
of the effectiveness of the design and operation of our disclosure controls and procedures, as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the Exchange Act), as of the end of the period
covered by this quarterly report (the Evaluation Date). Based on this evaluation, our chief executive officer and chief financial officer concluded as of the Evaluation Date that our disclosure controls and procedures were effective such
that the information relating to the Company, including consolidated subsidiaries, required to be disclosed in our Securities and Exchange Commission (SEC) reports (i) is recorded, processed, summarized and reported within the time
periods specified in SEC rules and forms, and (ii) is accumulated and communicated to the Companys management, including our chief executive officer and chief financial officer, as appropriate to allow timely decisions regarding required
disclosure.



51



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Changes in Internal Control Over Financial Reporting.



There have been no changes in our internal control over financial reporting that occurred
during the quarter ended March 31, 2005 that have materially affected or are reasonably likely to materially affect our internal control over financial reporting.



PART II. OTHER INFORMATION



|ITEM1. | Legal Proceedings
|------ | -----------------



The Company is subject to lawsuits and claims arising out of the normal conduct of business. Management does not expect the outcome of pending claims to have a material adverse effect on the business, financial
condition or results of operations.



|ITEM2. | Unregistered Sales of Equity Securities and Use of Proceeds
|------ | -----------------------------------------------------------



(c) Issuer Purchases of Equity Securities



The following table provides information about Hewitts share repurchase activity for the three months ended March 31, 2005:



|                          |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|------------------------- |  | ----------------------------- |  | ------------------------------- | ----- | ---------------------------------------------------------------------------- | ---------- | ------------------------------------------------------------------------------------- | - | -------
|Period                    |  | TotalNumber ofSharesPurchased |  | Average PricePaid per Share (1) |       | Total Number of SharesPurchased as Part ofPubliclyAnnounced Plansor Programs |            | Approximate Dollar Value ofShares that May Yet BePurchased Under the Plans orPrograms
|January 1 - 31, 2005(2)   |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Class A                   |  | 625,650                       |  | $                               | 30.04 |                                                                              | 625,650    |                                                                                       | $ | 84,608 
|February 1 - 3, 2005(2)   |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Class A                   |  | 95,000                        |  | $                               | 29.92 |                                                                              | 95,000     |                                                                                       | $ | 81,766 
|February 4,  28, 2005(3) |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Class A                   |  |                              |  | $                               |      |                                                                              |           |                                                                                       | $ | 300,000
|March 1  31, 2005(4)     |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Class A                   |  | 6,662,954                     |  | $                               | 29.00 |                                                                              | 6,662,954  |                                                                                       |   |        
|Class B                   |  | 3,681,872                     |  | $                               | 29.00 |                                                                              | 3,681,872  |                                                                                       |   |        
|                          |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Total shares              |  | 10,344,826                    |  | $                               | 29.00 |                                                                              | 10,344,826 |                                                                                       | $ |       
|                          |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Total Shares Purchased:   |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Class A                   |  | 7,383,604                     |  | $                               | 29.10 |                                                                              | 7,383,604  |                                                                                       |   |        
|Class B                   |  | 3,681,872                     |  | $                               | 29.00 |                                                                              | 3,681,872  |                                                                                       |   |        
|                          |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        
|Total shares              |  | 11,065,476                    |  | $                               | 29.07 |                                                                              | 11,065,476 |                                                                                       | $ |       
|                          |  |                               |  |                                 |       |                                                                              |            |                                                                                       |   |        



|(1) | The average price paid per share for January 1, 2005 through February 3, 2005 includes commissions incurred to purchase the shares. The average price paid per share for March 1,
2005 through March 31, 2005 represents the price paid per share under the Companys tender offer and does not include any costs incurred in the tender offer. No shares were purchased during the period from March 1, 2005 through March 31, 2005
other than under the Companys tender offer.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(2) | On June 16, 2004, the Company announced that its Board of Directors authorized the Company to repurchase up to an aggregate amount of $150 million of Hewitts Class A, Class B
and Class C common stock, depending on market conditions and other customary factors, in light of the Companys cash position and expected future cash flows.
|--- | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(3) | On February 4, 2005, the Company announced that its Board of Directors authorized the replacement of the remainder of the $150 million share repurchase program previously in place
with a plan to repurchase up to $300 million of Hewitts Class A, Class B and Class C common shares, depending on market conditions and other customary factors, in the following twelve months.
|--- | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|(4) | On February 11, 2005, the Company announced that its Board of Directors had authorized the repurchase of up to 8 million shares of its Class A, Class B and Class C
common stock through a modified Dutch Auction
|--- | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



52



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| | tender offer including the right to purchase additional shares for a total repurchase of up to $300 million. The tender offer expired on March 16, 2005 and
the Company repurchased 6,662,954 Class A shares and 3,681,872 Class B shares, or 10,344,826 shares in total, at a purchase price of $29.00 per share. Upon repurchase, the Class B shares were converted into Class A shares. The aggregate amount paid
for the shares was $300 million. The Company also incurred $0.5 million of tender-related professional expenses.
| | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



|ITEM4. | Submission of Matters to a Vote of Security Holders
|------ | ---------------------------------------------------



The Companys Annual Meeting of the Stockholders was held on February 2, 2005. There were present at the meeting, either in person or by proxy, holders of
117,932,432 shares of common stock. The following persons were elected to the Companys Board of Directors as Class III directors to hold office until the expiration of their terms in 2008. The votes cast for each director were as follows:



|                  |  |             |  |          
|----------------- |  | ----------- |  | ---------
|Nominee           |  | For         |  | Against  
|Cheryl A. Francis |  | 117,614,615 |  | 317,817  
|Dale L. Gifford   |  | 117,601,030 |  | 331,402  
|Thomas J. Neff    |  | 116,549,680 |  | 1,382,752



The results of the voting on the
additional items indicated below was as follows: (a) To ratify the appointment of Ernst & Young LLP to serve as the Companys independent auditors for the fiscal year ending on September 30, 2005. The votes of the shareholders on this
ratification were as follows: For  117,493,177, Against  369,008, Abstained  70,247.



|ITEM6. | Exhibits
|------ | --------



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



|     |  |                                                                                                                                                                    
|---- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------
|     | 
|10.1 |  | Loan Agreement, between Hewitt Relocation Services, Inc. and Union Bank of California, N.A., dated January 25, 2005.                                               
|     | 
|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).



|ITEMS | 3 And 5 Are Not Applicable And Have Been Omitted
|----- | ------------------------------------------------



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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: |  | May 4, 2005 |  |                         |  | By: |  | /s/    DAN A.
DECANNIERE                    
|      |  |             |  |                         |  |     |  | Dan A. DeCanniere                           
|      |  |             |  |                         |  |     |  | Chief Financial Officer                     
|      |  |             |  |                         |  |     |  | (principal financial and accounting officer)



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